Economic Impact of Enviromental Regulations on the U.S. Copper Industry: Draft Report


DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review
DRAFT REPORT
ECONOMIC IMPACT OF ENVIRONMENTAL
REGULATIONS ON THE U.S. COPPER INDUSTRY
Submitted to
U.S. ENVIRONMENTAL PROTECTION AGENCY
Under Contract No. 68-01-2842
October, 1976
Arthur D Little, Inc

-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE OF CONTENTS
Chapter 1
SECTION I
Chapter 2
Chapter 3
Chapter 4:
Chapter 5:
Chapter 6:
Chapter 7:
SECTION II:
Chapter 8:
SECTION III:
Chapter 9:
SECTION IV:
Chapter 10:
Introduction
INDUSTRY BACKGROUND
Production and Pollution Control Technology
The U.S. Copper Industry in World Perspective:
An Overview
Industry Structure and Supply Characteristics
The Dynamics of Demand for Copper
Copper Pricing Mechanisms, Price Formation and
the Two-Price System
Financial Characteristics of the Copper Industry
and Principal Companies
ENVIRONMENTAL ISSUES FACING THE INDUSTRY
Environmental Regulations
METHODOLOGICAL APPROACH
Methodological Approach: General Orientation
and Overview of the Econometric Simulation and
Impact Analysis Model of the U.S. Copper Industry
ECONOMIC IMPACT ANALYSIS
Economic Impact Analysis
TECHNICAL APPENDIX: ECONOMETRIC SIMULATION AND IMPACT ANALYSIS OF
THE U.S. COPPER INDUSTRY
i
Arthur D Little, Inc.

-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
PRINCIPAL PARTICIPANTS IN THE STUDY
Dr. Ravindra M. Nadkarni
Senior Metallurgical Engineer; Overall Project Director
Dr. Kirkor Bozdogan
Senior Quantiative Public Policy Economist; Day-to-Day Project Manager
Raymond S. Hartman
Donal H. Korn
Chritopher W. Krebs
Mark Hollyer
Glenn R. DeSouza
Brian W. Smith
Gerald Larocque
Econometrician/Economist (Consultant)
Senior Financial Analyst
Economist
Economist
Ec onome tr ic ian
Computer Programmer
Mathematician
Supporting Services: Virginia L. Hamilton
Professor Raymond F. Mikesell
W. E. Miner Professor of Economics, University of Oregon (Eugene,
Oregon) Consultant
EPA Project Officer: Mr. Donald Fink and Dr. Douglas Hale
ii
Arthur D Little Inc

------- v^0 Sr„, ^ _ ST sew UNITED STATES ENVIRONMENTAL PROTECTION AGENCY -w f

-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CHAPTER 1
INTRODUCTION
A.	STUDY OBJECTIVE AND PURPOSE OF THIS REPORT
The objective of the current MBO nonferrous metals project under-
taken by Arthur D. Little, Inc., on behalf of the U.S. Environmental
Protection Agency (EPA) under Contract No. 68-01-2842 is to analyze the
economic impact of costs of pollution abatement requirements imposed by
Federal environmental regulations on the nonferrous metals industries
(primary copper, aluminum, lead and zinc), with principal emphasis on
the U.S. copper industry.
Accordingly, the purpose of this draft report is to present our
preliminary findings on the economic impact of environmental regulations
on the U.S. copper industry. In this report, the U.S. copper industry is
defined to encompass all stages of production from mining through refining
(mining and milling, smelting and refining).
B.	ORGANIZATION OF THE REPORT
This report is organized in terms of ten chapters and is accompanied
by a Technical Appendix, Econometric Simulation and Impact Analysis Model
of the U.S. Copper Industry, which is presented as a separate volune.
The Technical Appendix is prepared to describe in technical detail the
specification, estimation and key features of the econometric simulation
and impact analysis model of the U.S. copper industry developed by ADL
as part of this project to assess the economic impact of environmental
regulations.
1-1
Arthur D Little, Inc.

-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Chapters 2 through 9 consist of general background and methodological
approach. Economic impact results are presented in Chapter 10. Given
below is a capsule description of the contents of Chapters 2 through 9.
•	Chapter 2 provides an introduction to production and pollution
control technology in the copper industry, including a discussion
of conventional copper production technology, the pollution control
technology interfacing with this technology, and new technology
expected to be less polluting than conventional technology.
•	Chapter 3 provides a condensed and selective overview of the
international structure of the copper industry, including world
production and consumption patterns, key aspects of the copper
industry's worldwide structure, international trade patterns in
copper, and the trade relationships of the United States with
the rest of the world.
•	Chapter 4 describes the organizational structure and supply
characteristics of the domestic copper industry, including the
Industry's segmentation into primary and secondary sectors, the
firms involved, geographical and firm concentration, vertical
integration, barriers to entry, and production cost trends.
•	Chapter 5 focuses attention on the patterns of copper consumption
and the dynamics of copper demand, with reference to econometric
analyses of demand for copper.
•	Chapter 6 provides an analysis of the institutional arrangements
which characterize copper markets, the process of price formation
among firms In the Industry, and the emergence and rationale of
1-2
Arthur D Little, Inc

-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
the "two-price system" for copper which in the past has been a
dominant phenomenon in copper markets.
•	Chapter 7 analyzes the financial characteristics of principal
companies in the U.S. copper industry, including an overview
of company financial performance, a discussion of ownership
structure and inter-firm relationships, a review of the capital
needs of the major firms, and a detailed examination of trends
in debt and debt-equity ratios, the term structure of debt, and
the amount and means of pollution control financing.
•	Chapter 8 focuses on environmental regulations affecting the
copper industry, including a review of the evolution of environ-
mental legislation in the U.S., a discussion of the impact of
environmental regulations on capacity expansion in the copper
industry, and estimates of pollution control costs likely to be
faced by the industry through 1985.
t Chapter 9 provides a nontechnical discussion of the methodological
approach used to assess the economic impact of environmental
regulations on the U.S. copper industry, including a description of
the econometric simulation and impact analysis model developed for
impact assessment purposes, a discussion of various theoretical
and practical considerations associated with the model, and a
comparison of the model with other econometric models of the copper
industry.
1-3
Arthur D Little Inc

-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
C. SUMMARY OF THE CONTENTS OF CHAPTERS 2 THROUGH 9
We would like to present a condensed summary of Chapters 2 through
9 for readers who would like to develop a quick overview of the detailed
background material presented in these chapters before turning to Chapter
10—Economic Impact Analysis.
Production and Pollution Control Technology
1.	The production of copper from primary (virgin) sources involves
four stages of processing: (1) mining—where ore containing 0.6-2.0 per-
cent copper is mined; (2) beneficiation or milling—where copper-containing
minerals are separated from waste rock to produce a concentrate containing
about 25 percent copper; (3) smelting—where the concentrates are smelted
to produce 98 percent pure "blister" copper; and (4) refining—where
blister is either fire-refined or refined electrolytically to produce
99.9 percent pure cathode copper. Subsequently, cathode copper is melted
and cast into various shapes for fabrications.
2.	The major pollutants at the mining and milling stage are solid
wastes and water effluents. However, in terms of complexity and cost, the
air pollution problems of the smelters are the most important. The smelting
technology in the U.S. evolved in a framework of low energy costs and
in locations distant from sulfuric acid markets and urban population
centers. This smelting technology relies on roasters,^" reverberatory
furnaces (reverbs), and converters to product blister copper. Sulfuric
acid plants (essentially the only economical method for reducing emissions
of sulfur dioxide from smelters) operate efficiently only on concentrated
^"Roasters are employed in about 50 percent of U.S. smelters, in the other
50 percent, concentrate is fed directly into reverbs.
1-4
Arthur D Little Inc.

-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
gas streams from fluid bed roasters and converters and not on weak streams
from multiple-hearth roasters and reverbs. Thus, in conventional
smelting, only about 50-70 percent of the sulfur in the raw materials is
captured as sulfuric acid; the rest is emitted to the atmosphere.
3. In the long run, new pyrometallurgical technology would decrease
energy requirements for smelting and also increase sulfur capture to over
90 percent. However, except for electric smelting, the applicability of
these processes to impure concentrates is unproven. New hydrometallurgical
processes for sulfide concentrates are not energy efficient. Their
attractiveness derives from the fact that such plants can be built on a
much smaller scale than conventional smelters; moreover, they convert sulfur
in concentrates to forms other than sulfuric acid.
The U.S. Copper Industry in World Perspective
1.	In 1974, the United States accounted for 21.9 percent of world
refined copper production, 18.4 percent of smelter production, and 18.3
percent of mine output. By contrast, in 1964 the U.S. accounted for 31.7
percent of refined copper production, 25.4 percent of smelter production,
and 23.8 percent of mine output. The U.S. share of world consumption of
refined copper dropped from 28.8 percent in 1963 to 23.5 percent in 1974,
reflecting a relatively higher growth in demand for copper in the rest of
the world.
2.	At the mining level, copper output is highly concentrated in a
relatively few countries. Along with the U.S.—still the largest single
producer—five other countries (Canada, Chile, Zaire, Zambia, U.S.S.R.)
together accounted for 71-2 percent of total world mine output in 1974.
1-5
Arthur D Little; Inc.

-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Chile, Zambia, Peru and Zaire, the original four members of CIPEC,^
together account for about 37 percent of Free World mine production in
copper. With recent additions in its membership, CIPEC's participation
in internationally traded copper has increased to over 70 percent.
3.	Most major copper mining countries are also major smelters.
Concentration by country in copper refining, by contrast, displays a
different pattern. For example, several leading industrial countries
(e.g., West Germany, the United Kingdom, Japan), with little or no mine
production, and in many cases very little smelter production, are large
copper refiners based on imported smelted copper.
4.	During the postwar period, there has been a major change in
the ownership structure of the world copper industry. In 1947, the four
largest private mining companies accounted for about 60 percent of free-
world mine output. This declined to 49 percent by 1956 and to less than
20 percent by 1974. Meanwhile, through nationalization, the share of
government-owned enterprises in free-world mine output increased, reaching
34 percent in 1974. Moreover, governmental ownership of the copper industry
is heavily concentrated in the copper exporting countries—mainly the
CIPEC countries.
5.	A substantial portion of the world's large copper firms are
vertically Integrated from mining to refining. In the United States at
least one-third of the output of domestic copper refiners is sold to
subsidiaries, and a substantial portion of the output of Japanese and
^The Conseil Intergouvernemental des Pays Exportateurs de Cuivre (CIPEC),
also known as Intergovernmental Council of Copper Exporting Countries.
1-6
Arthur D Little: Inc.

-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
and European refiners is also sold to their affiliates. Primary producers
in North America and Japan have important fabricating operations as well.
However, refiners in Europe are only partially integrated forward, and
those in other producing countries have very little fabricating capacity.
6.	Copper processing in individual countries or areas is characterized
by a relatively high degree of concentration, which suggests an oligopolistic
industry structure. However, little can be concluded a priori about
possible implications of industry structure for industry behavior and
market competition without consideration of other market forces that affect
industry behavior.
7.	The bulk of the world's copper exports is from the developing
countries to Europe, Japan and the United States, with smaller amounts
from Canada, South Africa and Australia. The United States and Western
Europe also export refined copper, but are net importers of copper overall.
Although the United States has been virtually self-sufficient in
copper, except in certain years coinciding with military developments
or unusual "demand crunch" periods, the U.S. has been both a leading importer
and exporter of copper. This, however, may change sharply in the future,
partly as a result of the domestic environmental regulations affecting the
U.S. copper industry.
Industry Structure and Supply Characteristics
1. For the analytical purposes of this study, the domestic copper
industry has been segmented into primary and secondary sectors on the
basis of the pricing behavior of firms in the industry. By this criterion,
firms in the primary sector are those which sell the bulk of their refined
copper output (mostly refined from mined copper but also including some
1-7
Arthur D Little Inc

-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
refined from scrap) on the basis of a commonly-followed domestic producers
price. Firms in the secondary sector, on the other hand, are those which
sell their copper output, regardless of its form (i.e., whether refined
or scrap) and regardless of its origin (i.e., whether processed from
mined copper—from domestic or foreign source—or refined from scrap),
on the basis of one of several "outside market" prices.
2.	The primary sector consists of: (1) a core group of seven
large fully-integrated producers (Anaconda, Kennecott, Phelps Dodge,
1	2	3
Inspiration, Magma, Copper Range, and Asarco, ); (2) one partially
integrated firm (Cities Service Co., integrated through smelting), two
large nonintegrated independent mining firms (Duval, a subsidiary of Penn-
4
zoil Co., and Cyprus ), and many small independent firms.
3.	Through a high degree of vertical integration and firm concen-
tration, the core group of primary producers are able to exercise dis-
cretionary pricing behavior in refined copper markets. In 1974, the seven
vertically-integrated firms supplied 77.0 percent of domestic mine production
of recoverable copper in the United States (79.6 percent in 1973, a peak
year). At year-end 1975, these seven firms accounted for over 95 percent
of total U.S. smelting capacity and 85 percent of refinery capacity.
Subsidiary of Newmont Mining Corporation.
2
Of which White Pine Copper Co. (mining/milling, White Pine, Michigan) and
Quincy Mining Co. (smelting/refining, Hancock, Michigan) are subsidiaries.
3
In addition to being, in its own right, a major, fully-integrated primary
producer, Asarco also plays a pivotal role in the domestic copper industry
as a major custom/toll smelter and refiner.
4
Of which Cyprus Pima Mining Co. and Cyprus Bagdad Copper Co. are sub-
sidiaries.
1-8
Arthur D Little Inc.

-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Proiect Officer, since the document
may experience extensive revision during review.
4.	Within the secondary sector, two broad segments can be dis-
tinguished. The first comprises a small number of firms processing scrap
into secondary refined copper. Amax and Cerro have been the two most
important of these firms during most of the postwar period. These secondary
refiners sell their product at prices (explicit prices if in the open
market or implicit prices if intra-company transfers are involved) which
are more reflective of current market prices for scrap than of refined
copper prices quoted by the primary producers. They have been responsible
for an average of 12 percent of total refined copper supplied in the U.S.
each year over the period 1950-1974 and have held about 11 percent of
domestic refinery capacity during this same period.
The remainder of the secondary industry is comprised of a large number
of firms, mostly small and individually-owned, engaged in the collection,
processing, and consumption of unrefined scrap as well as in the trading
of refined copper. These include scrap dealers, ingot makers, semi-
fabricators, and merchants. Firms in this segment buy or sell unrefined
scrap directly on the basis of quoted scrap prices.
5.	The U.S. primary copper industry is characterized not only by
a high degree of firm concentration and vertical integration at the mining
through refining stages of production, but also by forward integration
beyond refining. The major domestic producers (particularly Anaconda,
Kennecott, and Phelps Dodge) are integrated forward into wire mill and
brass mill operations. However, available evidence indicates a significantly
lower degree of firm concentration at the semifabricator level than that
existing at the mining through refining stages—low enough, at least, to
1-9
Arthur D Little Inc

-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
prevent individual semifabricators from having a significant influence
on pricing or production decisions within the semifabricating industry
as a whole.
6. Barriers to entry for fully integrated operations appear to be
substantial. However, the existing high barrier to entry has apparently
had little effect in moving the discretionary pricing behavior of the
major primary producers, during the past three decades, in the direction
of implicit monopolistic pricing behavior, given the continuous threat
of long-run substitution from aluminum, among other factors.
7. Overall, real costs of refined copper production, although they
have remained stable over a relatively long period, appear to have
increased gradually during the 1950's and 1960's. Evidence exists, more-
over, suggesting a sharp real increase in some factor costs during the
past few years.
Labor productivity in the industry, meanwhile, stagnated through the
1950's and 1960's and registered an actual decline after 1971 in the face
of continued degradation of the average ore grade mined in the U.S.
This, combined with little prospect for improvements in labor productivity
over the next few years, argues in the future for rising production costs
in real terms along with increases in unit labor costs.
8. We have estimated industry-wide (aggregate) average total costs
for producing refined copper (from mining through refining) for the primary
producers in 1974 at 72c per pound (at roughly 86 percent of installed
capacity). Of that total, average fixed costs were estimated at 29
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The Dynamics of Demand for Copper
1. For purposes of analyzing market demand, it is generally accurate
to think in terms of a unified market for refined copper, copper scrap,
and copper alloy ingot. This is because each type of scrap or alloy ingot
can be processed into unalloyed refined copper at a relatively small
cost.
2. Demand for refined copper and its equivalent (e.g., copper scrap
and copper alloy ingot) is a derived rather than final demand. Semi-
fabricators demand refined copper equivalent not for purposes of final
consumption, but for use in the production of semifabricated products which
are, in turn, demanded by fabricators and end-users as intermediate in-
puts in the production of final consumer goods. Semifabricators' demand
for refined copper equivalent is thus derived from the demand of fabricators
and final consumers.
3. Among semifabricating industries in 1974, wire mills, which use
only refined copper, consumed about 47 percent of total supplies of refined
copper equivalent. Brass mills, which consume refined copper and scrap in
fairly equal proportions, accounted for about 39 percent of total con-
sumption. Ingot makers, who use almost entirely scrap, were the third
largest consumers at seven percent. Foundries, consuming predominantly
scrap, used about four percent, with powder plants and "other industries"
accounting for the remainder.
4. The major industries consuming semifabricated goods are (in
order of importance): electrical and electronics products; building
construction; consumer and general products; industrial machinery and
equipment; transportation, ordnances and accessories.
1-11
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
5. The demand for refined copper equivalent is determined by at
least three principal factors: general levels of macroeconomic activity;
the prices of refined copper equivalent; and the prices of potential
substitute goods for refined copper, such as aluminum and plastics,
relative to the price of refined copper.
6. Substitution of aluminum or another material for copper can
occur in either the short-run or the long-run. Substitution in the short
run involves no major alterations in fixed plant and equipment or changes
in product design. For the most part, this type of substitution is
limited to residential and nonresidential construction. In most cases,
the capital fixity of plant and equipment will limit possibilities for
substitution in theishort-run. As a result, substitution will only occur
when the relative price of a substitute material becomes low enough to
justify the capital costs of altering plant and equipment. In economic
terms, the long-run own-price and cross-price elasticities will be greater
than the short-run price elasticities.
Among substitute materials, it is generally agreed that aluminum has
been the most serious competitor to copper, having made the most serious
inroads in electrical conductor and heat-exchanger applications. The most
important potential instances of long-run substitution are in telephone
conductor cable and automobile radiators.
Copper Pricing Mechanisms, Price Formation, and the Two-tier Price System
1. The major institutional arrangements governing copper markets
include: two organized exchanges, the London Metal Exchange (LME) and
the New York Commodity Exchange (Comex); merchants; and, of course, the
major primary producers.
1-12
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
2. The term "outside market" Is sometimes used to describe all
trade in copper apart from domestic sales made by domestic primary pro-
ducers. As referred to in this study, the outside market encompasses the
secondary industry (including the secondary refiners), sales of U.S. and
foreign producers at other than the prevailing domestic producers price,
merchants, and transactions in physical copper on the LME and Comex.
3. In spite of a number of different pricing bases in existence,
the bulk of refined copper sales during the postwar period have been made
directly or indirectly on the basis of one of two distinct price systems.
The first is the domestic producers price, a set of nearly uniform price
quotations used by the major primary producers. The second is the LME
price, spot and forward quotations prevailing on the London Metal Exchange,
which has been used by most producers most of the time as a basis for
sales outside North America.
In general, LME price movements have been relatively volatile and
sensitive to speculative pressures and short-run shifts in supply and
demand. By contrast, the producers price has tended to change only slowly,
usually lagging significant trends in LME prices by several months.
4. The most significant characteristic of postwar copper markets
has been the existence in nine of the 27 years between 1947 and 1974 of a
two-price system for refined copper, characterized by a wide divergence
between the outside market price for copper (i.e., the LME price) and
the domestic producers price. The two-price system developed during
periods of rising or excess demand for refined copper and was brought
about when participating producers (U.S. and some foreign) chose to ration
1-13
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
their available copper supplies to customers at a price below the level
which would have cleared the market. Three distinct periods when the two-
price system was in effect can be identified as follows: (1) from late
1954 to mid-1956; (2) from January, 1964 to March, 1966; and (3) from
April 1966 to early 1970. During each period, a different combination of
foreign producers participated along with U.S. producers.
5. There appears to be no complete, simple, logical explanation or
set of explanations for the rationing behavior of the principal U.S. and
foreign producers during the periods of the two-price system.
Rationing during periods of excess demand and high copper prices (as
reflected in IME prices) is clearly inconsistent with the motive of
short-run profit maximization. The producers, however, suggest that they
have preferred in the past to forego short-run profit maximization in
order to maximize profits in the long-run by avoiding substitution away
from copper.
An alternative explanation for producer rationing suggests that
partially or fully integrated producers acted as monopolists to limit the
availability of refined copper supplies and thereby drive up the market
price at which semifabricated and fabricated goods were sold. In other
words, it is argued that by regulating supplies, they increased their
profits at the fabricating stage while foregoing short-run profit Increases
at the mining through refining stages. Such behavior, however, could
well stimulate long-run substitution as prices rose.
Neither hypothesis explains why different foreign producers par-
ticipated in the three different two-price systems. Moreover, sufficient
1-14
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
quantitative data are unavailable to fully support any of the explanations
for the existence of the two-price system.
Financial Characteristics of the Industry and Principal Companies
1. The eleven principal copper producers are publicly-owned com-
panies. The aggregate book value of their corporate assets totaled
approximately $17 billion at year-end 1975, while maiket value of their
common stocks totaled about $8 billion.
2. Overall profitability for the producers, in terms of operating
margin on sales, has declined from about 23 percent in 1967 to 19 per-
cent in 1974. Average after-tax return on stockholders' equity has been
equal to the Federal Trade Commission average for all manufacturing,
but has been characterized, on a year-to-year basis, by much greater
volatility.
3. The copper industry is capital intensive with typically more
than one dollar of assets behind each dollar of annual sales. The major
barrier to entry into the industry is the size of capital requirements.
At least $500 million (in 1974 dollars) would be required to develop a
new integrated copper producing operation from mining through refining at
current minimum efficient operating scale (100,000 short tons annually).
4. Firms are typically long-term profit maximizers, with an operative
target rate of return on investments. The expected economic lifetime of
investments is quite long. Such investment is rendered highly risky because
of crucial dependence for success on the price of copper, which has been
highly volatile in the past. Consequently, joint ventures, which constitute
a means of diversification and pooling of risks, have become quite common
in the industry.
1-15
Arthur D Lit tie, I nc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
5. Several of the major copper producers are involved In the pro-
duction of lead and zinc, and others are aluminum fabricators. A number
of producers participate jointly in foreign copper mining companies,
notably in Africa, Canada, and South America; these companies derive
20-25 percent of total sales, and a higher percentage of their after tax
earnings, from foreign operations.
6. Capital expenditures by most companies increased sharply in
recent years. About 25 percent of total industry capital expenditures
have been for pollution abatement, mostly associated with SO2 control at
smelters. About 60 percent of the total for productive investment repre-
sents investment in mining and milling capacity. Aggregate capital
expenditures have averaged about 12 percent of gross plant in recent
years; this is about three times the level of depreciation charges.
7. The cash-flow position of most companies has deteriorated in
recent years, with a consequent increase in external financing requirements.
While overall debt for the copper producers has approximately doubled
during the past five years, equity has increased by less than 35 percent.
As a result, debt-equity ratios for most companies have increased signifi-
cantly. Some companies are believed to have temporarily reached prudent
limits to debt in their capital structure, and, as of 1975, awaited higher
earnings and stock prices to restore balance and financing flexibility.
Environmental Regulations
Of all the environmental regulations affecting the four segments
of the domestic copper industry, air pollution regulations affecting
smelters are the most important in terms of cost and potential impact.
1-16
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The copper industry has traditionally increased smelting capacity via small
expansions at existing smelter locations. The construction of smelters in new
locations ("grass roots" smelters) or similar major expansions, have been rather
the exception and not the rule in the past. The lead time required for plan-
ning, engineering, construction, shake-down and start-up for small expansions
at existing sites is about three years while that for new grass roots smelters
is about seven years. The Clean Air Act requirements (as interpreted by EPA)
do not allow small expansions of the type used traditionally by the industry.
While there are some uncertainties, the regulations do allow the construction of
NSPS calibre smelters in new or existing smelter locations. At the present time,
we are not aware of any major smelter construction projects that are under active
consideration. Thus, given the time lags in the system, new capacity will not
come on-stream until 1984.
The detailed findings from Chapter 8 are summarized below:
1. Small smelter expansions (which could occur prior to 1983) are not
possible because emissions from a plant cannot increase above the limit defined
by applying "Reasonably Available Control Technology" (RACT). Even if such a
RACT limit did not exist the "Modification and Reconstruction Provisions" of
the New Source Performance standards would prevent any significant modification
of existing reverbs necessary to increase smelting capacity.
2. Existing RACT smelters could expand significantly after 1983 by in-
stalling new smelting technology but by operating under the RACT Limit. There is
some concern that such expansion might be disallowed under New Source Review.
The probability of such disallowance is very low and we assume that this type
of expansion will occur after 1983.
3. Existing BACT smelters have a low expansion potential since they cannot
use SCS and they are already close to the constant emission control limitations.
1-17
Arthur D Little, Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
4. "Grass roots" smelters for clean concentrates have to use Best Avail-
able Control Technology (BACT), such as autogeneous or electric smelting and
therefore cannot use SCS. These smelters would meet NAAQS by using tall stacks
for dispersing collected emissions. We assume that this type of expansion will
occur after 1983. While reverb-based smelters are allowed for smelting impure
concentrates, such smelters cannot be built in most locations since SCS is not
allowed. This is because SCS is usually necessary to reverb-based smelters for
meeting NAAQS. However, there is no demand for smelting capacity of this type.
5. All smelters (reverb-based smelters as well as new smelters based on
the Best Available Control Technology) might exceed NAAQS in the vicinity of
the smelter as a result of low level fugitive emissions. It it not clear whether
SCS can be a useful strategy for dealing with the fugitive problem. This problem
could be dealt with by acquiring land in several kilometer radius around a
smelter. Such a strategy is probably impossible for existing smelters but could
be feasible for new "grass roots" smelters in remote locations. We assume that
this potential problem will be resolved without major cost consequences to the
industry.
6. While the capacity bottleneck in copper smelting is essentially the
result of various environmental regulations, the Industry also faces other regu-
lations that affect its production costs and potentially interrupt its planning
process. Examples Include proposed Occupational Safety and Health Administration
(OSHA) regulations on handling of explosives in open pit mines and on the use of
engineering controls for abating noise and inorganic arsenic emissions in the
work-place environment.
Methodological Approach to the Economic Impact Analysis
1. The general methodological approach adopted in this study to
assess the industry-wide economic impact of environmental regulations can
be charcterlzed as the development of a dynamic nonlinear simultaneous-equation
1-18
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
econometric simulation model of the U.S. copper industry. The model is
designed, estimated and programmed to simulate the industry's growth and evo-
lution annually over the impact analysis period (1976-1985) under alternative
scenarios (baseline conditions, as well as alternative environmental policy
scenarios).
2. Very briefly, the model consists of two basic components:
• The Market Clearing Module, and
• The Investment Module.
The Market Clearing Module, which consists of thirteen (13) simul-
taneous equations, simulates every year the production and pricing behavior
of the major producing groups in the industry, the inventory behavior of
the major participants in the industry, the demand behavior of the users
of copper and balance of trade effects. The market is cleared in each year
through materials balancing and price equilibrium equations.
The Investment Module serves as the year-to-year "transit" connecting
the solutions of the Market Clearing Module for successive years, by
simulating how smelting/refining capacity changes over time. Smelting/
refining capacity changes are estimated, then translated into total fixed
costs (along with increases in total fixed costs due to mining and milling
investment, pollution abatement investment, etc.). These are then built
into the cost functions of the primary producers.
Since mining and milling investment decisions typically require profita-
bility considerations extending over quite a long time-horizon (typically
25-30 years), the model treats such investment as exogenous. However,
capacity expansion and replacement investment at the smelting and refining
level is made endogenous. Pollution abatement investment, as well as
1-19
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
pollution-abatement related increases in variable costs enter the model
exogenously.
3. Once the model is solved for the entire period (e.g., 1974-
1985 or 1974-1990), external checks are performed on the model's results,
focusing directly on the industry's overall financial performance.
Exogenously specified mining and milling investment behavior is analyzed
in terms of various measures of profitability, given the price forecasts.
Likewise, overall cash-flow and flow-of-funds (sources vs. uses) analyses
are performed, by analyzing financial data computed directly from the
model's results, as well as on the basis of detailed historical industry-
wide and specific company-by-company financial data. The results of this
procedure can, in principle, be internalized.
4. The model has both a linear and a nonlinear version. The nonlinear
version of the model, which represents a more reasonable approximation
of the variables and relationships being modeled, is by far the more
useful analytical system. In the linear case, for example, demand curves
may Intersect cost or supply functions beyond capacity. By contrast, in
the nonlinear case, cost and supply functions appear to model reality
much more accurately, beginning to rise at around 86 percent of installed
capacity (smelting/refining capacity) and continuing to rise very steeply
beyond this region as physical capacity is approached.
5. The structure of the domestic copper industry has been
characterized basically in terms of a core group of oligopolistically-behaving
primary producers surrounded by a "workably" competitive fringe of
secondary refiners, producers/sellers of non-refined scrap, and merchants
(i.e., the outside market).
1-20
Arthur D Little: Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Although the model specifically deals with both the primary producers
and with the secondary copper industry (and the interaction between the
two sectors), its major focus in directed at the primary producers,
with careful attention paid to their discretionary price and output
behavior.
6. In a competitive industry or industrial sector, industry-wide
price and output levels will be determined at the intersection of supply
and demand curves. No member of a competitive sector can affect price;
they are all price-takers. Short-run production decisions on the part
of a given firm are made by comparing market price with production costs
along the marginal cost schedule. In oligopolistic markets,^" deterministic
market solutions, based upon supply and demand functions, are no longer
possible (a "supply function," by definition, does not in fact exist in
such markets). The reason, is, of course, that members of an oligopolistic
industry are price-setters (i.e., they can exercise discretionary pricing)
rather than price-takers as under perfect competition.
Given that inevitably a range of possible price and output outcomes
can be expected in oligopolistic markets purely on theoretical grounds,
we have chosen to "bound" the "solution space" of possible (and most
plausible) outcomes analytically in our own modeling work. The pricing
Hie should make it clear, for the general reader, that the term "oligopoly"
or "oligopolistic" covers a wide spectrum of markets, technically speaking,
between the polar conditions of perfectly competitive markets in one
extreme and monopolistic behavior in the other.
In our purely technical usage of the terms "oligopoly" or "oligopolistic,"
we refrain from even remotely rendering any value judgment on the behavior
of the firms involved. We are not unaware of the fact that these terms,
common as they are among economists as purely technical constructs, have
semmingly gained among businessmen a certain pejorative connotation. None
is intended by our use of these terms.
1-21
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
strategies or modes of pricing behavior utilized in the model for analyzing
the primary producers identify, first, the "most likely" or "normal"
pricing behavior of the primary producers in a given year and, second,
define reasonably solid bounds around that "most likely" or "normal"
pricing behavior.
This approach enables us to examine or measure the industry impacts
both at what might be called extreme points and at points "in-between"
(principally at the "most likely" solution point, based on average cost
pricing behavior). This is what we mean by a parametric approach: we
effectively define the parameters (outer boundaries) of possible
outcomes and assess the sensitivity of the impact results to variations
in behavioral parameters.
1-22
Arthur DLittfclnc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CHAPTER 2
PRODUCTION AND POLLUTION CONTROL TECHNOLOGY
A. INTRODUCTION AND SUMMARY
In this chapter, we discuss the conventional technology for producing
copper, the pollution control technology which interfaces with the former
in order to reduce emissions and new technology which is likely to be
less polluting than conventional technology.
The production of copper from primary (virgin) sources, involves
four stages of processing: mining—where ore containing 0.6-2% copper is
mined; beneficiation or milling—where copper-containing minerals are
separated from waste rock to produce a concentrate containing about 25%
of copper; smelting—where the concentrates are smelted to produce 98%
pure "blister" copper and refining—where blister is refined electrolytically
to produce 99.9% pure cathode copper. Subsequently, cathode copper is
melted and cast into various shapes for fabrication.
In order to minimize transportation cost, mills are located close to
the mines. The concentrates are sufficiently high in value to allow some
flexibility in smelter location. Most smelters are located near the mills
or on tide water or rail head. Refineries can be located anywhere between
smelters and fabricators.
Considerable quantities of copper scrap are recycled by melting and
refining by the primary producers, and by the producers of alloyed and
unalloyed copper ingot.
2-1
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The major pollutants at mining and milling stage are solid wastes
and water effluents. However, in terms of complexity and cost, the air
pollution problems of the smelters are the most important. The smelting
technology in the U.S. evolved in a framework of low energy costs and
in locations distant from sulfuric acid markets and urban population
centers. This smelting technology relies on roasters (optional), reverbs
and converters to produce blister copper. Sulfuric acid plants (essentially
the only economical method for reducing emissions of sulfur dioxide from
smelters) operate efficiently only on concentrated gas streams from fluid
bed roasters and converters and not on weak streams from multiple-hearth
roasters and reverbs. Thus, in conventional smelting, only about 50-70%
of the sulfur in the raw materials is captured as sulfuric acid and the
rest emitted to the atmosphere.
In the long run, new pyrometallurgical technology would decrease
energy requirements for smelting and also increase sulfur capture to over
90%. However, except for electric smelting, the applicability of these
processes to inpure concentrates is unproven. New hydormetallurgical
processes for sulfide concentrates are not energy efficient. Their
attractiveness derives from the fact that such plants can be built on a
much smaller scale than smelters and they convert sulfur in concentrates
to form other than sulfuric acid.
B. PRODUCTION TECHNOLOGY
Production of primary copper involves four basic activities: mining,
milling, smelting and refining. Refined copper is then fabricated for
various end-use markets. The four stages of primary production are:
2-2
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction ot this material without first
contacting the EPA Proiect Officer, since the document
may experience extensive revision during review.
• mining—where ore containing 0.6-2% copper is mined;
• beneficiation—where the copper-containing minerals are separated
from waste rock to produce a concentrate containing about 25%
copper;
• smelting—where concentrates are melted and reacted to produce
98% pure "blister" copper; and
• refining—where blister copper is refined electrolytically to
produce 99.9% pure cathode copper. Some of the new hydro-
metallurgical processes combine the functions performed by
smelting and refining.
A generalized flowsheet of copper processing is shown in Figure 1.
Because previous ADL reports and the published literature*" contain
detailed information on copper technology, only a brief summary is
presented here.
1. Mining
Mines are the source of copper bearing materials found near the
surface or deep in the ground. About 85% of the total copper ore mined
comes from open pits, where ore is removed from the surface rather than
from underground workings; the rest comes from underground mines. Under-
ground mining methods for copper ores involve caving and/or cut-and-fill
mining.
*"See, for example, two previous reports prepared by Arthur D. Little, Inc.
(ADL) for U.S. Environmental Protection Agency (EPA): Economic Impact
of Anticipated Pollution Abatement Costs—Primary Copper Industry (1972)
and Economic Impact of New Source Performance Standards on the Primary
Copper Industry: An Assessment (October, 1974).
2-3
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
FIGURE 1
GENERALIZED FLOWSHEET FOR COPPER EXTRACTION FROM SULFIDE ORES
Waste
~ Rock
to Dump
MINING
Water &
Reagents
Ore
0.6-1.5% Cu
BENEFICIATION
Tailings
to Pond
Fuel
Flux
Air
Concentrate
25% Cu
Matte
Acid
Plant
gases
SMELTING
20-45% Cu
Slag
Gases
to Stack
Slag to
Dump
Copper
98-99%
Sulfuric
Acid
Anode
Mud
Electrolytic
Refining
Reductant
REFINING
Copper
Cathodes
99.9% Cu
Air
Fire-Refined
Copper
Converter
Grinding
Ore
Deposit
Crushing
Flotation
Fire-Refining
Reverberatory
Furnace
2-4
Arthur D Little Inc
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
2. Beneficiation
From a processing viewpoint, copper ores can be classified in three
categories: sulfide ores, native copper ores, and oxide ores. Each
category requires different beneficiation processes.
A sulfide ore is a natural mixture containing copper-bearing sulfide
minerals, associated metals, and gangue minerals (e.g., pyrites, silicates,
aluminates) that at times have considerable value (e.g., molybdenum,
silver, gold, as well as other metals).
The sulfide ores are treated primarily by crushing, grinding, and
fcoth flotation to produce a concentrate (or several concentrates) of
sulfide minerals; worthless gangue is rejected as tailings. Generally,
only sulfide ores are amenable to concentration procedures. The output
of this benefication process, concentrate, may contain 11-32 percent
copper. Mine/mill output is typically defined in terms of recoverable
copper content in concentrate form.
In native copper ores copper occurs in metallic form. The Lake Superior
district in Michigan is the only major source of ore in this type. Although
the reserves of this ore are extensive, they contribute only a small portion
of the total U.S. mine production of copper.
Finally, the non-sulfide, non-native ores of copper are termed "oxide"
ores, the oxide copper content being measured by and synonymous with solu-
bility in dilute sulfuric acid. An "oxide" copper ore can contain copper
oxide, silicate or carbonate minerals and gangue. In the Southwest United
States, many deposits have a capping of oxide ore below which is a
transition zone of various mixtures of oxidized and sulfide copper minerals
2-5
Arthur D Little, Inc
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
and then the primary sulfide deposit. The oxide ores have been treated
metallurgically in a variety of ways, the character of the gangue minerals
having a very important bearing on the type of metallurgical treatment
used. Oxide ores in the U.S. are treated primarily by leaching with
dilute sulfuric acid. Copper is recovered in metallic form from leach
solution by precipitation on iron scrap (cementation) or by electrowinning
from the solution.
Commonly associated with copper are minor amounts of gold, silver,
lead, and zinc, the recovery of which can improve mine profitability.
Molybdenum, lead and zinc are recovered as sulfides by differential flotation.
Minor amounts of selenium, tellurium, and precious metals are extracted in
electrolytic refining. On the other hand, arsenic, antimony and bismuth
in the ores cause problems in standard pyrometallurgical processing and
electro-refining, and thus their presence results in a cost penalty.
Nickel and cobalt can interfere with electrolytic refining, but they do
not occur in significant amounts with the U.S. copper deposits.
3. Smelting
Because most U.S. copper is extracted from low-grade sulfide ores
requiring concentration, current pyrometallurgical practice for recovery
of copper is fairly uniform from smelter to smelter and is adapted to
treating fine grained sulfide concentrates consisting mainly of copper
and iron sulfides and gangue.
Copper's strong affinity for sulfur and its weak affinity for oxygen
as compared with that of iron and other base metals in the ore form the
basis for the three major steps in producing copper metal from sulfide
concentrates; roasting, smelting and converting. About half of the copper
2-6
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review
smelters roast their charge prior to feeding to the reverberatory (reverb)
furnace (calcine smelting), while the other half feed the concentrates
directly (green feed or green charge smelting). The subsequent steps
consist of melting the charge in the reverberatory furnace to form matte,
a mixture of copper and iron sulfides and a slag. The slag is discarded;
the matte is oxidized in converters to blister copper.
4. Refining
The blister copper produced by smelting is too impure for most appli-
cations and requires refining before use. It may contain silver and gold,
and other elements such as arsenic, antimony, bismuth, lead, selenium,
tellurium, and iron. Two methods are used for refining copper—fire refining
and electrolysis. Electrolytic copper is refined by electrolytic deposition,
remelted, and cased in commercial shapes, while fire-refined copper is refined
by using only a pyrometallurgical furnace process.^"
"From the producers' point of view, the distinction between electrolytic and fire
refining stems from the nature of the impurities present in the blister copper.
If the blister copper contains substantial quantities of the precious metals
(e.g., gold, silver, and the metals of the platinum group), it will be electro-
lytically refined and the precious metals recovered. If, however, the blister
copper has a low precious metal content, it will be fire refined. Most of the
world copper production of primary or mined copper is electrolytically refined.
Fire refined copper is generally slightly less pure than the electrolytic copper
and therefore cannot be used in applications which require high conductivity; in
particular, wire mills generally cannot substitute fire refined copper for
electrolytic copper. Most electrolytic copper is sold to wire mills and most
fire refined copper is sold to foundries and brass mills, but, foundries and
brass mills can use electrolytic copper (which is slightly more expensive), and
high conductivity fire refined copper (HCFR) can be used at wire mills in place
of electrolytic copper.
The process of casting copper gives rise to another set of distinctions arising
from the fact that molten copper has a fairly high affinity for oxygen. During
the process of casting, cuprous oxide will form is oxygen is available
and the copper properties are affected by the amount of curpous oxide present.
"Oxygen-free copper" is refined copper cast under a deoxidizing atmosphere that
eliminates all cuprous oxide without using metallic or metalloidal deoxidizers.
Deoxidized copper is refined copper freed from cuprous oxide through use of
metallic of metalloidal deoxidizers. "Tough pitch copper" is electrolytic or
fire-refined copper cast in refinery shapes and containing a controlled quantity
of oxygen in cuprous oxide. The terms "electrolytic" and "fire refined," when
used alone, generally refer to either electrolytic or fire-refined tough-pitch
copper without elements other than oxygen present in significant quantities.
Arthur I) Little,Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The fire-refining process employs oxidation, fluxing and reduction.
The molten metal is agitated with compressed air, sulfur dioxide is
liberated and some of the impurities form metallic oxides which combine
with added silica to form a slag. Sulfur, zinc, tin, and iron are almost
entirely eliminated, and many other impurities are partially eliminated
by oxidation. Lead, arsenic, and antimony can be removed by fluxing and
skimming as a dross. After the impurities have been skimmed off, copper
oxide in the melt is reduced to metal by inserting green wood poles below
the bath surface (poling). Reducing gases formed by pyrolysis of the pole
convert the copper oxide in the bath to copper. In recent years, reducing
gases such as natural gas or reformed natural gas have been used. If the
original material does not contain sufficient gold or silver to warrant its
recovery, or if a special purpose silver-containing copper is desired, the
fire-refined copper is cast directly into forms for industrial use. If it
is of such a nature as to warrant the recovery of precious metals, fire
refining is not carried to completion but only far enough to insure homo-
genous anodes for subsequent electrolytic refining.
A major portion of U.S. blister output is electrolytically refined.
In electrolytic refining, anodes and cathodes (thin copper starting sheets)
are hung alternately in concrete electrolytic cells containing the electro-
lyte which is essentially a solution of copper sulfate and sulfuric acid.
When current is applied, copper is dissolved from the anode and an
equivalent amount of copper plates out of solution on the cathode. Such
impurities as gold, silver, platinum-group metals, and the selenides and
tellurldes fall to the bottom of the rank and form anode slime or mud.
2-8
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Arsenic, antimony, bismuth, and nickel enter the electrolyte. The electro-
lyte has to be treated to prevent the buildup of these impurities since
they would have a deleterious effect on cathode purity. After the plating
cycle is finished, the cathodes are removed from the tanks, melted, and
cast into commercial refinery shapes. Anode scrap is remelted to form
fresh anodes. The copper produced has a minimum purity of 99.9%.
C. FORMS OF COPPER
Both electrolytic and fire refined copper are sold in two basic classes
of refinery shapes: regular or standard shapes (consisting mainly of hori-
zontally case wirebars, cathodes, ingots, and ingot bars, cakes, slabs and
billets). The shapes are largely determined by the requirements of the
fabricators' equipment.^
1The American Society for Testing Materials (ASTM) defines refinery shapes
as follows:
Wire bar: refinery shape for rolling into rod (and subsequent drawing
into wire), strip, or shape.
Approximately 3-1/2 to 5 in. square in cross-section, usually from 38 to
54 in. in length and weighing from 135 to 420 lb. Tapered at both ends
when used for rolling into rod for subsequent wire drawing and may be
unpointed when used for rolling into strip. Cast either horizontally
or vertically.
Cake: refinery shape for rolling into plate, sheet, strip, or shape.
Rectangular in cross section of various sizes. Cast either horizontally
or vertically, with range of weights from 140 to 4,000 lb. or more.
Billet: refinery shape primarily for tube manufacture. Circular in
cross-section, usually 3 to 10 in. in diameter and in lengths up to
52 in.; weight from 100 to 1,500 lb.
Ingot and Ingot Bar: refinery shapes employed for alloy production
(not fabrication).
Both used for remelting. Ingots usually weigh from 20 to 35 lb. and ingot
bars from 50 to 70 lbs. Both usually notched to facilitate breaking into
smaller pieces.
Cathode: unmelted flat plate produced by electrolytic refining. The
customary size is about 3 ft. square and about 1/2 to 7/8 in. thick,
weighing up to 280 lbs.
Copper Powder: finely divided copper particles produced by electrode-
deposition.
2-9
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
For analytical purposes, the 40 distinct types of refined copper
classified and graded by the American Society for Testing Materials (ASTM)
can be collapsed into "refined copper" as a generic category, for two
reasons. First, fabricators can to some extent substitute the various
types of copper. For example, brass mills and foundries are fairly
flexible. Second, copper producers possess the flexibility to produce
more of one form and less of another. In the short run, both producers
and fabricators have much less flexibility. However, for periods greater
than six months there appears little reason to recognize distinctions among
various types of refined copper in explaining the behavior of the market
for refined copper. Further, market institutions indicate that it is
reasonable to work in terms of refined copper, since a considerable degree
of flexibility is allowed in substituting one type of copper for another
and the producers' price for various types of copper is generally stated
in terms of a differential from the price of electrolytic copper wirebars.
D. THE SECONDARY INDUSTRY
The term "primary metal" refers to metal recovered from ores or virgin
sources. The term "secondary metal" came into wide use before it had
acquired a singular meaning and still carries misleading connotations.
It is important to recognize that "secondary" pertains only to origin and
not to quality. That is, secondary refined copper is phycially equivalent
to a corresponding grade of virgin refined copper. The term means only
that the copper was recovered from scrap rather than from copper ore.
Secondary copper loses its identity, except statistically, as soon as it
is produced. It is not possible, for example, to determine whether a
2-10
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review
copper wirebar was derived from the scrap charged to a converter, or
whether a brass ingot is made from remelted brass scrap or primary alloys.
There are three major categories of scrap users: primary producers,
producers of unalloyed copper ingot and producers of alloyed copper ingot.
The primary industry will purchase scrap for process reasons (e.g., cooling
of converters) and also to supplement the production from primary sources.
The producers of unalloyed and alloyed ingots are labelled the secondary
copper industry.
The secondary copper industry utilizes a variety of processes to
melt and refine copper scrap. Melting units include blast furnaces, reverba-
tory furnaces and electric furnaces. Refining is achieved via fire-refining
or electrolytic refining. Often, product specifications are reached by
diluting lower grade secondary copper with purer grades in order to
minimize the need for refining.
Copper scrap, as a generic term, refers to a variety of materials.
There are five classifications of unalloyed copper scrap and over 30
classifications of copper base or alloyed scrap. Some types of scrap are
virtually pure copper, while other types are alloys, or mixtures of
alloys with copper contents ranging down to as little as 30 percent. Refinery
slags, dross, skimmings and ash, which sometimes have even low copper con-
tents, are regarded as secondary material, although technically they are not
scrap copper. Small quantities of copper are also recovered from non-
copper-base scrap.
Finally, copper alloy ingot, which refers to alloys of copper and
other metals, consists of "yellow brass" and other distinctive types of
alloyed copper scrap used by fabricators (primarily by foundries) as a
2-11
Arthur D Little, Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
convenient way of arriving at a fabricated product made of a particular
alloy. Rather than purchasing pure constituent metals, making the alloy
and then fabricating it, a fabricator may find it convenient to purchase
one of the many types of copper alloy ingots. These are convenient to
supply, as alloy ingot is generally recovered from copper scrap already
alloyed with one or more of the desired constituents. Producing an alloy
from an alloy usually requires only melting, testing and some dilution.
E. POLLUTION CONTROL TECHNOLOGY
1. Introduction
The major pollutants at the mining and milling stage of production are
solid wastes and water emissions. Except for dust emissions, air pollution
is not a problem. Of all the environmental regulations affecting the
four segments of the domestic copper industry, the air pollution regulations
affecting the smelters are the most important. The two pollutants of
major concern at this time at the primary copper smelting stage of pro-
duction are air borne particulates and sulfur dioxide (SO2)• Described
below is the process technology required for pollution control.
2. Pollution Control Technology for Conventional Smelting
At conventional copper smelters, both particular and SO2 pollutants
are generated at several individual sources, with distinctive characteristics
for the off-gas or emissions at each source. For each of these polluting
streams, many factors determine which of the basic abatement methods (or
combinations) can best be used. There are two principal methods by which
pollution abatement is accomplished: physical removal of the pollutant from
the carrying stream before discharge to the environment and subsequent
2-12
Arthur D Little, Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
non-polluting disposal of the pollutant, or actual reduction in the
amount of pollutant generated by the process. If pollution is defined
and measured in terms of concentration levels in the local ambient air
(or receiving water bodies), a third abatement method is to increase
the amount of final dilution in the local environment.
Figure 2 is a schematic flow diagram of the conventional smelting
and refining process. The emission sources of pollutants are shown in
four categories: air, solid, water and fugitive. The latter are air
emissions that come from diffuse sources. Table 1 shows the magnitude
of these streams and the major constituents.
3. Air Pollution
Existing copper smelters have to meet Federal Ambient Air Quality
3 3
Standards for particulates (50 mg/m ) and sulfur oxides (80 mg/m —primary;
annual mean). New copper smelters have to meet New Source Performance
Standards in addition. At present there are three methods in use at copper
smelters for reducing the sulfur dioxide concentrations in the vicinity of
a smelter. These are: the production of sulfuric acid by the contact
process from concentrated gas streams; the use of a tall stack to disperse
dilute gas streams; and production curtailment. (See Chapter 8 for a
discussion of the many regulations on pollution control requirements).
The contact sulfuric acid process is well established for treating
S02~containing off-gases from metallurgical plants. Modern contact acid
plants require at least 4.5-5% sulfur dioxide in the feed gas in order to
operate autogenously, i.e., without external fuel. For handling lower
concentrations of SO2 an additional fuel input is required. The acid plant
2-13
Arthur D Little, Inc
-------
Concentrate
Recycled Dust
Dust
r ~ — "I
I Optional
Roasting
L _ _J
Reverb
Smelting
Gas Cooling
&
Dust Catching
_£aa_
Matte
Slag
© ©
Slag
Converting
©
Blister
Dust Bleed
Gas
Cooling
Cold Gas
Cleaning
Gas Cooling
Acid Plant
© ©
Stack
-©
Anode Furnace

\
f

Casting
©

Electrolytic
Refining
0
>
t
\jy
'©
»2so,
Stack
3 8 -g O
3 = o 30
™ S? § >
S a S 2
* .2 § ¦
(O
1' -
Q
3
(A "XJ
S" 2.
_ S
"5 H
O 3*
^ «
o
3
2 O
_
if
3
CD
Q.
CD
O 2
3 -
Electrolytic
Copper
FIGURE 2
SOURCES OF EMISSIONS IN CONVENTIONAL COPPER SMELTING AND REFINING
CL
c ;
3 =;
CO 3
CO
<
Effluent Types: - Air; - Water; (S) - Solid Wastes; ^ - fugitive
2
3 §•
fi) o
5 3
s o~
¦ ft
S §
f* o
rr
-------
TABLE 1
EMISSIONS FROM CONVENTIONAL SMELTING
to
I
S tream
• Air Pollution
A-l - Reverb Gas
A-2 - Acid Plant Tail Gas
A^-3 - Anode Furnace Gas
• Water Pollution
W-l - Slag Granulation
W-2 - Acid Plant Blowdown
W-3 - Contact Cooling
W-4 - Black Acid Bleed
• Solid Wastes
S-l - Reverb Slag
S-2 - Dust Bleed
Stream Size
82,000 SCFM
38,800 SCFM
NA
50,000 liters/kkg
14,000 liters/kkg
7,800 liters/kkg
700 liters/kkg
3 tons/ton Cu
0.3 tons/ton Cu
Major Constituents
SO^: 1-2%; 05%; Particulates: 50 yg/NM"
SO^: 0.2%
Flue Gas, Some SO-
TDS, SSS
TDS, TSS, Acidity
TDS, TSS
Acidity, TDS, TSS
Iron Silicates
Copper Oxides, Minor Elements
% §
x a
P

3
c/»
I o
3 o
<
5 o
o
3 —
Q_ 8
C ^
5' —
(O 3
3 8
<
c °
o 5
fit >
T1
O H
3 3D
O HI
"D
o
CD 3J
^ H
° I
c H
O 3"
CO
§ a
0}
o S"
B 8
3 §
5 3
s o-
o
* §
-~ o
zr cd
8 1
-h <=
n c
S 8
>
zr
c
-i
D
r
IE
R
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
size is primarily a function of the volume of gas handled. Hence, for a
constant acid output, an acid plant operating on more dilute gases is
much larger (and more expensive) than an acid plant operating on more
concentrated gases. With the currently used vanadium pentoxide catalysts,
the upper level of concentration in the feed gas to an acid plant is
between 7 and 9%. Gas streams more concentrated than this require dilution.
The tall stack discharges sulfur dioxide at such heights that the gas
is diluted when dispersed into the lower atmosphere. It is possible to
add preheated air into the stack to achieve additional dispersion and
dilution. Because tall stacks can achieve dispersion and dilution when
used in conjunction with other means of limiting emissions, there is no
simple relationship which can predict ambient concentrations as a function
of percent sulfur recovery. Computer modeling has to be used for this
purpose. The overall control strategy has to be well defined and local
weather patterns have to be considered.
The third method for controlling sulfur dioxide concentrations at
ground level is production curtailment when adverse weather conditions
prevail. This method has been referred to as "closed loop control" or a
Supplementary Control System (SCS) when it is based on the monitoring of
sulfur dioxide concentrations at ground level at various sites in the areas
surrounding the smelter and using this information to control the smelter
operating rate. When ground level concentrations increase as a result
of adverse weather conditions, the smelter operation is curtailed to reduce
the emission rate.
2-16
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Most copper concentrates contain more sulfur than copper, e.g., 31%
sulfur and 25% copper. About 1 to 2% of the sulfur entering the smelter
is lost in the slag and perhaps 3-5% evolves as fugitive emissions. The
remaining sulfur is in gaseous effluents from roaster, reverb and con-
verters. Typical sulfur distributions in conventional smelting are:
Sulfur Distribution - Percent
Calcine Smelting Green Charge Smelting
Roaster 20
Reverb 25 40
Converter 50 55
Slag and Fugitives 5 5
Total 100 100
The conventional smelting process evolved in geographical areas where
acid markets were unavailable and all SO2- containing gas streams were
vented to the atmosphere (after particulate control, if necessary). Thus,
conventional technology used gas-handling techniques (for example, dilution
air for cooling of converter gas) which would not be used if the stream
were to be treated for SO2 recovery. However, streams from the roaster and
converted can be handled to minimize air leakage. This results in SO2
concentrations over 4-5% which is adequate for autogenous (i.e., without
using an external heat source) sulfuric acid manufacture—the most cost-
effective control technology for removing SO2 from such streams. The
reverb gases are a high volume (up to 100,000 SCFM) and low concentration
2-17
Arthur D Little. Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
(0.5-2% SO^) stream, not amenable to autogenous sulfuric acid manufacture.
With conventional smelting as well as with the new smelting processes
(discussed in the next section), SO2 control is achieved via an "end-of-
pipe" treatment facility, i.e., a sulfuric acid plant. However, changes
in processing and in gas handling and gas cooling are necessary for proper
interfacing between process units and pollution control units.
In addition to SO^, the reverb gas contains particulates. The use of
electrostatic precipitators permit meeting the particulate emission levels
established for copper smelters.
4. Solid Wastes
Slightly more than three pounds of solid waste per pound of copper
are generated in a copper smelter. These come in the form of slag and
collected flue dust.
• Slag
The converter slage is recycled to the reverb in order to recover its
copper content. The slag tapped from the reverbatory furnace (and
granulated in some cases) is disposed of as an inert rock. Reverb slag
is mainly an iron silicate, containing about 0.5 to 0.9% copper and minor
elements in rather dilute form.
• Flue Dust
The flue dust results from entrained particles and condensed effluents
in the gas stream. Typically 3 to 6% of the total weight of solids entering
the smelter are evolved as dust. Coarse particles are caught in the cooling
chambers, while fine particulates are removed by electrostatic precipi-
tators operating slightly above the dew point of the gas stream.
2-18
Arthur D Little, Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
All flue dusts contain entrained copper and they are mostly recycled
to the reverbatory furnace. They may also contain volatile impurities in
a concentrated form. Excessive impurity build-up by dust recirculation
would impair the quality of the blister copper. At times it is economical
to process these dusts further in order to recover such metals as zinc,
lead, arsenic, etc. Depending on the composition of the feed, a fraction
of the dust generated may be diverted and either sold to other specialized
smelters which recover the contained metals or stored.
5. Water Pollution
The primary copper industry must control water emissions from three
major sources, the mines, the smelters and the refineries. In controlling
water pollution it is often necessary to remember that in controlling the
air pollution problems, a water pollution problem can be created since some
of the most effective air pollution technologies are based on the use of
water in scrubbing. Furthermore, the water drainage problem from tailings
disposal areas is of considerable concern to the copper industry, but, of
course, much less than in the coal mining industry. Although air and
water pollution control have been considered separately, it is mandatory
that in arriving at solutions to one problem, another one of equal or
greater magnitude is not created.
The water pollution regulatory constaints on the copper industry arise
mainly as a result of Sections 304(b) and 306 of the Federal Water Pollution
Control Act Amendments. Under this Act, the EPA has conducted technical
studies which are published as "Development Documents" which form the basis
for the Effluent Limitation Guidelines. These guidelines refer to three
specific discharge levels.
2-19
Arthur D Little; Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
• Best Practical Control Technology Currently Available
(BPCTCA)— to be met by industrial discharges by 1977.
• Best Available Technology Economically Available (BATEA)—to
be met by 1983.
0 New Source Performance Standards (NSPS)—to be applied to
all new facilities constructed after the promulgation of these
guidelines.
In order to achieve the effluent limitations, the recommended treat-
ment technology must remove suspended solids, adjust pH, and remove the
specific heavy metals. To perform these functions lime precipitation,
settling, and pH adjustment are recommended
Since all of the heavy metals included in the proposed effluent
limitations have very low solubility in the alkaline pH range, the addition
of lime causes the metal to precipitate out of solution as metal hydroxides
and carbonates. The metal precipitates, along with other suspended solids
present in the wastewater, are separated from the wastewater stream by
means of settling, and are withdrawn as a sludge. Since the wastewater is
still at a high pH after this step, it is necessary to lower the pH by
means of injecting carbon dioxide gas or other acid into the water. This
step is usually performed in a separate basin. Other recommended techniques
for improving the effectiveness of the previously mentioned end-of-pipe
treatment are reuse of water in other operations; control of mine water
drainage by modification of mining techniques, construction of diversion
structures, or ditching; and use of solar evaporation to eliminate the
discharge of excess water. In a copper smelter and refinery the sources
2-20
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
of wastewater are:
• slag granulation (if this is practiced);
• acid plant blowdown (i.e., blowdown from wet scrubbers ahead of
the acid plant);
• metal cooling;
• spent electrolyte and washings; and
• storm water commingling with process wastewater.
The Effluent Limitation Guidelines for primary smelters and refineries
in net evaporation area is zero discharge of process wastewater pollutants,
based on recycle, reuse and solar evaporation. This standard applies to
both the 1977 (BPCTA) and for 1983 (BATEA) guidelines. (The applicability
of this standard to two particular smelters has been challenged in court).
Zero discharge is to be achieved by neutralization of acidic streams,
settling (thickening) of streams containing suspended solids; and cooling
of contact cooling water for recycle.
F. NEW PROCESS TECHNOLOGY
The smelting technology in the U.S. evolved in a framework of low
energy costs and in loactions distant from sulfuric acid markets and urban
population centers. Thus the technology was not aimed at recovering sulfur
values as sulfuric acid (as is the case abroad) and was not particularly
efficient in its use of energy. Several changes have occurred in the past
five years on the economic and regulatory scene which indicate that the
currently used technology is no longer applicable for the construction of
new smelters. These changes are as follows:
2-21
Arthur D Little. Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
• Energy costs for smelting have increased rapidly. Cheap natural
gas, the fuel used by most smelters is not now available to the
smelters particularly in peak demand months (winter) and might
not be available at all in the future.
• Emissions of SO^ to the atmosphere have to be controlled. After
several years of debate and litigation, all issues relating to
S(>2 emissions are yet to be resolved (details in Chapter 8). These
Issues are as follows:
- It is generally agreed within EPA and the industry that SO2
emissions from reverbs cannot be controlled economically,
but must be vented from tall stacks. For example, the New
Source Performance Standards would allow the use of uncontrolled
reverbs only for the smelting of "impure" concentrates (concen-
trates containing As, Sb, Bi, etc.). About 30% of the feed
sulfur is emitted from the reverbs. Emissions from streams
containing high concentrations of S0^ (new smelting furnaces,
converter and fluid bed roaster gases) have to be controlled by
technology such as sulfuric acid plants. Double absorption
plants (or equivalents) are mandatory for new sources. At
existing smelters, the combination of uncontrolled reverbs but
controlled fluid bed roasters and converters can recover from
about 50-70% of the sulfur in the feed in the form of sulfuric
acid. New smelting technology can recover a larger fraction
(over 90%) of the sulfur in the feed.
2-22
Arthur DLittleJnc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
- The influence of EPA regulations on different modes of
capacity expansion is discussed in Chapter 8.
- Compared to the cost of ctonrol, the costs of complying
with other existing pollution control legislation, e.g.,
water and solid wastes, is quite small. However, this situation
could change as new standards are proposed for controlling
emissions of other substances.
• The acid produced by smelters cannot be economically transported
to traditional acid markets and it has to be disposed of (by
selling it at a low price) in the general vicinity of the smelter.
This resulting availability of low-priced acid in the west has
made it possible to use it to make wet process phosphoric acid
from low grade western phosphate rock or to use it to leach mine
dumps and low grade deposits which cannot be leached economically
at higher acid prices for the extraction of the contained copper.
An alternative is its neutralization with limestone. This is
being indirectly on copper ores high in limestone.
New process technology has evolved in response to various shortcomings
of conventional technology and as a result of external constraints. New
technology fall into the following major categories:
• New smelting processes (Outokumpu, Mitsubishi, Noranda, electric,
etc.),
• Hydrometallurgical processing of sulfide concentrates (Arbiter,
Clear, etc.),
2-23
Arthur D Little Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
9 Hydrometallurgical processing of oxlde/sulfide ores, mine dumps,
etc.
The new smelting processes are more energy efficient and can reduce
total energy requirements by 30-50%. They produce a concentrated stream
of sulfur dioxide from the smelting unit which can be economically converted
to sulfuric acid. The adoption of this technology would avoid the use of
reverbs which produce dilute SO^-containing streams. Sulfure capture
would Increase from 50-70% for current technology to over 90%. The major
shortcoming of the new processes other than electric smelting is that their
applicability to impure concentrates (concentrates high is As, Sb, Bi, Pb,
Zn, Se, Te, etc.) is unproven. Until this issue is resolved, the new
processes would have to be utilized for building large smelters to smelt
clean concentrates In regions where acid markets are available. All hydro-
metallurgical processes, conventional as well as new, offer significant
economies of scale, the smallest economic size being approximately 100,000
tons/year of copper.
The hydrometallurgical processes for sulfide concentrates produce
cathode copper directly, and release sulfur in the concentrates in forms
other than SO2. It may be feasible to build hydrometallurgical plants
sized around 40,000 tons of copper per year at a unit cost which is about
the same as the unit cost of a large (over 100,000 tons/year) copper smelter
and refinery. The hydrometallurgical processes, in general, are not energy
efficient and utilize the same or slightly more energy than conventional
smelting and refining which is significantly higher than the energy used by
the new smelting processes. The leached solid wastes will require land
2-24
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
disposal Into areas prepared so as to prevent groundwater leaching of
soluble substances and to prevent airborne particulates. Because the
plants will probably be located generally in the semi-arid western United
States, such a disposal area can be established with some degree of
confidence. Overall, these processes are likely to be utilized in locations
remote from sulfuric acid markets where a large smelter is not justified.
Sulfuric acid leaching of oxides is not a primary copper recovery
process but can be considered as an acid neutralization/disposal technique
that also recovers copper from resources previously considered as marginal.
Since the typical western U.S. smelter locations are distant from major
sulfuric acid markets, the sulfuric acid produced to minimize air pollution
has to be utilized for leaching of marginal resources (mine dumps,
tailings, oxide ores, etc.) or for making wet process phosphoric acid.
The leaching of dumps and surface deposits without contamination of ground-
water is possible in the arid west but might not be possible in other parts
of the U.S. As a last resort, neutralization with limestone or the reduction
of SO2 streams to elemental sulfur would have to be considered. These
options would exert their own impacts.
2-25
Arthur D Little, Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CHAPTER 3
THE U.S. COPPER INDUSTRY IN WORLD PERSPECTIVE: AN OVERVIEW
A. INTRODUCTION
Although the United States is virtually self-sufficient in copper,
the U.S. copper industry does not exist in Isolation from the rest of
the world. It is possible, therefore, that domestic environmental regu-
lations may have economic effects on the copper industry not only
domestically but also internationally. Fundamental questions are raised
in this connection. What will be the effect of domestic environmental
regulations on the investment behavior of U.S. copper firms internationally?
What will be the impact of environmental regulations in terms of the
dependency of the United States on imported copper in the future?
These questions gain Importance particularly in view of the flurry of
speculation and debate about the possible emergence of new, OPEC-like
cartels following the recent OPEC embargo and oil price increases and the
rapid escalation of basic primary commodities prices in 1973 and 1974.^"
Within a broader context, these questions arise in light of the current
debate about the "new International economic order," inasmuch as non-fuel
primary commodities have remained at the heart of this debate, involving
the twin issues of both supply access and prices.
*See, for example, C. Fred Bergsten, "The Threat from the Third World,"
Foreign Policy, 11 (Slimmer, 1973), p. 102-124; Stephen D. Krasner, "Oil
is the Exception," Foreign Policy, 14 (Spring, 1974), p. 68-84; Bension
Varon and Kenji Takeuchi, "Developing Countries and Non-fuel Minerals,"
Foreign Affairs, 52, 3 (April, 1974), p. 497-510; Raymond F. Mikesell,
"More Third World Cartels Ahead?" Challenge (November/December, 1974),
p. 24-31; International Economic Policy Association, U.S. Natural Resource
Requirements and Foreign Domestic Policy, Interim Report (Washington, D.C.:
July 18, 1974).
3-1
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The issues arising within this broader context are obviously
important and require attention in an analysis of the economic effects
of domestic environmental regulations.
These broader questions and issues are properly addressed later as
part of our impact analysis (Chapter 10). In this chapter, we provide
a condensed and selective overview of the international structure of
the copper industry, in part as a prelude to an analysis of the inter-
national economic implications of domestic environmental regulations
affecting the copper industry and also in part to convey an understanding
of the international setting in which the domestic copper industry operates.
Accordingly, the chapter opens with a review of world copper production and
consumption patterns. This is followed by a description of key aspects of
the copper industry's worldwide structure. International trade in copper
is discussed next, followed by examination of the trade relationships of
the United States with the rest of the world.
The principal conclusions emerging from this chapter can be summarized
as follows:
1. World production of refined copper in 1974 was approximately 8.9
million metric tons (smelter production about 7.7 million metric tons and
mine output about 7.9 million metric tons). The United States accounted
for 21.9 percent of refined, 18.4 percent of smelter, and 18.3 percent
of mine output.
2. The share of the United States in world refined copper production
dropped from 31.7 percent in 1964 to 21.9 percent in 1974. During the
same period, U.S. smelter output share dropped from 25.4 percent to 18.4
percent, while U.S. mine output share dropped from 23.8 percent to 18.3
3-2
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
percent.
3. At the mining level, copper output is highly concentrated in a
relatively few countries, with the United States still as the largest
single producer. Six countries (i.e., the United States, Canada, Chile,
Zaire, Zambia, U.S.S.R.) together account for 71.2 percent of total world
mine output (1974). This reflects only a slight downward shift in con-
centration over the previous decade, with the same six countries having
accounted for 78.3 percent of total world mine output of copper in 1964.
4. Chile, Zambia, Peru and Zaire, the original four members of
CIPEC,^" together account for about 37 percent of Free World mine production
in copper. With recent additions in its membership, CIPEC's participation
in internationally traded copper has increased to over 70 percent.
5. Most major copper mining countries are also major smelters.
Concentration by country in copper refining, by contrast, displays a
different pattern. For example, several leading industrial countries with
little or no mine production, and in many cases very little smelter pro-
duction, are large copper refiners based on imported smelted copper
(e.g., West Germany, Belgium-Luxembourg, the United Kingdom, none of which
has either mine production or large smelter production; Japan, which accounts
for only 1.0 percent of world mine output, accounts for 11.6 percent of
world smelter output and 11.8 percent of world refined copper output).
^"The Conseil Intergouvernemental des Pays Exportateurs de Cuivre (CIPEC),
also known as Intergovernmental Council of Copper Exporting Countries.
3-3
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
6. World consumption of refined copper, which tends to be cyclical,
was about 8.3 million metric tons in 1974. Of this, U.S. consumption
accounted for nearly 2.0 million metric tons or 23.5 percent. The U.S.
share of world consumption of refined copper dropped from 28.8 percent
in 1963 to 23.5 percent in 1974, reflecting a relatively higher growth
in demand for copper in the rest of the world.
7. During the postwar period, there has been a major change in
the ownership structure of the world copper industry. In 1947, the four
largest private mining companies accounted for about 60 percent of free-
world mine output. This declined to 49 percent by 1956 and to less than
20 percent by 1974. Meanwhile, through nationalization, the share of
government-owned enterprises in free-world mine output increased, reaching
34 percent in 1974. Moreover, governmental ownership of the copper industry
is heavily concentrated in the copper exporting countries—mainly the
CIPEC countries.
8. The copper industry is highly concentrated in individual countries.
In the United States, three companies (Anaconda, Kennecott, and Phelps
Dodge) account for 54 percent of total U.S. mine production (1974) and
eight companies account for 87 percent of U.S. mine production. Most of
the eight companies also smelt all of their own output. Copper refining
in the U.S. is even more concentrated, with six companies (Asarco, Kennecott,
Phelps Dodge, Anaconda, Amax, and Newmont) accounting for nearly 90 percent
of U.S. refining capacity (1974).
9. A substantial portion of the large firms are vertically integrated
from mining to refining. In the United States over half of the output of
3-4
Arthur D Little; Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
domestic copper refiners is sold to subsidiaries, and a substantial portion
of the output of Japanese and European refiners is also sold to their
affiliates. In the past, a significant portion of the output of the mines
owned by private international firms was sold to parent companies or
affiliates of the mining firms. However, this pattern has been changing
with the nationalization of the private firms in the CIPEC countries and
the assumption of the marketing function by the governments of these
countries.
10. Copper processing in individual countries or areas is characterized
by a relatively high degree of concentration, which suggests an oligopolistic
industry structure. However, little can be concluded a priori about
possible implications of industry structure for Industry behavior and
market competition without consideration of other market forces that
affect Industry behavior. Factors of interest include the extent of ver-
tical integration of smelting and refining firms forward into fabricating,
the importance of trade barriers and transportation costs as constraints
to international trade, entry conditions facing potential new producers,
pricing constraints imposed by secondary metal and the threat of substitution
away from copper, and government intervention in markets.
Meanwhile, it is difficult to measure the extent of vertical inte-
gration of primary copper producers forward into copper fabricating. As
a generalization, primary producers in North America and Japan have
important fabricating operations, refiners to Europe are partially inte-
grated forward, and those in other producing countries have very little
fabricating capacity.
3-5
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting .the EPA Project Officer, since the document
may experience extensive revision during review.
11. The bulk of the world's copper exports Is from the developing
countries to Europe, Japan and the United States, with smaller amounts
from Canada, South Africa and Australia. The United States and Western
Europe also export refined copper, but are net importers of copper overall.
Trade in smelted copper has traditionally flowed mainly from Africa
to Western Europe and from Latin America to the United States. Entry of
Japan as an important importer and increasing refining of blister in the
exporting countries have resulted in greater diversification of trading
patterns in recent years and a gradual decline in the absolute importance
of trade in unrefined compared with refined metal.
12. Host of the copper exported by the developing countries is sold
under contract to smelters, refineries, or fabricators in the developed
countries. The pattern of world trade in concentrates tends to be
governed by long-term contracts which may call for deliveries over periods
up to 15 or 20 years, financial arrangements providing for repayment of
loans in concentrates, and ownership ties between the mining and processing
companies. Long-term contracts for the sale of concentrates or blister
offer important advantages for both the mines and the smelters or refineries
with which they are negotiated. By contrast, trade in refined copper is
for the most part based on short-term contracts of one-to-twelve month
duration. While more competitive, it is also influenced by nonprice
factors such as ownership ties, technical assistance and marketing con-
tracts, and long standing buyer-seller relationships. Ownership ties
between producing and consuming countries have been declining, and, even
where they exist, governments of producing countries have taken a more
3-6
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
active role In marketing and are attempting to diversify their markets.
Other nonprice factors, such as strikes, transportation problems, natural
disasters in the producing countries, and recessions in the consuming
countries, frequently affect the pattern of trade in refined copper.
13. Although the United States has been virtually self-sufficient
in copper, except in certain years coinciding with military developments
or unusual "demand crunch" periods, the U.S. has been both a leading
importer and exporter of copper. This, however, may change sharply in
the future, partly as a result of the domestic environmental regulations
affecting the U.S. copper industry. The impact of domestic environmental
regulations on the U.S. copper industry should therefore be examined
with close attention to their international economic implications.
3-7
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
B. WORLD COPPER PRODUCTION AND CONSUMPTION PATTERNS
Analysis of world copper production patterns is somewhat complicated
by the role of secondary copper and the difficulty of separating copper
of primary origin from that originating from scrap, especially after the
latter has been re-refined.
1. U.S. and World Production Trends
World production of refined copper in 1974 was approximately 8.9
million metric tons (smelter production about 7.7 million metric tons
and mine output about 7.9 million metric tons), as shown in Table 1.
The United States accounted for 21.9 percent of refined, 18.4 percent
of smelter, and 18.3 percent of mine output. The share of the United
States in world refined copper production dropped from 31.7 percent in
1964 to 21.9 percent in 1974 (Table 2). During the same period, U.S.
smelter output share dropped from 25.4 percent to 18.4 percent, while
U.S. mine output share dropped from 23.8 percent to 18.3%. U.S. mine
output has grown at 2.48 percent per year over the 1964-1974 period (compared
to world average of 5.09 percent per year) and at 3.54 percent per year
over the 1963-1973 period (compared to world average of 5.08 percent per
year).
2. Where Copper is Produced
At the mining level, copper output is highly concentrated in a rela-
tively few countries, with the United States still as the largest single
producer (Table 3). Six countries (i.e., the United States, Canada, Chile,
Zaire, Zambia, U.S.S.R.) together account for 71.2 percent of total world
mine output (1974). This reflects only a slight downward shift in
3-8
Arthur D Little, I nc
-------
TABLE 1
WORLD PRODUCTION OF COPPER, 19743
(thousand metric tons)
Mine production Production of
Country Groups (copper content) Smelter Production refined copper

Amount
Percent (%)
Amount
Percent (%)
Amount
Percent (%)
Total World
7,885.6
100.0
7,733.6
100.0
8,851.5
100.0
United States
1,445.7
18.3
1,424.2
18.4
1,938.3
21.9
Other America
2,042.6
25.9
1,518.6
19.6
1,241.7
14.0
Europe
322.1
4.1
538.1
7.0
1,447.4
16.4
Asia
447.7
5.7
970.4
12.5
1,608.2
12.1
Africa
1,519.1
19.3
1,411.7
18.3
1,051.8
11.9
Australia and Oceania
439.7
5.6
195.6
2.5
189.6
2.1
Communist Block Countries
1,668.7
21.2
1,675.0
21.7
1,914.5
21.6
NOTES: Components may not sum up to the totals given due to rounding.
SOURCE: Metallgesellschaft Aktiengesellschaft, Metal Statistics 1964-1974, 62nd. Edition
(Frankfurt am Main, 1975), pp. 26-31.
-------
TABLE 2
UNITED STATES AND WORLD COMPARATIVE TRENDS IN COPPER PRODUCTION: 1963-1974
(thousand of metric tons)
Mine Production of Copper
(copper content)
Smelter Production of Copper Production of Refined Copper
u>
I
>
3
Years
U.S.
World
U.S. as
percent
of world
U.S.
World
U.S. as
percent
of world
U.S.
World
U.S. as
percent
of world
1963
1100.6
4624.3
23.8
1176.3
4634.8
25.4
1709.5
5399.7
31.7
1964
1131.1
4798.6
23.6
1214.2
4851.4
25.0
1805.7
5739.0
31.5
1965
1226.3
4962.7
24.7
1300.9
5024.4
25.9
1942.1
6058.5
32.1
1966
1296.5
5215.9
24.9
1330.3
5167.0
25.7
1980.7
6322.2
31.3
1967
865.5
5057.6
17.1
782.3
4891.0
16.0
1384.9
6000.5
23.1
1968
1092.8
5456.5
20.0
1148.9
5507.8
20.9
1668.3
6658.6
25.1
1969
1401.2
5951.2
23.5
1438.3
5972.9
24.1
2009.3
7199.8
27.9
1970
1560.0
6387.3
24.4
1489.0
6309.5
23.6
2034.5
7577.8
26.8
1971
1380.9
6473.9
21.3
1360.8
6380.0
21.3
1780.3
7377.8
24.1
1972
1510.3
7071.5
21.4
1533.5
7003.2
21.9
2048.9
8068.0
25.4
1973
1558.5
7591.4
20.5
1582.1
7445.5
21.2
2098.0
8497.3
24.7
1974
1445.7
7885.6
18.3
1424.2
7933.6
18.4
1938.3
8851.5
21.9
Average Annual
Compound Growth
Rate (Percent)

1963-1973
3.54
5.08
-
3.01
4.85

2.07
4.64
-
1964-1974
2.48
5.09
_
1.61
4.77
_
0.71
4.43

< I
5 3
3 <1
1 -
2
CO

3
v)
i'°
3 S
S.
5! o
o 3
Q. 8
c r1
5' —.
«° 3
3 <®
< ~
c °
o 2
£> >
o* T1
o
3 3D
„ o
3 33
"R H
lil
O 3*
^ CD
0 3
3 CO
D)
° 8"
^ —* -
f j;
«A 2
3 §
1 1
-* CO
£• O-
o
1 §
»-~ o
3* «>
2 i
3
-K «
J V) V
<-~
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 3
WORLD MINE PRODUCTION OF COPPER: FIFTEEN LARGEST
PRODUCING COUNTRIES, 1964 and 1974
(copper content)
Amount Percent Composition
(thousand metric tons) (%)
Country
1964
1974
1964
1974
United States
1,131.1
1,445.7
23.6
18.3
Canada
441.7
826.2
9.2
10.5
Chile
621.7
902.1
13.0
11.4
Peru
176.4
213.2
3.7
2.7
Zaire
276.6
544.1
5.8
6.9
Zambia
632.3
698.0
13.2
8.9
Republic of South
Africa
61.3
179.1
1.3
2.3
Japan
106.2
82.1
2.2
1.0
Philippines
60.5
209.7
1.3
2.7
Australia
106.3
255.6
2.2
3.2
Papua-New Guinea
-
184.1
-
2.3
Yugoslavia
63.2
155.2
1.3
2.0
USSR3
650.0
1,200.0
13.5
15.2
Poland
13.4
198.0
0.3
2.5
China, PR and North
Korea3
83.0
150.0
1.7
1.9
Subtotal
4,423.7
7,243.1
92.2
91.9
World Total
4,798.6
7,885.6
100.0
100.0
NOTES: aEstimates.
^Components may not sum up to the totals given due to rounding.
SOURCE: Metallgesellschaft Aktiengesellschaft, Metal Statistics 1964-1974,
62nd. Edition (Frankfurt am Main, 1975), pp. 26-27.
3-11
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
concentration over the previous decade, with the same six countries having
accounted for 78.3 percent of total world mine output of copper in 1964.
Chile, Zambia, Peru and Zaire together account for about 37 percent
of Free World mine production in copper.*" Mines in these countries were
initially developed by large foreign countries. In recent years, the
governments involved have exerted increasing control over, and participation
in ownership of these mines. Chile initiated a "Chilianization" program
in 1966 which culminated in complete nationalization of the major producers
in 1971. Zambia introduced a "Zambianization" program at the end of 1960
to eventually replace foreign personnel by nations and in 1970, acquired
51 percent ownership of the two major producer groups. Zaire nationalized
its one large producer in 1966 and Peru has recently been insisting on
increased national participation and expansion of mineral processing.
In 1974 the Zambian government terminated both the management and the sale
contracts with the Anglo-American group and AMAX, the former majority
owners (now 49 percent owners). In that same year the Peruvian government
nationalized Cerro de Pasco, the second largest copper producer after
Southern Peru Copper Co. (which owns Toquepala and Cuajone). The new copper
refinery at Ilo is wholly government-owned and operated. Finally, in 1975
'In 1968, these four countries formed the Conseil Intergouvernemental des
Pays Exportateurs de Cuivre (CIPEC), also known as Intergovernmental Council
of Copper Exporting Countries. During the November 17-19, 1975 meeting in
Lima, Peru, the four founding members accepted Indonesia as a full member
and Australia and Papua New Guinea as nonvoting associate members (not
subject to CIPEC control directives). The newmembership increases CIPEC
participation in internationally traded copper to more than 72 percent.
More will be said about CIPEC in the impact analysis section of the report.
3-12
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
the government of Zaire renegotiated its technical assistance and sales
agreements with the Belgium firm SGM (an affiliate of Union Miniere) so
that operations and sales of Gecamines output are entirely under govern-
ment control.
The geographical distribution of world copper productive capacity
(Table 4) closely parallels the distribution of copper mine output. Among
the more striking conclusions that can be drawn here are the following:
• U.S. mine productive capacity (i.e., mine/mill capacity, where
the mill capacity effectively serves as the binding constraint)
only slightly exceeds the estimated combined capacity of the Sino-
Soviet Block countries as a whole,
• about 80 percent of world mine productive capacity is located
outside the Sino-Soviet Block countries,
• The CIPEC countries (Chile, Peru, Zambia and Zaire) account for
about 29 percent of world capacity and 36 percent of total Free
World capacity,
• world capacity has remained practically constant during 1974-1975,
reflecting adverse market conditions.
Most major copper mining countries are also major smelters and their
shares of smelter output are broadly comparable with their shares of mine
output (Table 5). However, Canada and to a much lesser extent, Peru, and
Australia have lower shares of world smelter capacity, compared to their
shares of world mine capacity, while the reverse is true for Japan and
West Germany, in particular. The Philippines exports all of its production
in the form of concentrates. However, the degree of concentration in
3-13
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 4
WORLD COPPER MINE PRODUCTIVE CAPACITY,
BY AREA AND COUNTRY, 1974 AND 1975
Estimated Capacity Percent Breakdown
(thousands of short tons)
Area/Country Dec. 31, 1974 Dec. 31, 1975 Dec. 31, 1974 Dec. 31, 1975
North America
United States
1,920
2,050
20.6
21.6
Canada
1,020
980
11.0
10.0
Mexico
95
100
1.0
1.1
Other
10
10
0.1
0.1
Total
3,045
3,140
32.7
33.0
South America

Chile
1,000
1,000
10.7
10.5
Peru
245
245
2.6
2.6
Other
15
15
0.2
0.2
Total
1,260
1,260
13.5
13.2
Africa

Zambia
850
850
9.1
8.9
Zaire
625
625
6.7
6.6
South Africa
200
200
2.1
2.1
South West Africa
35
35
0.4
0.2
Other
80
120
0.9
1.3
Total
1,790
1,830
19.2
19.2
Asia

Philippines
265
280
2.8
2.9
Japan
85
75
0.9
0.8
Indonesia
80
80
0.9
0.8
Iran
5
5
0.1
0.1
Other
100
110
1.1
1.2
Total
535
550
5.7
5.8
Oceania

Australia
285
275
3.1
2.9
Papua New Guinea
200
200
2.1
2.1
Total
485
475
5.2
5.0
Europe
365
375
3.9
3.9
TOTAL FREE WORLD

CAPACITY
7,480
7,630
80.3
80.2
SINO-SOVIET BLOCK

-
COUNTRIES
l,836a
l,880a
19.7
19.8
TOTAL
9,316
9,510
100.0
100.0
NOTES: aActual mine production, from World Bureau of Metal Statistics (1974) and
Commodities Research Unit Ltd. (1975), as reported in Enginnering and
Mining Journal (March, 1976), p. 89.
^Components may not sum up to the totals given due to rounding.
SOURCE: Phelps Dodge Corporation; Arthur D. Little, Inc. ArthurDLittleInc
3-14
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 5
WORLD SMELTER PRODUCTION OF COPPER: FIFTEEN LARGEST
PRODUCING COUNTRIES, 1964 AND 1974
Q
Amount Percent Composition
(thousand metric tons) %
Country
1964
1974
1964
1974
United States
1,214.2
1,424.2
25.0
18.4
Canada
365.9
537.0
7.0
6.9
Chile
586.7
724.3
12.1
9.4
Peru
152.1
179.8
3.1
2.3
Zaire
276.6
469.9
5.7
6.1
Zambia
638.8
709.3
13.2
9.2
Republic of South
Africa
56.3
147.8
1.2
1.9
Japan
280.9
900.0
5.8
11.6
Australia
81.9
195.6
1.7
2.5
Germany, FR
68.3
174.0
1.4
2.3
Spain
21.4
79.0
0.4
1.0
Yugoslavia^
49.4
142.2
1.0
1.8
USSR3
650.0
1,200.0
13.4
15.5
Poland
23.8
190.0
0.5
2.5
China, PR and North
Korea3
83.0
150.0
1.7
1.9
Subtotal
4,549.3
7,223.1
93.8
93.4
World Total
4,851.4
7,733.6
100.0
100.0
NOTES: aEstimates.

^Primary copper only.
c
Components may not sum up to the totals given due to rounding.
SOURCE: Metallgesellschaft Akiengesellschaft, Metal Statistics 1964-1974,
62nd. Edition (Frankfurt am Main, 1975), pp. 28-29.
3-15
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
smelting by country is very similar to that in mining, and, as was true
for the latter, concentration in copper smelting changed very little
over the 1967-1974 period, with the exception of a significant increase
in smelter production in Japan.
Concentration by country in copper refining, by contrast, displays
a different pattern, as shown in Table 6.^" For example, several leading
industrial countries with little or no mining production, and in many cases
very little smelter production, are large copper refiners based on imported
smelted copper. The leading examples are West Germany, Belgium-Luxembourg,
and the United Kingdom, none of which has either mine production or large
smelter production. The United States is the leading producer at all three
stages. Japan, which accounts for only 1.0 percent of world mine output,
not only accounts for 11.6 percent of world smelter output but also a
similarly significant 11.8 percent of world refined copper output. Unlike
Western European countries, Japan both smelts and refines most of its
copper Imports.
3. Where Copper is Consumed
World consumption of refined copper was about 8.3 million metric tons
in 1974. Of this, U.S. consumption accounted for nearly 2.0 million metric
tons or 23.5 percent. The U.S. share of world consumption of refined copper
dropped from 28.8 percent in 1963 to 23.5 percent in 1974, reflecting a
The data in Table 6 must be interpreted with some caution, however, because
they Include refined copper produced from scrap. Unfortunately, accurate
statistics on scrap inputs in refining are not readily available, on a
worldwide basis.
3-16
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 6
WORLD PRODUCTION OF REFINED COPPER: FIFTEEN LARGEST
PRODUCING COUNTRIES, 1964 AND 1974
Amount
Percent Composition
NOTES:
Estimates.
Country
1964
1974
1964
1974
United States
1,805.7
1,938.3
31.5
21.9
Canada
370.1
559.1
6.4
6.3
Chile
277.9
538.1
4.8
6.1
Zaire
140.2
254.5
2.4
2.9
Zambia
497.1
678.8
8.7
7.6
Japan
341.7
996.0
6.0
11.3
Australia
101.7
189.6
1.8
2.1
Germany, FR
324.7
423.6
5.7
4.8
Spain
46.7
123.5
0.8
1.4
Belgium-Luxembourg
275.0
378.7
4.8
4.3
United Kingdom
224.9
160.1
3.9
1.8
Yugoslavia
51.9
150.6
0.9
1.7
USSR3
750.0
1,350.0
13.1
15.3
Poland
36.6
194.5
0.6
2.2
China, RP and North
Korea
110.1
200.0
1.9
2.3
Subtotal
5,354.2
8,133.4
93.3
91.9
World Total
5,739.0
8,851.5
100.0
100.0
a_

Components may not sum up to the totals given due to rounding.
SOURCE: Metallgesellschaft Aktiengesellschaft, Metal Statistics 1964-1974,
62nd. Edition (Frankfurt am Main, 1975), pp. 30-31.
3-17
Arthur D Little, Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
relatively higher growth in demand for copper in the rest of the world
(Table 7). Accordingly, while refined copper consumption in the United
States has increased by only 1.90 percent per year during the 1963-1974
period (1.47%/yr. over 1964-1974 and 3.39%/yr. over 1963-1974), world
consumption has recorded a substantially higher rate of growth at 3.81
percent per year over the sample period (3.34%/yr. over 1964-1974 and
4.77%/yr. over 1963-1973).
As shown in Table 8, fifteen countries accounted for 88.1 percent of
total world refined copper consumption in 1974, while these countries pro-
duced only 53.6 percent of total world mine output of copper. When the
United States and the U.S.S.R. (two virtually self-sufficient countries)
as well as Canada (a major exporter) are excluded, the picture becomes
substantially different: while the remaining twelve largest consumers
together account for 47.3 percent of total world consumption of refined
copper, their combined mine output amounts to only 9.6 percent of the world
total.
Although not shown in the accompanying tables, annual copper consumption
reported by individual countries tends to be quite ^cyclical, particularly
in the United Kingdom, the United States, and West Germany. Year to year
changes of plus or minus ten percent are common and changes exceeding
20 percent have not been unusual. Even though cyclical downturns in some
countries tend to be offset by upswings in others and this may serve to
smooth the trend in total consumption, copper production generally tends to
be more stable over time than overall copper consumption.^"
^"It should be noted that the reduced mine production in 1967 was due to a
lengthy strike in the United States.
3-18
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 7
UNITED STATES AND WORLD COMPARATIVE TRENDS IN
REFINED COPPER CONSUMPTION, 1963-1974
(thousand metric tons)
Years
U.S.
World
U.S. as
percent
of world
1963
1590.0
5519.3
28.8
1964
1690.0
5995.4
28.2
1965
1845.6
6193.2
29.8
1966
2157.8
6444.8
33.5
1967
1797.5
6194.8
29.0
1968
1701.4
6523.3
26.1
1969
1944.3
7148.0
27.2
1970
1854.3
7283.4
25.5
1971
1830.5
7309.9
25.0
1972
2028.6
7944.5
25.5
1973
2218.6
8791.6
25.2
1974
1956.4
8325.4
23.5
Average Annual
Compound Growth
Rate (Percent)

1963-1973
3.39
4.77
-
1964-1974
1.47
3.34
_
SOURCE: Metallgesellschaft Aktiengesellschaft, Metal Statistics
1963-1973 and 1964-1974, pp. 32-33.
3-19
Arthur D Little, Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 8
REFINED COPPER CONSUMPTION AND MINE PRODUCTION OF COPPER,
BY FIFTEEN LARGEST CONSUMING COUNTRIES, 1974
Consumption of Refined Copper'
Mine Production of Copper
Country
United States
Canada
Japan
Germany, FR
Belgium-Luxembourg
France
Italy
United Kingdom
Spain
Brazil
Australia
U.S.S.R.
Germany, DR
Poland
China, PR and North
Korea
Subtotal
World Total
Amount
(thousand metric
tons)
1,956.4
270.1
831.0
731.0
178.2
414.2
308.0
496.9
143.9
162.0
121.6
1,170.0
105.0
150.0
300.0
7.338.3
8.325.4
Percent (%)
23.5
3.2
10.0
8.8
2.1
5.0
3.7
6.0
1.8
1.9
1.5
14.1
1.3
1.8
3.6
88.1
100.0
Amount
(Copper content,
thousand metric
tons)
1,445.7
826.2
82.1
1.7
0.4
0.8
44.5
6.0
255.6
1,200.0
18.0
198.0
150.0
4,229.0
7,885.6
Percent (%)
18.3
10.5
1.0
0.6
0.1
3.2
15.2
0.2
2.5
1.9
53.6
100.0
NOTES:
Components may not sum up to the totals given due to rounding.
SOURCE: Metallgesellschaft Aktiengesellschaft, Metal Statistics, 1964-1974, 62nd.
Edition, (Frankfurt am Main, 1975), various pages.
3-20
Arthur D Little, Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
C. INDUSTRIAL CONCENTRATION
The copper industry's worldwide geographical concentration is paralleled
by its industrial concentration.
Orris Herfindahl estimated that in 1947 four mining firms accounted
for about 60 percent of world output (excluding the U.S.S.R.) and eight
firms accounted for 77 percent of world output. By 1956 these percentages
had declined to 49 and 70 percent respectively.''' All of these companies
were privately owned and most of the stock was held by residents of the
United States, Canada and the principal Western European countries.
Since 1956 there has been a major change in the structure of the world
copper industry. In 1974 the four largest private copper producers—Kennecott,
Newmont, Phelps Dodge and Rio Tinto Zinc—had a majority ownership interest
in less than 20 percent of the free world mine copper output, and 10 pri-
vately-owned companies had a majority interest in less than 35 percent of
2
the free world mine copper output. Eleven other privately-owned companies
(see Table 9) are majority owners of an additional 10 percent of the free
3
world copper output.
The majority or wholly-owned government mining enterprises (e.g., in
Chile, Peru, Zaire, Zambia, Turkey, India, Uganda) accounted for about 34
percent of the free world mine output in 1974. According to Sir Ronald
"'"Orris C. Herfindahl, Copper Costs and Prices: 1870-1957, published for
Resources for the Future, Inc. (Baltimore: The Johns Hopkins Press, 1959),
p. 165.
2
The ten companies are Anaconda, Asarco, Cyprus, Duval, International Nickel,
Kennecott, Mt. Isa, Newmont, Phelps Dodge and Rio Tinto Zinc (RTZ). RTZ
controls the Bougainville mine and the Palabora mine (South Africa). Asarco
has a 49% equity interest in Mt. Isa.
3
These companies include Atlas, Falconbridge, Freeport, Hudson Bay, Inspira-
tion, Lornex, Marcopper, Noranda, Rio Tinto Patino, Texas Gulf and White Pine.
3-21
Arthur D Little; Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 9
MINE COPPER PRODUCTION OF TWENTY
LEADING PRIVATELY-OWNED MINING COMPANIES in 1974a
(000 metric tons, copper content)
Companies Output
U.S. Companies
Anaconda 179
Asarco^ 194
Cyprus 100
Duval 120
Freeport 65
Inspiration 51
Kennecott 366
Newmont 215
Phelps Dodge 256
Copper Range 61
Subtotal 1,577
Canadian Companies
Falconbridge 49
Hudson Bay 49
International Nickel 172
Lornex 58
Noranda 45
Texas Gulf 53
Subtotal 426
Other Companies
Rio Tinto Zinc (UK)6 307
Atlas Consolidated (Philippines) 87
Marcopper (Philippines) 47
Mt. Isa (Australia) 160
Subtotal 601
TOTAL (all 20 companies) 2,604
Summary:
4 Total Free World Output 6,064
• Leading 20 private companies as percentage 43.0
of world output
NOTES: aIncludes output of majority-owned subsidiaries. There may be some
understatement by reason of absence of knowledge regarding all
subsidiaries.
^Includes output of Southern Peru Copper Corporation (owned jointly
with Phelps Dodge, Newmont and Cerro).
c
Output of Freeport Indonesia.
^Includes Canadian and South African subsidiaries.
Q
Includes output of Bougainville mine and Palobora mine in South Africa.
SOURCEi American Bureau of Metal Statistics Yearbook, 1975.
3-22
Arthur D Little Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Prain, in 1970 about 43 percent of copper producing capacity in the non-
Communist world was owned in whole or in part by governments.^ Moreover,
governmental ownership of the copper industry is heavily concentrated in
the copper exporting countries—mainly the CIPEC countries. In some
countries, including Zambia, Mexico and Australia (Mt. Isa), large inter-
national mining companies have reduced their equity holdings from a
majority to a minority position in recent years.
To summarize, 21 private companies have a majority interest in mines
producing about 44 percent of total copper production in the market
economies (including Yugoslavia), and another 34 percent is produced by
majority-owned government enterprises in eight important copper producing
countries. Most of the remaining 22 percent is produced by a fairly large
number of privately-owned companies, some of which have a minority govern-
ment participation. Among the Sino-Soviet Block countries, which account
for slightly over 20 percent of total world mine production (see Table 1),
75 percent is produced in the USSR and most of the remainder in Poland,
China and Bulgaria.
Copper production is highly concentrated within the leading copper
producing countries, as described below.
United States. Copper production in the U.S. is highly concentrated,
with three companies—Anaconda, Kennecott and Phelps Dodge—accounting for
54 percent of total U.S. mine production in 1974 and eight companies
"'"Sir Ronald Prain, Copper. The Anatomy of an Industry (London: Mining
Journal Books, 1975).
3-23
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
accounting for 87 percent of U.S. mine production. Most of the eight
companies also smelt all of their own output. Copper refining in the
U.S. is even more concentrated with six companies—Asarco, Kennecott,
Phelps Dodge, Anaconda, Amax, and Newmont—accounting for nearly 90 percent
of U.S. refining capacity in 1974. U.S. smelting and refining companies
also process a limited amount of foreign concentrates and large tonnages
of imported blister copper. The U.S. is currently about 90 percent self-
sufficient in copper; it imports substantial amounts of blister copper,
mainly from Latin America, and refined copper, mainly from Canada and
Latin America1. The three largest U.S. mine producers—Anaconda, Kennecott
and Phelps Dodge—are vertically integrated into the fabricating stage.
Approximately one-third of the copper output of U.S. refineries is sold
to downstream affiliates, and U.S. firms export a substantial amount of
refined copper.
Canada. There are about 20 important copper mining companies in
Canada, with seven companies producing about 56 percent of the total
output in 1974. Only about 61 percent of Canada's mine production was
smelted in Canada in that year. However, Canada's refining capacity was
equal to about 75 percent of her mine output in 1974. Canadian smelting
capacity is concentrated in four firms—Falconbridge, Noranda, Hudson Bay
and International Nickel. Refining capacity is controlled by two firms—
Canadian Copper and International Nickel.
Chile. In Chile the bulk of the copper is produced by COELCO's mines
which were nationalized in 1972. Most of Chile's mine output is smelted
3-24
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
in Chile and about 60 percent of Chile's output is refined in the country.
Zambia. In Zambia all copper is produced by two mining companies
owned 51 percent by the government. Zambia has smelting and refining
capacity for nearly all of her mine output.
Zaire. In Zaire the government-owned mining company, Gecamines,
produced 92 percent of the mine output in 1974 with a small but growing
output produced by the Japanese firm, Sodimiza. Sodimiza ships concentrates,
but all of Gecamines1 output is smelted and 45 percent is refined in Zaire.
Peru. The Southern Peru Copper Corporation (52 percent owned by
Asarco) currently accounts for over half of mine and smelter production in
Peru and this proportion is expected to rise to 75 percent when the
Cuajone mine begins full operation in 1977. The remainder is produced by
government-owned mines and several small private mines. By 1977 about half
of Peru's mine and smelter production will be refined in government-owned
refineries.
Australia. In Australia 57 percent of the mine copper output in 1974
was accounted for by the privately-owned Mt. Isa mine, and three mines
produced 77 percent of total output. (Mt. Isa is owned 49 percent by
Asarco). Australia has smelter and refining capacity for nearly 80 percent
of its mine output.
South Africa. Nearly 85 percent of South Africa's mine copper is
produced by three private firms, owned largely by international mining
companies—RTZ, Newmont and U.S. steel. South Africa has smelter capacity
for over 80 percent of her mine output, but has refining capacity for
less than half of her mine output.
3-25
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The Philippines. Philippine mine output is produced by six private
mining companies, one of which—Atlas—produces about 40 percent of the
total. There are no smelters or refineries.
Papua New Guinea. PNG's output is produced solely by the majority
foreign-owned firm, Bougainville Copper Ltd. (a subsidiary of Conzinc
Rio-Tinto which in turn is a subsidiary of RTZ). All output is shipped
abroad in the form of concentrates.
Both Japan and Western Europe have smelting and refining capacity
several times their mine output, and import substantial amounts of
concentrates and blister copper.
Majority private ownership in copper mines does not carry with it
full control over production and marketing. For example, although the
majority of Peruvian output is produced by a foreign-owned firm, SPCC,
Peru's mineral output is marketed by MINPECO, a government agency.
In all of the CIPEC member countries—Chile, Indonesia, Peru, Zaire and
Zambia—the government exercises control over marketing and production
in accordance with CIPEC guidelines. (Australia and PNG are Associate
Members of CIPEC and are not bound by CIPEC's decisions). In 1974 the
original CIPEC members accounted for 38 percent of world mine copper pro-
duction and about 62 percent of world copper exports. If Indonesia and
the new Associate Members of CIPEC are included, these shares rise to 46
and 72 percent respectively.
3-26
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
D. VERTICAL INTEGRATION
A substantial portion of the large firms are vertically integrated
from mining to refining. In addition, in 1969 about 25 percent of the
refined copper sold on the world market was to affiliates of the copper
producers."'' In the United States over half of the output of domestic
copper refiners is sold to subsidiaries, and a substantial protion of the
output of Japanese and European refiners is also sold to their affiliates.
In the past, a significant portion of the output of the mines owned by
private international firms was sold to parent companies or affiliates of
the mining firms. However, this pattern has been changing with the
nationalization of the private firms in the CIPEC countries and the assumption
of the marketing function by the governments of these countries. The buyers
of refined copper are usually semi-fabricators of which there are some 500
company groups plus about 100 merchants. Virtually all refiners sell to
independent fabricators as well as to their own affiliates.
Data on mine production of copper by company are very limited but most
of the larger producing countries have a small number (one to five) of large,
integrated mining and smelting firms, and a larger number of small, independent
2
non-integrated mining firms.
This percentage may also have been reduced by recent nationalization.
i
This part of our discussion draws heavily upon Glen E. Wittur, "Domestic
Processing of Mine Output in Canada, with Case Studies on Zinc and Copper
Refining," unpublished Ph.D. Thesis, Pennsylvania State University, 1974,
Chapter 6.
3-27
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Similarly, no definitive data are available on the split in mine
output between vertically integrated and independent mine producers and
it is not possible to draw conclusions on industry concentration at this
stage. Integrated firms certainly account for a large majority of
production in all major mining countries except the Philippines and,
to a smaller extent, Canada and a few smaller producing countries.
Independent mines may ship concentrates to domestic smelters and since
there are at most only a few smelters in each major producing country.
A possible conclusion is that this market is characterized by many
competitive sellers facing few buyers. The alternative of exporting
concentrates is also available in most countries, however, and this
introduces an important competitive element in domestic smelter buying
practices. As indicated below, while a number of countries import
copper concentrates, major buyers are limited to Japan, West Germany, and
to a lesser extent the United States. Japan was a very aggressive buyer
of copper concentrates during the 1960's and the international market for
copper concentrates was highly competitive during this period. As a result,
smelting and refining charges remained at very low levels for most of the
decade. Processing charges rose sharply between 1968 and 1972, Indicating
a considerable change in market circumstances.
The smelting and refining segment of the world copper Industry is com-
posed of firms that operate either smelters or refineries, or both. In
1970, some 22 firms with smelters alone operated 23 smelters; 44 firms with
both smelters and refineries operated 69 smelters and 63 refineries; and
22 firms with refineries only operated 24 refineries. Neglecting firms
with smelters of 30,000 tons or less, eight larger firms operated nine
3-28
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
smelters; 32 firms operated 57 smelters and 51 refineries; and three refining
firms operated three refineries. By eliminating the smaller producers,
many of which operate on scrap, the number of firms is reduced by half
and the number of plants by one third.
Considering copper refining only, industry concentration in the
leading industrial countries (excluding capacity in foreign countries
controlled by firms based in the leading industrial countries) ranges from
high to very high. A complication not adequately accounted for in data
on industry concentration is the many interrelationships among firms,
such as minority ownership, interlocking directionships, joint ventures,
and intercompany processing. Charles River Associates (1970a, p. 51-78)
document some of these interrelationships between international corporations,
but it is difficult to draw conclusions on their importance to industry
behavior and performance.
There seems little point in delving very deeply into the copper refining
industries in major consuming countries. With the exception of two or
three of the larger producers in the United States, most producers in large
consuming countries are predominantly custom processors. All but one of
the major refining firms in Western Europe, including the United Kingdom,
are custom refiners with little or no primary smelting capacity. One
West German firm and all but one of the Japanese firms, have both smelters
and refineries and import both concentrates and blister. Some Japanese
firms also have substantial domestic mine production. However, many of
the larger producers outside the industrial countries are associated with
producing interests in the Industrial countries.
3-29
Arthur D Little: Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this" material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In conclusion, copper processing in individual countries or areas is
characterized by a relatively high degree of concentration, which suggests
an oligopolistic industry structure. However, little can be concluded
a priori about possible implications of industry structure for industry
behavior and market competition without consideration of other market forces
that affect industry behavior. Factors of interest include the extent of
vertical integration of smelting and refining firms forward into fabricating,
the importance of trade barriers and transportation costs as contstraints to
international trade, entry conditions facing potential new producers, pricing
constraints imposed by secondary metal and the threat of substitution away
from copper, and government intervention in markets.
Meanwhile, it is difficult to measure the extent of vertical integration
of primary copper producers forward into copper fabricating. As a
generalization, primary producers in North America and Japan have Important
fabricating operations, refiners in Europe are partially integrated for-
ward, and those in other producing countries have very little fabricating
capacity. In the United States, all of the major primary producers have
fabricating subsidiaries. In the mid-1960's, about 35 companies were
recognized as important copper fabricators, with most of the larger ones
being affiliated with the major primary producers.^" However, there are also
a large number of independent fabricators; in 1966, there were more than
100 wire mills, 60 brass mills, and sever thousand foundries in the
United States. Only about one-third of refined copper fabricating capacity
is captive to domestic refiners.
^"A. D. McMahon, Copper—A Materials Survey (Washington, D. C.: U.S. Bureau
of Mines, Information Circular 8225, 1965), p. 253.
3-30
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The qualitative pattern of vertical integration through refining in
Japan is similar to that in the United States, although industry concen-
tration in fabricating is higher in Japan. In the United Kingdom and EEC,
the copper fabricating industry is composed predominantly of firms,
independent of copper refiners, which purchase refined copper and sell
fabricated products to manufacturers. The tendency in recent years
however, has been for manufacturers to integrate backwards into fabricating.
A recent technological development—continuous casting of copper rod to
replace rolling of wire bars—has encouraged some European refiners to
extend their operations into production of wire. Substantial excess capacity
exists in copper fabricating in both the United Kingdom and original EEC
member countries, and the United Kingdom's entry into EEC is said to
threaten severe price competition at the fabricating stage.^
In the United Kingdom, three major copper fabricating and manufacturing
groups of companies have evoled, each of which incorporates some domestic
refining capability, but many independent fabricators remain. The largest
copper refiner is a subsidiary of the country's leading copper user and the
two other large copper fabricators operate small scrap refineries but none
ofthe three firms appear to be connected with primary copper producers
2
in other countries.
Hoboken in Belgium, the leading copper refiner in continental Europe,
has no fabricating facilities of its own but is associated with a number of
metal fabricating firms in Belgium and other European countries. Similarly,
Bulletin Monthly (August, 1974), p. 11.
^Withur, op. cit., p. 331.
3-31
Arthur D Little, Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
the other major producer, Norddeutsche Affinerie In West Germany, has no
fabricating facilities but is a member of the Metallgesellschaft Group
which is a major metal fabricator In Europe. However, both Hoboken and
Norddeutsche have installed continuous rod casting facilities. All of
France's copper imports are purchased by Groupement d'Importation et de
Repartition des Metaux (GIRM), which distributes metal to its member firms.
Two firms associated with Pechiney together fabricate nearly 50 percent
of GIRM's copper supply. The five largest fabricators account for nearly
two thrids of copper fabricating in France. There exist many other fabri-
cators in Western Europe and, while little information is available on
their relative importance, it is apparent that a large independent market
exists for refined copper in Europe.^"
In summary, the structure of the copper consuming industry appears to
be broadly similar in all larger industrial countries. In each major copper-
using sector (rolling or barss mills, wire mills, and foundries), national
industries are characterized by a small number of large firms and a much
larger number of medium to small firms. The larger firms in the United
States and Japan are in many cases affiliated with primary producers, while
some fabricators in the United Kingdom and Continental Europea are affiliated
with domestic refiners. The majority of smaller fabricators in all countries
appear to be independnet or primary producers. The important point here is
that a substantial market for refined copper that is not captive to primary
producers, appears to exist in most industrial countries.
1Ibid., p. 332.
3-32
Arthur D Little: Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
E. INTERNATIONAL TRADE IN COPPER
Consistent data on international trade flows in copper are lacking.
Nevertheless, a fairly accurate understanding of major trade patterns
can be quite readily developed.
The bulk of the world's copper exports is from the developing countries
to Europe, Japan and the United States, with smaller amounts from Canada,
South Africa and Australia. The United States and Western Europe also
export refined copper, but are net importers of copper overall. About 25
percent of world copper exports in 1974 was in the form of concentrates,
16 percent in blister copper and 59 percent in refined copper.
Trade in smelted copper has traditionally followed mainly from Africa
to Western Europe and from Latin America to the United States. Entry of
Japan as an important importer and increasing refining of blister in the
exporting countries have resulted in greater diversification of trading
patterns in recent years and a gradual decline in the absolute importance
of trade in unrefined compared with refined metal.
Tables 10-12 are organized to convey a summary of world trade patterns
in copper. As shown in Table 10, the leading exporters of unrefined copper
are Canada, Chile, Peru, Zaire and Zambia, and to a much smaller extent,
the United States. These countries, except for Canada and Peru, are also
important exporters of refined copper. The list of leading exporters of
refined copper also includes such countries as Japan, Germany, (FR),
Belgium-Luxembourg, Australia and the United Kingdom. A more detailed view
"'"Data are from Statistical Bulletin, 1975, CIPEC, Paris, 1976.
3-33
Arthur D Little; Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 10
LEADING EXPORTERS OF COPPER, 1974
(metric tons)
Copper ores (copper
content), concentrates
Country and matte Refined Copper
United States
19,944a
114,782a
Canada
343,846
b
Chile
214,500C
487,800d
Peru
197,056e
38,475
Zaire
157,500
289,100
Zambia
31,946
649,774
Japan
b
279,573
Australia
12,234
70,536
Germany, FR
5,015
82,440
Spain
3,909
5,130
Belgium-Luxembourg
1,004
288,880
United Kingdom
b
35,026
NOTES: a21,984 and 126,525 short tons, respectively, as given in
U.S. Bureau of Mines, Mineral Industry Surveys, Copper in
1974 (April 8, 1975), p. 7.
^Data not specifically available; assumed negligible.
cCopper content; as reported by Corporacion del Cobre, Chile.
^Including both fire refined copper (101,700 metric tons) and
electrolytic copper (386,100 metric tons).
Consisting of blister copper (134,364 metric tons) and copper
ores (copper content), including copper precipitate (62,692
short tons).
SOURCE: Metallgesellschaft Aktiengesellschaft, Metal Statistics
1964-1974, 62nd. Edition (Frankfurt am Main, 1975), various
pages.
3-34
Arthur D Little; Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 11
INTERNATIONAL TRADE FLOWS IN COPPER ORES,
BY MAJOR IMPORTING COUNTRY, 1974
Major Importing Total Volume of Imports** Percent Composition by
Country/Origin (metric tons) Origin (I)
JAPAN TOTAL 3.123,600 100 0
From. Indonesia 161,903 5.2
Phillipines 886,115 28.5
Zaire 87,997 2 8
Chile 183,544 5.9
Canada 1,129,831 36.2
Peru 56,486 1.8
Australia 187,863 6 0
Papua-New Guinea 381,275 12 2
SUBTOTAL 3,075.014 98 4
GERMANY, FR TOTAL 571,146 100 0
Norway 24,874 4 4
Spain 24,820 4 3
Indonesia 67,943 11.9
Republic of
South Africa 68,112 11 9
Chile 91,397 16 0
Canada 24,751 4 3
Australia 81,714 14 3
Papua-New
Guinea 141,675 24 8
SUBTOTAL 525,286 92.0
SPAIN TOTAL 128,689 100.0
Irish Republic 27,785 21.6
Cyprus 11,478 8 9
Mauritania 11,329 8 8
Australia 62,590 48.6
SUBTOTAL 113,1B2 88 0
UNITED STATES TOTAL 48,463* 100 0
Philippines 12,923 26.7
Canada 18,059 37 3
Peru 6,608 13.6
Honduras 4,169 8 6
SUBTOTAL 41,759 86 2
SWEDEN TOTAL 40.360 100 0
Irish Republic 18,411 45 6
Norway 15,343 38 0
Canada 5,405 13 4
SUBTOTAL 39,159 97 0
BELGIUM AND
LUXEMBOURG TOTAL 32,406 100 0
Italy 2,992 9 2
Sweden 3,021 9 3
Morocco 3,441 10 6
Zaire 5,406 16 7
Canada 3,078 9 5
Mexico 3,066 9 5
Australia 3,928 12 1
SUBTOTAL 24,932 76 9
NOTES. aGeneral imports (copper content), ores, matte, regulus.
^Components may not sum up to the totals given due to rounding
SOURCE Metallgesellschaft Aktiengesellschaft, Metal Statistics 1964-1974,
62nd Edition (Frankfurt am Main, 1975), various pages.
3-35
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
1ABI h 12
INTERNATIONAL TRADE FLOWS IN REFINED COPPER,
BY HAJOR IMPORTING COUNTRIES. 1974
Major Importing Total Volume of Imports6 Percent Composition by
Country/Origin (metric tons) Origin (X)
UNITED STATES TOTAL1* _28414MC 100-0
Prom Canada 107,439 37 8
Chile 60,372 21 2
Japan 66*273 23 3
Yugoslavia 13,465 4.7
SUBTOTAL 247,549 87 0
CERMANY, FR TOTAL 440,025 100 0
Belgium-Luxembourg 62,551 14 2
United Kingdom 12,245 2 8
Yugoslavia 11,307 2 6
Poland 32,883 7 5
U.S S R 22,724 5 2
Japan 17,905 4.1
Zaire 21,729 4 9
Zambia 80,306 18 3
Chile 87,115 19 8
Canada 23,595 5 4
Australia 11,866 2 7
SUBTOTAL 384,226 87 3
FRANCE TOTAL 417,474° 100 0
Belgium-Luxembourg
117,468
28.1
Germany, PR
17,142
4.1
Yugoslavia
18.383
4.4
U S.S.R
16,690
4 0
Zaire
46,778
11 2
Zambia
74,760
17 9
Chile
21,462
5 1
United States
18,013
4 3
Australia
16,807
4 0
SUBTOTAL
347.433
83 2
UNITED KINGDOM TOTAL
380.870
100 0
USSR
11,055
2 9
Zaire
11,725
3 1
Zambia
125,861
33 1
Republic of

South Africa
18.246
4 8
Chile
50,428
13 2
Canada
95,274
25 0
United States
18,236
4 8
Australia
14,193
3 7
SUBTOTAL
345.018
90 6
ITALY TOTAL
306.673b
100 0
Belgium-Luxembourg
21,260
6 9
Zaire
73,513
24.0
Zambio
75,736
24 7
Chile
61,409
20.0
United States
25,682
8.4
SUBTOTAL
257.600
84 0
JAPAN TOTAL
230,182
100.0
U S.S.R
14,556
6 3
Zaire
15,644
6.8
Zambia
139,320
60 5
Chile
42,009
18 3
SUBTOTAL
211,529
91.9
SOURCE
Includes unrefined copper of 42,176 metric tons
^Includes unrefined copper of 3,418 metric tone.
cThe data for the United States, believed to be more up-to-date, arc
obtained from U.S. Bureau of Mines, Mineral Industry Surveys,
Copper in 1974 (April 8, 1975), p. 6
Prom all sources
cComponents may not sum up to the totals given due to rounding.
Metallgesellschaft Aktlengesellschaft, Metal Statistics 1964-1974.
62nd. Edition (Frankfurt am Main, 1975), various pages.
3-36
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
of international trade in copper ore and in refined copper can be
gained by examining Tables 11 and 12.
Generally speaking, the relative importance of trade increases with the
stage of processing, although there is an overall trend towards more
trade in concentrates and relatively less in smelted and refined metal.
Trade in concentrates flows mainly from the Philippines, Canada, Peru,
and recently the United States, to Japan. Many other small producing
countries also export to Japan. Most of the remainder flows from Chile,
the United States, and several small exporters to West Germany.
The leading exporters of refined copper all have diversified markets
but Belgium and Zaire export mainly to members of the EEC. Zambia's major
markets are the United Kingdom, countries in Continental Europe, and
since the mid-1960's, Japan. Canada's most important markets are the
United Kingdom and the United States, while Chile exports mainly to
Continental Europe. United States exports are highly diversified
but sales to Europe predominate.
West Germany imports all of its primary copper needs, two thirds in
refined form, one quarter in smelted forms, and about one tenth in copper
concentrates. It is also one of the leading importers of scrap.
Neither Belgium nor the United Kingdom has very large smelter outputs
but the former is a large refiner based on imported blister and some scrap,
while the latter is also a large refiner based mainly on scrap plus some
imported blister. Belgium, however, exports much of its refinery output
while the United Kingdom also requires large net imports of refined copper.
Refined imports supply three quarters or more of the United Kingdom's
primary copper consumption (smelted imports supply the remainder), and
slightly more than half of total copper usage.
3-37
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Other leading consuming countries in Europe, including France, Italy
and the Netherlands, import most of their refined copper requirements in
that form, supplemented by small local refined production from scrap.
Sweden is an important primary producer but also imports refined metal.
Most of the copper exported by the developing countries is sold under
contract to smelters, refineries or fabricators in the developed countries.
The pattern of world trade in concentrates tends to be governed by long-
term contracts which may call for deliveries over periods up to 15 or 20
years, financial arrangements providing for repayment of loans in concen-
trates, and ownership ties between the mining and processing companies.
Also, smelters are frequently geared to processing particular concentrates.
Long-term contracts for the sale of concentrates of blister have
important advantages for both the mines and the smelters or refineries
with which they are negotiated. Smelters and refineries in Japan and
Europe which lack domestic sources of raw materials want to be assured
of raw material supplies; in the case of private or nationalized mines
that are not vertically integrated, long-term contracts for the sale of
concentrates are frequently important factors in the decision to construct
the mine."'"
"For example, the ability of Bougainville Copper Ltd. (BCL) to negotiate
long-term contracts for the sale of concentrates to foreign smelters in
1969 played an important role in the ability of the company to mobilize
financing for the mine.
This and the following few points made here are drawn from an unpublished
manuscript by Raymond F. Mikesell, entitled "The Nature of the World
Market for Copper" (Eugene, Oregon: University of Oregon, June, 1974),
pp. 5-6.
3-38
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
By contrast, trade in refined copper is for the most part based on
short-term contracts of one-to-twelve month duration. While more com-
petitive, it is also influenced by nonprice factors such as ownership ties,
technical assistance and marketing contracts, such as that between
Belgium and Zaire, and long standing buyer-seller relationships.
Ownership ties between producing and consuming countries have been
declining, and, even where they exist, governments of producing
countries have taken a more active role in marketing and are attempting
to diversify their markets. Other nonprice factors, such as strikes,
transportation problems, natural disasters in the producing countries,
and recessions in the consuming countries, frequently affect the
pattern of trade in refined copper.
The bulk of the world's refined copper is sold directly by the producers
to fabricators and semi-fabricators; only marginal amounts are sold
through the London Metal Exchange (LME) and the New York Commodity
Exchange (Comex).^
Fabricators and semi-fabricators also tend to buy refined copper,
not obtained directly from producers, from dealers or merchants. Merchants,
in turn, deal extensively with independent refineries (not associated with
large integrated firms). They may buy scrap for sale to refineries and
purchase output from refineries not committed under contract for sale
2
to fabricators or for them to hold as stocks.
"'"This is a little bit running ahead of the story; more is said on the LME
and Comex exchange markets later in the report.
2
For a discussion of the role of merchants in the copper market, see
Ferdinand E. Banks, The World Copper Market: An Economic Analysis
(Cambridge, Mass.: Ballinger Publishing Company, 1974), pp. 41-43.
3-39
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Since the U.S. copper industry is generally more integrated than in
the rest of the world, merchants are somewhat less important in the
United States than abroad."^
1Ibid., p. 43.
3-40
Arthur D Little; Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Proiect Officer, since the document
may experience extensive revision during review.
F. U.S. TRADE PATTERNS IN COPPER
The U.S. is virtually or nearly self-sufficient in copper. As shown
in Table 13, the U.S. has experienced what could be called heavy dependence
on foreign sources of copper only in such years as 1950, a Korean build-
up year, or 1974, an extreme "demand-crunch" year. Otherwise, net
U.S. Imports have remained well, under ten percent of total domestic
consumption of refined copper.^"
Nearly half of U.S. copper imports are in the form of refined copper
2
as shown in Table 14 (from mainly Canada, Japan and Chile) with smaller
amounts imported in the form of blister and cement copper, or in the form
3
of ore and concentrate.
Similarly, the bulk of U.S. exports is in the form of refinec copper
(Table 15), most of which is destined to such countries as Brazil (23,990
short tons), France, 19,067 short tons), West Germany (11,716 short tons),
A
Italy (26,520 short tons) and the United Kingdom (14,541 short tons).
^These figures would be even less if we defined domestic copper consumption
to include directly consumed scrap.
2
Figures for 1974 were as follows: from Canada 118,431 short tons; Japan
73,053 short tons; Chile 66,549 short tons (Source: U.S. Bureau of Mines,
Mineral Industry Surveys, Copper in 1974 [April 8, 1975], p. 6).
3
Although some of this material enters the United States as imports, it is
held in "bond" only to be shipped abroad for further processing. This
historically has applied especially to unrefined copper "imports" from
Chile. Consequently, the import and export statistics, thus subject to
some degree of "noise," should not be taken too literally.
In 1974 the major sources of U.S. imports of copper, by type, were as
follows (copper content, short tons):
Ore and Concentrate: Blister
(from) Canada 19,917 (from) Chile 65,093
Philippines 14,244 Peru 94,686
Republic of South 37,211
Africa
(Source: U.S. Bureau of Mines, Mineral Industry Surveys, Copper in 1974
[April 8, 1975], p. 6). 1974 figures. Op. cit., p. 7.
3-41
Arthur D Little Inc
-------
TABLE 13
u>
I
¦p-
to
c
-1
o
TRENDS IN U.S. COPPER CONSUMPTION AND TRADE, 1950-1975
(short cons)
Total imports of
refined and
Total exports of
refined and
Net
Net trade as
Years
Total refined
consumption
unrefined copper
(copper content)
unrefined coppeg
(copper content)
Trade
(net imports)
Percent of total
refined consumption
1950
1,424,434
690,389
154,622
535,767
37.6
1960
1,599,700
524,344
503,733
20,611
1.3
1970
2,043,303
392,480
299,304
93,176
4.6
1971
2,019,507
359,479
214,215
145,264
7.2
1972
2,238,867
415,618
225,165
190,453
8.5
1973
2,437,048
417,434
262,552
154,882
6.4
1974
2,194,168
607,992
189,851
418,141
19.1
1975
1,536,694
324,126
227,273
96,853
6.3
3 o § o
2 3 § 30
^ S S >
* J § 2
n>" ^ O 2
3 3" "" 2
S "> °
® m » 3
a
NOTES: aIncludes refined copper, ore and concentrate, blister and cement copper, matte and scrap.
^Includes only refined copper, ore and concentrate, etc. (unrefined copper), and scrap; exclusive
of copper semimanufactures or manufactured copper products (e.g., plates, sheets, strips, wire, etc.).
SOURCES: U.S. Bureau of Mines:
1950: Minerals Yearbook, Vol. I, Metals and Minerals (Except Fuels), 1952,
pp. 360-371;
1960: Minerals Yearbook, Vol. I, Metals and Minerals (Except Fuels), 1962,
pp. 499-509;
1970: Minerals Yearbook. Vol. I, Metals, Minerals and Fuels, 1971, pp. 485-491;
1971-1975: Mineral Industry Surveys, Copper, in 1972, 1973, 1974 and 1975
(separate reports).
{L
3
P
-------
DRAFT REPORT — The reader i$ cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 14
U.S. IMPORTS OF COPPER, BY TYPE, 1971-1975
(Copper content, short tons)
1971 1972 1973 1974 1975
Refined
163,988
192,380
201,513
313,568
146,807
Ore and
Concentrate
30,848
53,653
42,135
53,422
64,879
Blister and
Cement copper
156,744
157,430
154,104
207,828
88,949
Matte
440
1,367
746
1,944
9,093
Scrap
7,459
10,788
18,936
31,230
14,398
TOTAL
359,479
415,618
417,434
607,992
324,126
SOURCE: U.S. Bureau of Mines, Mineral Industry Surveys, Copper in
1972, 1973, 1974 and 1975 (separate reports).
3-43
Arthur D Little; Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or .reproduction-of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 15
U.S.
EXPORTS OF COPPER, BY
(short tons)
TYPE, 1971-
-1975

Type
1971
1972
1973
1974
1975
Refined Copper
187,654
181,494
189,396
126,526
172,419
Ore, concentrates, etc.
(copper content)
8,126
26,231
30,870
21,983
9,853
Old and scrap
18,435
17,440
42,286
41,342
45,001
Ash and residues
-
9,381
15,087
8,233
6,601
Pipes and tubes
1,249
1,142
7,744
6,738
2,200
Plates, sheets and
strips
287
279
474
793
186
Semi-fabricated forms
n.e.c.
7,746
6,299
7,431
8,332
9,517
Wire: Bare
1,925
2,767
5,196
5,632
3,720
Insulated
24,590
28,660
40,046
62,514
79,631
SOURCE: U.S. Bureau of
Mines, Mineral Industry Surveys
, Copper in
1972, 1<
1974 and 1975
(separate reports).

3-44
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In summary, although the U.S. has been nearly self-sufficient in
copper, except in certain years coinciding with military developments
or unusual "demand crunch" periods, the U.S. is both a leading importer
and exporter of copper. The impact of domestic environmental regulations
on the U.S. copper industry should therefore be examined with close
attention to their international economic implications, affecting the
structure of the world copper industry, international trade patterns, and
the role of the United States in the world copper industry.
3-45
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Chapter A
INDUSTRY STRUCTURE AND SUPPLY CHARACTERISTICS
A. INTRODUCTION
Chapter 3 presented an overview of the copper industry in an inter-
national setting, drawing major attention to the structure of the world
copper industry and patterns of international trade. In this chapter,
the attention shifts exclusively to the domestic copper industry, with
emphasis on its organization and structure, costs of production and related
supply characteristics. This discussion, along with other material
contained in subsequent chapters on industry background, is intended to
provide the necessary informational background for the industry modeling
effort for impact assessment purposes. Accordingly, most of this chapter
will focus on particular characteristics of the domestic copper industry,
including the industry's organization (i.e., primary and secondary producers),
the firms involved, the degree of geographical and firm concentration in
the industry as well as vertical integration, barriers to entry, and
production costs. Our major objective is to lay the groundwork for
an exposition of how these characteristics influence the determination
of available domestic supplies of refined copper and the formation of
copper prices.
Most of the discussion will be concerned with the primary producers
segment of the domestic copper industry (i.e., that portion of the industry
concerned predominantly with supplying refined copper produced from
virgin ore and blister rather than from scrap). We will, however, discuss
relevant aspects of the secondary copper industry, as well.
4-1
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The principal conclusions of this chapter can be summarized as
follows:
i
1. Over the period 1960-1974, about 76 percent, on average, of the
total U.S. copper supply was in the form of refined copper processed
either from virgin ore or from scrap. Of this, about 80 percent was pro-
cessed from ore and 20 percent from scrap. The remaining 24 percent, on
average, of total copper supplies was in the form of scrap consumed with-
out further refining.
2. Among the semifabricator and fabricator consumers of refined copper,
wire mills and brass mills together consumed on average about 83 percent of
total copper supplies during the 1960-1974 period. Ingot makers consumed
on average about nine percent of total supplies. Foundries used about
five percent, powder plants about one percent, and a group of "other
industries," such as chemicals and aluminum, about two percent.
3. For the analytical purposes of this study, we have defined the
primary and secondary copper sectors on the basis of the pricing behavior
of the firms in the domestic copper industry. By this criterion, firms in
the primary sector are those which sell the bulk of their refined copper
output (mostly from mined copper but also including some refined from scrap),
on the basis of a commonly-followed domestic producers price. Firms in the
secondary sector, on the other hand, are those which sell their copper output,
regardless of its form (i.e., whether refined or scrap) and regardless of
its origin (i.e., whether from mined copper—from domestic or foreign
source—or refined from scrap), on the basis of one of several "outside
market" prices.
4-2
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
4. The primary sector consists of: (1) a core group of seven
large fully integrated producers (Anaconda, Kennecott, Phelps Dodge, Inspira-
1 2 4
tion, Magma, Copper Range, and Asarco ); and (2) one partially integrated
firm (i.e., Cities Service Company, integrated through smelting), two large
nonintegrated independent mining firms (e.g., Duval, a subsidiary of Pennzoil
3
Company, and Cyprus ), as well as many small independent mining firms.
Through a high degree of vertical integration and firm concentration, the
core group of primary producers (including Asarco) are able to exercise
discretionary pricing behavior in refined copper markets. In 1974, the seven
vertically integrated firms (including Asarco) supplied 77.0 percent of
domestic mine production of recoverable copper in the United States (79.6
percent in 1973, a peak year). At year-end 1975, these seven firms
accounted for over 95 percent of total U.S. smelting capacity and 85 percent
of refining capacity.
5. Within the secondary sector, two broad segments can be distinguished.
The first comprises a small number of firms processing scrap into secondary
refined copper. Amax and Cerro have been the two most important of these
during most of the postwar period. These secondary refiners sell their
^Subsidiary of Newmont Mining Corporation.
2
Of which White Pine Copper Company (mining/milling, White Pine, Michigan),
and Quincy Mining Company (smelting/refining, Hancock, Michigan) are sub-
sidiaries .
3
Of which Cyprus Pima Mining Company and Cyprus Bagdad Copper Company are
subsidiaries.
4
In addition to being, in its own right, a major, fully-integrated primary
producer, Asarco also plays a pivotal role in the domestic copper industry
as a major custom/toll smelter and refiner.
4-3
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
product at prices (explicitly if in the open market or implicitly if intra-
company transfers are involved) which are more reflective of current market
prices for scrap than of refined copper prices quoted by the primary pro-
ducers. They have been responsible for an average of about 12 percent of
total refined copper supplied in the U.S. each year between 1950-1974 and
have held about 11 percent of domestic refinery capacity during this same
period.
The remainder of the secondary industry is comprised of a large number
of firms—mostly small and individually unrefined scrap as well as in the
trading of refined copper. These include scrap dealers, merchants, ingot
makers, and semifabricators (for own-consumption). Firms in this segment
buy or sell unrefined scrap directly on the basis of quoted scrap prices.
6. Within the primary copper sector, over 300 mines produce copper
in the United States, a majority of which are located in five western
states—Arizona, Utah, New Mexico, Montana, and Nevada. Most of the copper
smelters in the U.S. are located in these Western states to minimize trans-
portation charges from mine to smelter. About half of domestic refinery
capacity, on the other hand, is located on the Atlantic Coast, close to
major refined copper consumers. Industry smelting capacity extended only
marginally between the early 1950's and 1975; no new smelters were built
after 1956. Refinery capacity, however, expanded by about 38 percent over
the 1958-1975 period.
7. The U.S. primary copper industry is characterized not only by a
high degree of firm concentration and vertical integration at the mining
through refining stages of production but also by forward integration beyond
4-4
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
refining. The major domestic producers (particularly Anaconda, Kennecott,
and Phelps Dodge) are integrated forward into wire mill and brass mill
operations. However, available evidence indicates a significantly lower
degree of firm concentration at the semifabricator level than that existing
at the mining through refining stages—low enough, at least, to prevent
individual semifabricators from having a significant influence on pricing
or production decisions within the semifabricating industry as a whole.
Barriers to entry for fully integrated operations appear to be sub-
stantial. However, the height or conditions of entry have apparently had
little effect in moving the discretionary pricing behavior of the major
primary producers, during the past three decades, in the direction of implicit
monopolistic pricing behavior, in the face of the continuous threat of long-
run substitution from aluminum, among other factors.
8. In the copper industry, costs of mining and milling have traditionally
formed the largest proportion of total production costs of refined copper.
Smelting and refining costs have represented only a small proportion, with
smelters and refineries functioning mainly as "service" operations on fixed
and relatively low profit margins.
Overall, real costs of refined copper production, although they have
remained stable over a relatively long period (Herfindahl hypothesis), appear
to have increased gradually during the 1950's and 1960's. Evidence exists,
moreover, suggesting a sharp real increase in some factor costs during the
past few years.
Labor productivity in the industry, meanwhile, stagnated through the
1950's and 1960's and registered an actual decline after 1971 in the face
4-5
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
of continued degradation of the average ore grades mined in the U.S. This,
combined with little prospect for improvements in labor productivity over
the next few years, argues for rising production costs in real terms with
increases in unit labor costs.
9. We have estimated industry-wide (aggregate) average total costs
for producing refined copper (from mining through refining) for the primary
producers, in 1974 at 72$ per pound (at roughly 86 percent of installed
capacity). Of that total, average fixed costs were estimated at 29$ per
pound and average variable costs were estimated at 43c per pound.
4-6
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Off.cer, since the document
may experience extensive revision during review.
B. COPPER FLOWS THROUGH THE ECONOMY
Figure 1 is a schematic flowsheet of the production and consumption
of copper in the United States in 1974, tracing the flow of copper from
principal sources (producers of virgin ore and scrap suppliers) through
the various stages of processing to consumption by ingot makers, semi-
fabricators, and final end-users.
On the supply side (left-hand side of Figure 1), we can summarize
some of the more important facts, with reference to the 1960-1974 period,
as follows:
• On average, about 76 percent of total U.S. copper supply was in
the form of refined copper processed either from virgin ore or
from scrap;1 of this (i.e., 76 percent), about 80 percent was processed
on average from domestic ores and imported blister, while the
remaining 20 percent was smelted and/or refined from scrap;
• An average of about 24 percent of total copper supplied was
in the form of scrap consumed directly without further refining
by semifabricators and end-users.1
On the demand side (right-hand side of Figure 1), there are six
major groups of consumers of refined copper and scrap: four copper
2
semifabricating industries —wire mills, brass mills, foundries, and powder
Approximately 70 percent of the directly consumed scrap was purchased, with-
out any treatment but packaging, by brass mills and foundries; another 22
percent was processed by ingot makers into copper alloy ingot, which was
then sold to brass mills and foundries. About 8 percent was consumed directly
by powder plants and other industries.
2
The general task of the semifabricating industries is to alter the shape of
copper inputs into products for final end-use. Wire mills, brass mills, and
powder mills use mechanical means, while foundries use casting means. Ingot
makers produce copper alloy ingot which is then sold to brass mills, foundries,
power plants, and other industries using copper.
4-7
Arthur D Little Inc.
-------
FIGURE 1
COPPER SUPPLY AMD CONSUMPTION IN THE UNITED STATES. 1974
Mine
Produc-
tion
1.S97 0
Stocks 6
Scrap

Other Than
Stocks 4

Copper Base
Other

Scrap
3.0

21 l

1,504 3\

1,410 6
Flora of
Metal
Building
Construction
L 303
Stocks
Other
Nee In-
Net Im-
ports of
ports of
Bare wire
Refined
Blister
177 2
zOS 1
insulated
Communlcat ion
766
Wire Mills
Refined i.676.3
Other Insulated
1.661
Total Re-
fined Copper
Output
Supply
Metal
2J39 0_l
Trans
portatlon
722
Other
170 6
Sheet
1.060
Plumbing
Blister
Stocks &
Stocks 6
Brass Mills
Other
670 2
Refined
116 8
1.233 21
& General
Othor
1.239
115 4
Copper
Ingot Makers
Ingot
Stocks 6
Other
10 9
Supply
167 0
2 IS 0
Industrial I
Machinery & |
Equipment
1 190
Other Industries
jTotal Scrap
ISiiroly for
Metal
Stocks &
Other
2 6
Direct Con-
968 0
& Electronic|
Products
Powder Plants
2,056
SUPPLY OP PRIMARY AMD SECONDARY COPPER
(Copper Content, Thousands of Short Tons)
¦CONSUMPTION BY SBMIPABR1CAT0RS
(Copper Content, Thousands of Short Tons)
ore, concentrate, and refined copper
SUPPLY OF SEMI FABRICATED AND FABRICATED PRODUCTS
AND CONSUMPTION BY END-USERS
(Metal Weight, Millions of Pounds)
scrap copper
Arthur D Little* lac
A1""*1 Data. 1975.
on Copper Developaent Association, Copper Supply and Coasiaaptlon
4-8
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Proiect Officer, since the document
may experience extensive revision during review.
mills; Ingot makers; and a group of "other Industries" such as chemicals,
steel, and aluminum, which consume refined copper and scrap directly.
Wire mills and brass mills together consumed on average about 83 percent
of total copper supplies in both refined and scrap forms during the 1960-
1974 period.
Wire mills, which use only refined copper, consumed about 46 percent
of total copper supplies, on average, while brass mills, which consume
refined copper and scrap in fairly equal proportions, accounted on average
for about 37 percent of total consumption of copper supplied. Ingot makers,
who used almost entirely scrap, consumed on average about nine percent of
total copper supplies. Foundries, which consumed predominantly scrap,
used on average about five percent of total copper supplied. Powder plants
consumed only about one percent of total supplies, while "other industries"
were responsible for about two percent of total consumption, the bulk of
this in the form of scrap.
4-9
Arthur D Little Inc
-------
YEAR
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 1
REFINED COPPER PRODUCTION OF U.S.
PRIMARY AND SECONDARY PRODUCERS. 1950-1974
(Thousands of Short Tons)
TOTAL
REFINED
PRODUCTION
1446.4
1362.5
1320.5
1504.0
1418.4
1562.8
1687.8
1676.1
1579.5
1331.5
1794.6
1813.9
1884.5
1884.4
1990.4
2214.8
2183.3
1526.6
1839.0
2214.9
2242.7
1962.4
2258.5
2312.6
2136.5
PRIMARY
PRODUCER
REFINED
1300.8
1247.2
1220.2
1345.6
1249.1
1355.4
1501.3
1467.4
1389.3
1087.9
1565.3
1623.9
1689.4
1648.9
1750.3
1946.6
1905.8
1255.2
1565.4
1951.8
1991.0
1747.6
2006.3
1963.8
1754.4
SECONDARY
PRODUCER
REFINED
145.6
115.3
100.3
158.4
169.3
207.4
186.5
208.7
190.2
243.6
229.3
190.0
195.1
235.5
240.1
268.2
277.5
271.4
273.6
263.1
251.7
214.8
252.2
348.8
382.1
Copper Development Association, Inc., Annual Data 1975 and
Arthur D. Little, Inc., estimates.
I
4-10
Arthur DLittlslnc.
-------
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 2
REFINERY CAPACITY OF U.S.
PRIMARY AND SECONDARY PRODUCERS, 1950-1974
(Thousands of Short Tons)
TOTAL
REFINED
PRODUCTION
1599.0
1599.0
1647.0
1896.0
1862.0
2070.0
2064.0
2081.5
2108.5
2309.0
2331.0
2341.0
2334.0
2334.0
2334.0
2320.0
2426.5
2527.0
2643.0
2676.0
2676.0
2793.0
2723.0
2850.0
2850.0
PRIMARY
PRODUCER
REFINED
1399.0
1399.0
1447.0
1696.0
1656.0
1799.0
1793.0
1810.5
1812.5
2013.0
2017.5
2077.5
2016.5
2016.5
2016.5
2102.5
2112.5
2208.0
2339.0
2372.0
2372.0
2489.0
2419.0
2394.0
2394.0
SECONDARY
PRODUCER
REFINED
200.0
200.0
200.0
200.0
206.0
271.0
271.0
271.0
296.0
296.0
313.5
313.5
317.5
317.5
317.5
317.5
314.0
319.0
304.0
304.0
304.0
304.0
304.0
456.0
456.0
American Bureau of Metal Statistics, Yearbook 1954-1975, and
Arthur D. Little, Inc., estimates.
4-11
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
C. ORGANIZATION OF THE INDUSTRY: DEFINITION OF THE PRIMARY AND SECONDARY
MARKET SEGMENTS AND TYPES OF FIRMS
1. Definition of the Primary and Secondary Market Segments
The domestic copper industry has in the past been segmented into "primary"
and "secondary" sectors on the basis of whether the copper product trans-
acted in the market has originated from mined copper (virgin ore) or from
scrap. By this definition, based on the source of copper, firms in the
primary sector would be those which predominantly transform virgin ore
into refined copper, while firms in the secondary sector would be those
which either predominantly process scrap copper into the secondary refined
copper or prepare it for direct consumption in the form of unrefined
copper scrap.
For an economic analysis of the domestic copper industry, such a
segmentation of the industry into primary and secondary sectors, on the
basis of the source of the copper transacted in the market, is not very
useful. First, the pricing behavior of the firms in the industry does not
fall neatly into two non-overlapping categories based on whether the copper
product transacted is derived from primary or secondary streams. Second, once
refined, there is no physical difference between primary and secondary
refined copper. Third, the major primary producers do often smelt and refine
scrap in their operations, mostly for technological reasons, while at least
one major secondary smelter/refiner has processed some blister from virgin
ore. Further, there exist merchants, importers or firms which perform a
combination of functions involving scrap, refined scrap or toll smelting/
refining of mined copper.
4-12
Arthur DLittletlnc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
We have hence segmented the domestic copper industry into "primary"
and "secondary" sectors, for our analytical purposes, on the basis of the
pricing behavior of the firms on the sellers' side.^" By this criterion,
the primary sector consists of firms which sell the bulk of their refined
copper output (mostly from mined copper but also including some refined
from scrap) on the basis of a commonly-followed domestic producers price.
Firms in the secondary industry, on the other hand, are those which sell
their copper output regardless of its form (i.e., whether refined or
scrap) and regardless of its origin (i.e., whether processed from mined
copper—from domestic or foreign source—or refined from scrap) on the basis
of one of several "outside market" prices.
Within the secondary sector, two broad segments can be distinguished.
The first comprises a small number of firms processing scrap into secondary
refined copper. The remainder of the secondary industry is comprised of a
large number of firms—mostly small and individually owned—engaged in the
collection, processing and consumption of unrefined scrap as well as in the
trading of refined copper. These include scrap dealers, ingot makers,
semifabricators, and merchants. Firms in this segment of the secondary
market buy or sell unrefined scrap directly on the basis of quoted scrap
prices.
In the case of a few firms, there is some ambiguity concerning the type
of copper input (e.g., mined copper or scrap) predominantly processed by
these firms over the past three decades; moreover, where firms process
inputs of both blister and scrap, the specific proportions have often
reportedly changed over time. In all such ambiguous cases, we have used
pricing behavior as the overriding yardstick for classifying firms into
either the primary or the secondary industry.
4-13
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
These two segments of the secondary copper sector (or industry) comprise
two "workably competitive" markets which together represent a competitive
fringe to the domestic primary producers market.
2. Firms in the Primary Copper Sector
The primary sector consists of: (1) a core group of seven large fully-
integrated producers (Anaconda, Kennecott, Phelps Dodge, Inspiration, Magma,^
2 3
Copper Range, and Asarco ); (2) one partially Integrated firm (Cities
Service Co., integrated through smelting), two large nonintegrated independent
mining firms (Duval, a subsidiary of Pennzoil Co., and Cyprus^), and many
small independent mining firms.
Since Asarco, which is both a major primary producer and a large
custom/toll** smelter and refiner, has held a somewhat anamalous position
Subsidiary of Newmont Mining Corporation.
2
Of which White Pine Copper Company (mining/milling, White Pine, Michigan),
and Quincy Mining Company (smelting/refining, Hancock, Michigan), are sub-
sidiaries.
3
In addition to being, in its own right, a major, fully-integrated primary
producer, Asarco also plays a pivotal role in the domestic copper industry
as a major custom/toll smelter/refiner.
4
Of which Cyprus Pima Mining Company and Cyprus Bagdad Copper Company are
subsidiaries.
including UV Industries, Incorporated (Bayard Operations, New Mexico,
24,167 short tons of recoverable copper output in 1974); Idarado Mining
Company, which is 80.1 percent owned by Newmont Mining Corporation
(Idarado Mine, Colorado, 2,181 short tons of recoverable copper output
in 1974); also including the following (among others): Rancher's Explora-
tion and Development Corporation, Earth Resources Company, El Paso Natural
Gas Company, Hecla Mining Company, McAlester Fuel Company, Federal Re-
sources Corporation, Eagle-Picher Industries, Incorporated, Keystone
Wallace Resources, Micro Copper Corporation.
Custom smelting/refining: purchasing ores or concentrates from other pro-
ducers for own-account smelting and refining. Toll smelting/refining:
smelting and/or refining (ores, concentrates) for a fee and then returning
the resulting metal to the mining company for marketing.
4-14
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
in the domestic copper industry, a brief digression may prove helpful in
clarifying our treatment of it for analytical purposes.
Until recently, Asarco differed from other primary producers in four
respects:
• The firm was historically not backward integrated into domestic
mining and milling operations;
• Asarco processed a large amount of concentrate and/or blister
on a toll basis;
• The company frequently used large volumes of scrap as inputs to
its refinery operations;
• Asarco's output until 1967 was reportedly sold on the basis of its
own "custom smelter" price, an outside market price which frequently
deviated from the domestic producers price basis on which the
primary producers marketed their output.
In recent years, however, Asarco has made significant expansions,
backward into mining and milling and forward into refining. Moreover, as
far as the processing of concentrate or blister on a toll basis is concerned,
Phelps Dodge and other producers have also carried out this function for
independent producers. Asarco, in addition, has reportedly significantly
increased over the years the proportion of mined copper and blister used in
its smelting and refining operations. Finally, and perhaps most importantly,
since 1967 Asarco has followed the producers price quotations in setting
the selling price for its own output. For all of these reasons, it is
accurate to include Asarco within the primary copper industry along with
the other primary producers.
4-15
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
3. Firms in the Secondary Copper Sector
The firms in the secondary copper industry, following our definition
of the secondary market, consist of the secondary refiners plus many small,
individually-owned firms (scrap dealers, ingot makers, semifabricators
engaged in scrap processing for own-consumption, merchants). The classi-
fication of these firms in terms of whether they sell refined copper
(mostly from scrap, some from mined copper, imports) or unrefined scrap
is difficult because of the diversity or multiplicity of functions performed
by the latter group of firms.
While there are a number of secondary copper refiners, several of them
integrated forward into captive fabricating facilities, Amax and Cerro
have been the two most important of these during most of the postwar period.
These secondary refiners sell their product at prices (explicit prices if
in the open market or implicit prices if intra-company transfers are involved)
which are more reflective of current market prices for scrap than of refined
copper prices quoted by the primary producers. They have been responsible
for an average of 12 percent of total refined copper supplied in the U.S.
each year between 1950-1974 and have held about 11 percent of domestic
refinery capacity during this same period.
Since 1971 three other refiners, Chemetco, Southwire, and Reading In-
dustries, have gradually come on-stream with substantial secondary refining
and, in the case of Southwire, smelting capacity.
Amax, known widely in the industry as the other major custom refiner
besides Asarco (approximately 60 percent of the material refined by Amax
in 1974 was reportedly done so on a toll or custom basis), is considered a
4-16
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
secondary refiner because most of its copper refinery inputs are in the
form of scrap and because it sells its output on the basis of its own
individually-determined price which, however, reflects prevailing prices
on the outside market.
Amax, similar to Asarco, has integrated backward into domestic mining
and concentrating operations in recent years (a joint-venture mining project
with Anaconda known as Anamax).^" Concentrate from this operation is toll
smelted at Western smelters and a proportion of the resulting blister is
refined at Amax's New Jersey refinery. This blister forms only a small
proportion, however, of total material processed at Amax's refinery.
Cerro and the other newer secondary refiners are all so classified on
the basis that their inputs are mostly if not entirely in the form of scrap.
Although most, if not all, of their refined copper output is consumed in
their own captive fabricating facilities rather than being sold on the
outside market, they, in effect, must charge their own fabricating facilities
an inputed price for their refined output reflecting the prevailing price(s)
2
on the outside market. In other words, similar to Amax, they
Also, in November, 1974 Amax announced an agreement in principle with Copper
Range to acquire the assets of Copper Range including its White Pine mining
and refining facilities. The proposed merger is currently being challenged
by the U.S. Department of Justice. Amax had previously held 19.95 percent
of Copper Range's outstanding shares.
2
In terms of microeconomic theory, as price-takers the secondary refiners will
maximize profit by producing refined copper until their marginal cost of
producing an additional unit of output is just equal to the prevailing price
In the market, in this case the outside market. If they charge their captive
fabricators an imputed prices less than the full market price, they will be
foregoing revenues (by absorbing costs) which they could obtain by selling
the copper on the outside market.
4-17
Arthur D Little Inc.
-------
DRAFT REPORT -'The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
are price-takers in an essentially competitive market.
4-18
Arthur D Little Inc
-------
TABLE 3
ESTIMATED SECONDARY REFINED COPPER PRODUCED BY PRIMARY PRODUCERS
AND SECONDARY REFINERS, 1960-1974
Year
¦c*
i
10
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
Total
Production of
Refined Copper
from Scrap
291.7
270.4
289.7
302.0
351.1
445.1
491.3
436.6
416.6
499.1
511.6
400.7
423.2
465.1
496.9
(Thousands of Short Tons)
Copper Refined
from Scrap by
Secondary
Producers
229.3
190.0
195.1
235.5
240.1
263.2
277.5
271.4
273.6
263.1
251.7
214.8
252.2
348.8
382.1
Copper Refined
from Scrap
by Primary
Producers
62.4
80.4
94.6
66.4
111.0
176.9
213.8
135.2
143.0
236.0
259.9
185.9
171.0
116.3
114.9
Percentage of
Copper Refined
from Scrap by
Secondary
Producers
78.6%
70.3
67.4
78.0
68.4
60.3
56.5
66.8
65.7
52.7
49.2
53.6
59.6
75.0
76.9
*
=i °
i §
¦< 2.
® o
x 3
5
15 10
i?
0 n
CD
co m
X "D
£ >
3
v* TJ
1 °
a S
<
52. O
o 3
3 ~
Q_ 8
c r1
5 £
<° 3
s <®
<
S 3-
S "
CL
o
o
c
3
c °
o 5
E> >
n
o
3 3J
- o
CD 3D
li.
3 3"
§ 3
0>
° s-
3
" 5
5 3
5 CL
o
* §
K o
3" «
8 i
^ 3
-h
5"
o
SOURCE: U.S. Bureau of Mines, Minerals Year Book, 1960-1973; Mineral Industry Surveys,
Copper Industry in December 1975, (March, 1976), p. 3; Arthur D. Little, Inc.,
estimates.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
D. GEOGRAPHICAL CONCENTRATION AND CAPACITY GROWTH TRENDS IN THE COPPER
INDUSTRY
1. Copper Mining
In the United States, over 300 mines produce copper. Copper ore was
the principal product of almost 200 mines, and among the others, mostly lead
and zinc mines, producer copper was a by-product and co-product. The top
five mines each produced more than 100,000 tons of contained metal. The
ore is beneficiated (crushed, ground and metal sulfides recovered by
flotation) in mills that are located near the mines.
Most of the copper is mined in five western states—Arizona, Utah, New
Mexico, Montana and Nevada—(94 percent in 1974) and essentially all of the
remainder came from Michigan, Tennessee, and Missouri, as shown in Table 4
for the years 1972, 1973, and 1974.
The major copper mines and their production levels in 1973 and 1974 are
shown in Table 5A. Table 5B indicates estimated 1974 reserves of the major
producers.^"
2. Copper Smelting and Refining
Traditionally, smelters have been situated near the mines in order to
minimize transportation charges for concentrates. With the major copper
mines centered in the Western states, most of the smelting capacity is in
that area. In 1974, out of 18 operational smelters (two of these owned
and operated by secondary refiners), 13 were located west of the Mississippi.
^"It must be kept in mind here that figures on reserves could be quite
misleading, since reserves are not static but change with the amount of
exploration activity an
-------
TABLE 4
UNITED STATES MINE PRODUCTION OF RECOVERABLE COPPER
BY MAJOR PRODUCING STATES: 1972, 1973, 1974
(Short Tons)
1972
1973
1974
I
N3
State
Amount
Rank
Percent
Amount
Rank
Percent
Amount
Rank
Percent
Arizona
908,600
1
55
931,100
1
54
858,783
1
54
Utah
259,500
2
16
257,900
2
15
230,593
2
14
New Mexico
168,000
3
10
208,000
3
12
196,585
3
12
Montana
123,100
4
7
133,000
4
8
131,131
4
8
Nevada
101,100
5
6
95,900
5
5
84,101
5
5
Michigan
67,300
6
4
72,100
6
4
67,012
6
4
Other
37,200
-
2
28,900
-
2
28,797
-
2
TOTAL
1,664,800

100 1
,726,900

100
1,597,002

100
Source: American Bureau
of Metal
Statistics,
Yearbook
1973;
U. S. Bureau
of Mines,
Mineral
Industry
Surveys: Copper Production in July, 1975.
3 <¦>
£ §
< 2
® o
x U
* 3
2 3*
8 "
® m
x "O
S >
3
§ 2.
_ CO
3 O
< **
5. o
o ^
3 ^
Q. 8
c r1
n
5 2
to 3
3 ®
? ®
Q.
O
o
c
3
c °
O 5
E> >
II
o"
3 3D
O
TJ
o
A 30
"5 H
I!.
O 3"
^ ©
§ 3
0
° S"
-1
f.
W) 2
3 §
£ §
(D
5' O-
r>
S. §
3- 8
8 i.
-h <°
=r c
>
3"
C
a
Q_
3
o
-------
TABLE 5A
MINE PRODUCTION OF RECOVERABLE COPPER IN THE UNITED STATES, 1973 and 1974

Mine
(Short
tons)
Composition (X)
Company and Mine
Location
Type
1973
1974
1973
1974
Kennccott Copper Corporation

471.721
402.213
27.46
25 19
Chino
New Mexico
OP
67,836
60,557
3.95
3 79
Nevada
Arizona
OP
50,012
37,562
2 91
2.35
Ray Mines
Arizona
OP
98,908
74,764
5.76
4.68
Utah
Utah
OP
254,965
229,330
14.84
14.36
Phelps Dodse Corporation

319.358
280.211
18_,_5_9_
17.55
Morenci
Arieona
OP
119,535
112,790
6 96
7 06
Tyrone
New Mexico
OP
104,011
97,030
6 05
6 08
AJo (New Cornelia)
Arizona
OP
53,797
43,S01
3 13
2 72
Blsbee (Copper Queen)
Arizona

Lavender Pit

OP
19,387
11,833
1.13
0 74
Underground Mines

UG
22,628
15,057
1 32
0 94
Mastma Copper Company

(Subsidiary of Nevaoot Mining Corporation)

158.263
149.645
9.21
9 37
San Manuel
Arizona
UG
22,474
29,437
1.31
1.84
Superior
Arizona
UG
135,789
120,208
7 90
7 53
The Anaconda Company

200.454
190.059
11 67
11 90
Twin Buttes (Anamax Mining Co ,

under equal partnership with

Aaax Inc )
Arizona
OP
36,824C
20,071°
2 14
1 26
Berkeley Pit
Montana
OP
104,474
98,889
6.08
6 19
Anaconda Vein Mines (Leonard,

Load Haul Dump, Mountain Con,

Steward Mines)
Montana
UG
21,674
17,454
1 26
1.09
Continental East Pit
Montana
OP
1,647
15,676
0 01
0.98
Yerington
Nevada
OP
35,835
37,969
2 09
2 38
White Pine Copper Company

(Subsidiary of Copper Range Company)

White Pine
Michigan
UG
78.506
66.898
4 57
4 19
Cyprus Mines Corporation

107.292
100.268
6 25
6.28
Cyprus Pimo Mining Co.,

Pima Mine
Arizona
OP
88,140
81,889
5 13
5 13
Cyprus Bagdad Copper Company,

Bagdad Mine
Arizona
OP
19,152
18.379
1 12
1 15
Asarco Incorporated

73.100
79,200
4.26
4 96
Mission
Arizona
OP
46,600
40,300
2.71
2 52
Silver Bell
Arieona
OP
23,800
23,500
1.39
1.47
San Xavier
Arieona
OP
2,700
5,900
0.16
0.37
Sacaton
Arizona
OP
-
9,500
-
0.59
Inspiration Consolidated Copper

Company

65.196
61,238
3 80
3 83
Christmas
Arizona
OP
9,508
6,698
0 55
0 42
Inspiration (Thornton, Live

Oak , Red Bill)
Arizona
OP
51,332
49,700
2.99
3 11
Ox Hide
Arizona
OP
4,356
4,840
0 25
0.30
Cities Service Company

33.280
33.855
1 94
2.12
Copperhill
Tennessee
UG
4,025
970
0 24
0.06
Miami (Copper Cities, Diamond H,

Pinto Valley)
Arizona
OP
29,255
32,685
1.70
2 06
Duval Corporation

(Subsidiary of Pennzoll Company)

131.214
131.843
7 64
8 26

OP
55,619

Esperanza, Mineral Park
Arizona
52,249
3.24
3 27
Slerrlea
Arizona
OP
75,595
79,594
4 40
4.98
AMAZ

(Anamax Mining Co , under

equal partnership with Anaconda)

Twin Buttes
Arizona
OP
36.824c
20.071C
2.14
_1_26
UV Industries. Incorporated

Bayard Operations
New Mexico
OP
24.240c
24.167
1.41
1.51
Idarado Mining Company

(80.1Z owned by Nevnont Mining Corporation)

Idarado Mine
Colorado
UG
2.118
2.181
0 12
0.14
SUBTOTAL (of ABOVE COMPANIES)

1,701,566 1
,541,849
99.05
96.55
OTHERS (Calculated Resldually)b

16,374
55,153
0 95
3.45
1.717,940 1.397.002 100 00
100,00
BOTES AND SOURCES?
"individual company data have been obtained from the 1973 and 1974 corporate annual reports
and froo American Bureau of Metal Statistics, Inc. (ABMS), Bonferrous Metal Data 1974. p. 22.
Nlie "Other" category was calculated as the realdual of the total less the subtotal for tho
Individual companies reported above. This category includes, for example. Rancher's
Exploration and Development Corporation* Earth Resources Company, R1 Paso Natural Gas Company,
Hecla Mining Company, McAlester Puel Company, Federal Resources Corporation, Eagle-Picher
Industries, Incorporated, Keystone Wallace Resources, Micro Copper Corporation and others.
cOne-half of total production.
<*The total la obtained from U.S. Bureau of Mines, Mineral Industry Surveys. Copper In 1974
(April 8, 1975) for 1973 data (p. 3) and Copper in 1975 (March 26. 1976) for 1974 data (p 3).
4-22
Arthur DUitlcInc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
ESTIMATED RESERVES OF MAJOR U.S. COPPER PRODUCERS
(1974)
Ore Reserves Average Recoverable Copper
(millions of short tons) Ore Grade (short tons)
naconda 900.0
namax (Twin Buttes)
Sulfide 426.0
Oxide 55.0
TOTAL 481.0
sarco
Mission 87.1
Silver Bell 29.7
San Xavier
Sulfide 152.1
Oxide 7.9
Sacaton
Underground 16.7
Open Pit 32.7
TOTAL 326.2
Cities Service 350.0
opper Range 95.0
yprus
Bagdad 300.0
Pima 200.0
Johnson 19.0
Bruce 0.2
TOTAL 519.2
uval
Esperanza 31.2
Mineral Park 60.2
Battle Mountain
Copper Canyon 3.7
Copper Basin 0.8
Sierrita 522.5
TOTAL 618.5
nspiration
Inspiration area
Christmas
Underground (operations
suspended)
Open Pit
Sanchez
TOTAL
0.80 5,800,000
0.63 2,150,000
1.20 530,000
0.70 2,680,000
0.68 475,000
0.66 160,000
0.51 620,000
1.06 70,000
1.23 165,000
0.74 195,000
0.64 1,685,000
0.44 1,250,000
1.20 910,000
0.49 1,200,000
0.49 780,000
0.50 75,000
3.75 6,000
0.49 2,061,000
0.40 100,000
0.29 140,000
0.59 17,000
0.99 6,000
0.32 1,350,000
0.33 1,613,000
942,778
283,802
125,698
142,852
1,495,130
4-23
Arthur D Little: Inc.
-------
Kennecott
Magma
Phelps Dodge
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 5B
(continued)
Ore Reserves Average
(millions of short tons) Ore Grade
3350.0 0.75
1130.0 0.76
1920.0 0.78
Recoverable Copper
(shbrt tons)
20,100,000
7,050,000
11,900,000
Sources: Corporate Annual Reports, Annual Reports to the SEC, 10-K Forms, and
ADL estimates.
4-24
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The 13 western smelters are operated by five of the six integrated companies
(Kennecott, Phelps Dodge, Anaconda, Inspiration, and Magma) who mine a
major portion of their respective smelter input, and by Asarco—a major
portion of whose input comes from ores mined by other companies.
The ownership of the primary copper smelters and the approximate
capacity of each plant in 1975 are shown in Table 6.
Tables 7A and 7B show smelter capacity growth trends for the period
1950-1975."'" Smelting capacity during the past two and one-half decades has
never been as great as it was at the beginning of the 1950's. In spite of
an expansion of capacity in the late 1950's and early 1960's, by 1967
capacity had declined to a level only slightly above that existing in 1953.
During the following eight years total capacity fluctuated sharply, but
by 1975 was only 300,000 tons (or 3.5 percent) greater than that existing
in 1953.
Since 1956, no new smelters have been opened by the industry; all
expansion has represented additions to existing smelter operations. Changes
in total smelter capacity—both additions and curtailments—have been lumpy
in nature. The largest was the shutdown of the 1,400,000 short ton Phelps
Dodge smelter in Clarksdale, Arizona in 1950. More recently, Asarco expanded
its Hayden (Arizona) and El Paso (Texas) smelters in 1968 by 969,000 short
tons representing an eight percent addition to total industry capacity.
^Growth in smelting capacity of Lake Superior District producers of Lake
copper are broken out in Table 7B because capacity figures are reported
in tons of product rather than tons of charge material.
4-25
Arthur D Lit tk Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 6
COPPER SMELTING WORKS OF UNITED STATES
(At the End of 1975, Short Tons of Material)
Company
Asarco
Asarco
Asarco
The Anaconda Company
Cities Service Company Copperhill
Operations
Chemetco Inc.
Inspiration Consolidated Copper Co.
Magma Copper Company
San Manuel Division
Kennecott Copper Corporation
Nevada Mines Division
Chino Mines Division
Ray Mines Division
Utah Copper Division
Phelps Dodge Corporation
Douglas Smelter
Morenci Branch
New Cornelia Branch
United States Metals Refining Co.,
a subsidiary of Amax Inc.
Total3
Quincy Mining Co.
White Pine Copper Co.
b
Total
NOTES:
S
^Tons of material.
Tons of product.
Location
El Paso, Texas
Hayden, Ariz.
Tacoma, Wash.
Anaconda, Mont.
Copperhill, Term.
Alton, Illinois
Miami, Ariz.
San Manuel, Ariz.
McGill, Nev.
Hurley, N.M.
Hayden, Ariz.
Garfield, Utah
Douglas, Ariz.
Morenci, Ariz.
Ajo, Ariz.
Carteret, N.J.
Hancock, Mich.
White Pine, Mich.
Annual Capacity
576,000
960,000
600,000
750,000
75,000
150,000
450,000
800,000
400,000
400,000
420,000
1,000,000
700,000
900,000
250,000
180,000
8,611,000
15,000
90,000
105,000
SOURCE: American Bureau of Metal Statistics, Inc. (ABMS), Yearbook 1974,
and company annual reports.
4-26
Arthur D Little Inc
-------
Year
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 7A
GROWTH OF UNITED STATES COPPER SMELTING CAPACITY3
1950-1975
(Short Tons of Material; End of Year Figures)
Change in
Copper Smelting
Change in Capacity due
Change in Copper Smelting to Expansion
opper Smelting Copper Smelting Capacity due (Contraction)
Capacity Capacity to new Plants of Existing Plants
9,551,000b
-
-
-
9,653,000b
102,000
0
102,000°
9,653,000b
0
0
0
8,318,000
-1,335,000
0
-l,335,000d
8,368,000
50,000
0
50,000e
8,348,000
-20,000
0
-20,000f
8,225,000
-123,000
70,0008
-193,000h
8,415,000
190,000
0
190,0001
8,600,000
185,000
0
185,000^
8,600,000
0
0
0
8,600,000
0
0
0
8,700,000
100,000
0
100,000k
8,623,000
-77,000
0
-77.0001
8,423,000
-200,000
0
-200,000m
8,423,000
0
0
0
8,371,000
-52,000
0
-52,000°
8,371,000
0
0
0
8,383,000
12,000
0
12,000°
9,079,000
696,000
0
696,000P
8,689,000
-390,000
0
-390,000q
8,704,000
15,000
0
15,000r
8,821,000
117,000
0
117,000S
8,521,000
-300,000
0
-300,000*"
8,496,000
- 25,000
0
- 25,000u
8,626,000
130,000
0
130,000V
8,611,000
- 15,000
0
- 15,000W
Arthur D Little Inc.
-------
DRAFT REPORT — The reader Is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
NOTES:
aExcludes producers of Lake Copper.
^Includes the capacity of the Phelps Dodge Corporation, United Verde
Branch, Clarksdale, Arizona, smelter (1,400,000 short tons of annual
capacity) which closed down June, 1950.
CExpansion in the capacity of Kennecott Copper Corporation, New Mexico
plant at Hurley, New Mexico (from 288,000 to 400,000 short tons),
minus the contraction in the capacity of the Kennecott Copper Corpora-
tion, Nevada plant at McGill, Nevada (from 450,000 to 440,000 short
tons).
^Expansion in the capacity of the American Metal Company, Ltd., Carteret,
New Jersey smelter (from 200,000 to 265,000 short tons) minus the shut-
down of the Phelps Dodge Corporation, United Verde Branch, Clarksdale,
Arizona smelter (1,400,000 short tons annual capacity), which closed
down June, 1950.
eExpansion in the capacity of the American Smelting and Refining Company,
El Paso, Texas, smelter (from 300,000 to 350,000 short tons).
Contraction in the capacity of the American Metal Company, Ltd.,
Carteret, New Jersey, smelter (from 265,000 to 245,000 short tons).
®The new San Manuel Copper Corporation, San Manuel, Arizona, smelter,
a wholly owned subsidiary of Magma Copper Company.
^Expansion in the capacity of the American Smelting and Refining Company,
El Paso, Texas, smelter (from 350,000 to 400,000 short tons) minus
the contraction in the capacity of the following smelters:
Asarco, Garfield, Utah (from 1,608,000 to 1,440,000 short tons).
Asarco, Tacoma, Washington (from 675,000 to 600,000 short tons).
"^Expansion in the capacity of the San Manuel Copper Corporation, San
Manuel, Arizona, smelter (from 70,000 to 360,000 short tons) minus
the contraction in the capacity of the Magma Copper Company, Superior,
Arizona, smelter (from 250,000 to 150,000 short tons).
•^The new Kennecott Copper Corporation, Ray Mines Division, Hayden,
Arizona, smelter (400,000 tons annual capacity) minus the contraction
in the capacity of the smelting facilities at Garfield, Utah, purchased
by Kennecott Copper Corporation from American Smelting and Refining
Company (from 1,440,000 to 1,225,000 short tons).
Expansion in the capacity of the following smelters:
Asarco, El Paso, Texas (from 400,000 to 420,000 short tons).
Asarco, Hayden, Arizona (from 300,000 to 360,000 short tons).
Tennessee Copper Company, Copperhill, Tennessee (from 70,000 to
90,000 short tons).
^"Contraction in the capacity of the American Metal Climax, Inc.,
Carteret, New Jersey, smelter (from 245,000 to 168,000 short tons).
4-28
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
mShutdown of the Phelps Dodge Refining Corporation, Laurel Hill, New
York smelter (200,000 short tons annual capacity).
"Expansion in the capacity of the following smelters:
Asarco, Hayden, Arizona (from 360,000 to 420,000 short tons).
Inspiration Consolidated Copper Company, Miami, Arizona (from
360,000 to 450,000 short tons).
Magma Copper Corporation, San Manuel Division, San Manuel,
Arizona (from 360,000 to 403,000 short tons).
Kennecott Copper Corporation, Ray Mines Division, Hayden,
Arizona (from 400,000 to 420,000 short tons).
Minus the contraction in the capacity of the following smelters:
Kennecott Copper Corporation, Nevada Mines Division, McGill,
Nevada (from 440,000 to 400,000 short tons).
Kennecott Copper Corporation, Utah Mines Division, Garfield, Utah
(from 1,225,000 to 1,000,000 short tons).
°Expansion in the capacity of the American Metal Climax, Inc.,
Carteret, New Jersey, smelter (from 168,000 to 180,000 short tons).
^Expansion in the capacity of the following smelters:
Asarco, El Paso, Texas (from 420,000 to 576,000 short tons).
Asarco, Hayden, Arizona (from 420,000 to 960,000 short tons).
^Contraction in the capacity of the Phelps Dodge Corporation smelter
at Douglas, Arizona (from 1,250,000 to 860,000 short tons).
x
Expansion in the capacity of the Phelps Dodge Corporation smelter
at Douglas, Arizona (from 860,000 to 875,000 short tons).
g
Expansion in the capacity of the Magma Copper Corporation, San Manuel
Division, San Manual, Arizona, smelter (from 403,000 to 670,000
short tons) minus the permanent shutdown of the Magma Copper Corpora-
tion, Superior Division, Superior, Arizona, smelter (150,000 short
tons annual capacity).
tContraction in the capacity of the Anaconda Company, smelter at
Anaconda, Montana (from 1,000,000 short tons to 750,000 short tons)
plus contraction in the Phelps Dodge Corporation, New Cornelia Branch,
Ajo, Arizona, smelter (from 300,000 short tons to 250,000 short tons).
uThe new Chemetco, Inc., Alton, Illinois, smelter (150,000 short tons
annual capacity) minus the contraction in the Phelps Dodge Corporation
smelter at Douglas, Arizona (from 875,000 short tons to 700,000 short
tons).
y
Expansion in the capacity of the Magma Copper Corporation, San Manuel
Division, San Manuel, Arizona, smelter (from 670,000 to 800,000 short
tons).
w
Contraction in the capacity of the Cities Service Company, smelter at
4-29
Arthur D Little; Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Copperhill, Tennessee (from 90,000 to 75,000 short tons).
SOURCE: Yearbook of the American Bureau of Metal Statistics, Inc.,
(ABMS), annual yearbook volumes, 1958-1975.
4-30
Arthur D Little; Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 7B
GROWTH OF LAKE COPPER SMELTING CAPACITY® IN THE UNITED STATES,
1950-1975
(Sh0rt Tons of Product; End of Year Figures)
Year
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
ly75
Copper Smelting
Capacity
197,000 b
197,000 b
112,000
112,000
92,000
128,000
128,000
137,000
157,000
162,000
167,000
177,000
177,000
177,000
177,000
177,000
202,000
132,000
132,000
135,000
135,000
135,000
105,000
105,000
105,000
105,000
Change in
Copper Smelting
Capacity
0
-85,000
0
-20,000
36,000
0
9,000
20,000
5,000
5,000
10,000
0
0
0
0
15,000
-70,000
0
3,000
0
0
-30,000
0
0
Change in
Copper Smelting
Capacity Due
To New Plants
0
0
0
0
36,000
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Change in
Copper Smelting
Capacity Due
To Expansion
(Contraction)
of Existing Plants
0
-85,000
0
-20,000
0
0
9,000
20,000
5,000
5,000
10,000
0
0
0
0
15,000
-70,000
0
3,000
0
0
-30,000
0
0
U
m
4-31
Arthur D Little; Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
NOTES:
£
Includes Lake Superior District producers only.
^Capacity figure includes the idle capacity of the Copper Range Company,
Smelting Department, Houghton, Michigan (85,000 short tons of product
annual capacity).
CShut down of the capacity of the Copper Range Company, Smelting
Department, Houghton, Michigan (85,000 short tons of product annual
capacity).
^Contractions in the capacity of the Calumet and Hecla, Inc.,
Hubbell, Michigan, smelter (from 100,000 to 80,000 short tons).
^he new White Pine Copper Company, White Pine, Michigan, smelter.
^Expansion in the capacity of the White Pine Copper Company, White
Pine, Michigan, smelter (from 36,000 to 45,000 short tons).
Expansion in the capacity of the Calumet and Hecla, Inc., Hubbell,
Michigan, smelter (from 80,000 to 100,000 short tons).
^Expansion in the capacity of the White Pine Copper Company, White
Pine, Michigan, smelter (from 45,000 to 50,000 short tons).
^Expansion in the capacity of the White Pine Copper Company, White
Pine, Michigan, smelter (from 50,000 to 55,000 short tons).
•^Expansion in the capacity of the White Pine Copper Company, White
Pine, Michigan, smelter (from 55,000 to 65,000 short tons).
^Expansion in the capacity of the White Pine Copper Company, White
Pine, Michigan, smelter (from 65,000 to 90,000 short tons).
^"Contraction in the capacity of the Calumet and Hecla, Inc., Hubbell,
Michigan, smelter (from 100,000 to 30,000 short tons).
'"Expansion in the capacity of the Quincy Mining Company, Hancock,
Michigan, smelter (from 12,000 to 15,000 short tons).
nShut down of the capacity of the Universal Oil Products Company,
Calumet Division, Hubbell, Michigan, smelter (30,000 short tons
annual capacity).
SOURCE: Yearbook of the American Bureau of Metal Statistics, annual
volumes, 1958-1975.
4-32
Arthur D Little, Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In 1972, reported smelter capacity declined by 300,000 tons (3.4 per-
cent of total industry capacity), as the result of a 250,000 ton contraction
of capacity at Anaconda's Montana smelter as well as a 50,000 ton con-
traction at the Phelps Dodge Ajo smelter.
The major portion of the smelter output of blister copper is electro-
refined. Copper electrolytic refineries have traditionally been located near
consumers on the Atlantic Coast, but several refineries have been built
in the West. The East Coast refineries still account for a major portion—
about half—of electrorefining capacity. A smaller portion of smelter out-
put is fire refined, principally in New Mexico and Michigan.
As indicated in Table 8, reported figures on refinery capacity vary
(in some cases significantly) depending on the published source of data.
The primary copper refineries, their ownership, and the location, type
and capacity of each refinery at the end of 1975 are shown in Table 9,
based on American Bureau of Metal Statistics data. Table 10 shows capacity
growth among domestic refineries over the 1958-1975 period.
Overall, refinery capacity expanded by about 38 percent over the
1958-1975 period. Unlike the fluctuating growth trend in smelter capacity,
net changes in refinery capacity have been positive with the exception of
two years, 1962 and 1972. The figures in Table 10 indicate how responsive
producers have been to general conditions in the business cycle and the
demand cycle for copper, with the bulk of refinery capacity expansion
occurring in response to business expansion and rising copper demand over
the period 1964-1970.
4-33
Arthur D Little Inc
-------
TABLE 8
COPPER REFINERY CAPACITY IN TEE UNITED STATES, 1973/1974,
BY COMPANY AND LOCATION, AS filVEN IN DIFFERENT SOURCES
Type, Company. Location
Electrolytic
The Anaconda Company
Great Palls, Montana
Rarltan, Perth Acboy, N J
Asarco
Baltimore, Md
Perth Amboy, N J
Tacona, Wash
Cerro Copper & Brass
Dlv of Cerro Corp
St Louis, Mo
Chetoetco, Inc.
Alton, Illinois
Inspiration Consolidated Copper
Inspiration, Arizona
Kennecott Copper Corp
Garfield, Utah
Kennecott Refining Corp
Anne Arundel County, Md
Magma Copper Company,
San Manuel, Arizona
Phelps Dodge Refining Corp.
PI Paso, Texas
Laurel Hill, L I., N.Y.
Reading Industries, Inc
Reading, Penna
Southuiro Company, Copper
Division
Carrollton, Georgia
United States Metals Refining Co
Carteret, N.J , a subsidiary of
Amax, Inc.
TOTAL TANK CAPACXH
American Bureau of
Metal Statlatica3
1973/1974h
(in tona of 2.000 lba.)
180,000
115,000
318,000
168,000
156,000
44,000
40,000
70,000
186,000
276,000
200.000
420,000
72,000
20,000
Engineering ang
Mining Journal
1973/197«d
Hatal BiAleclnJ
1974
f V/17/H 17«
(in tons of 2.000 lbs ) (In metric tons) (in tons of 2.000 lbs )
Lake and Fire Refining
Kennecott Copper Corp
Huxley, Nev Mertco
Phelps Dodge Refining Corp.
B1 Paso, Texas
Laurel Hill, L.I., N.Y.
Qulncy Mining Co
Hancock, Mich.
United States Metals Refining Co
Carteret, N J , a subsidiary of
Amax, Inc.
White Pine Copper Co.
Vhlte Pine, Mich.
TOTAL LAKE AND PI RE REFINED
TOTAL RBFIHED COPPER CAPACITY
175,000
_ 2,512,000
103,000
25,000
20,000
15,000
85,000
90,000
338,000
2,850,000
180,000
115,000
312,000
168,000
150,000
NA
NA
72,000
192,000h
276,000
200,000
445,000®
92,000
NA
NA
215,000s
NA
85,000
NA®
NA
NA
RA8
85,000*
220,000
100,000
180,000
155,000
141,000
40,000
30,000
65,000
165,000
250,000
181,000
400,000*
85,000
18,000
65,000
160,000
NA
65,000
NA®
NA
11,000
75,000
81,000
NA
NA
242,500
110,200
198,400
170,900
155,400
41,100
33,100
71,700
181,900
275,600
199,500
400,900*
93,700
19,800
71,700
176,400
NA
71,000
NA®
NA
12,100
82,700
69,300
NA
NA
NOTES AND SOURCES:
American Bureau of Metal Statistics, Inc. (ABMS) aa reported In the Yearbook of the American Bureau of hetal Statistics.
1973 (Rev York. ABX3, June 1974) p. 28 and Nonferroua Metale Data 1974 (Nev York ABMS, 1975), p 32.
kFigures rdfer to annual capacity at the end of the yesr(s) noted, 1973 and 1974 figures are exactly alike in the sources
cited.
^Engineering and Mining Journal International Directory of Mining. 1973/1974, Section 2A—U.S Mine/Plant Units.
^Figures refer to circa 1973/1974; no specific time designations (e.g , mid-1973, etc.) are provided,
eIncludas data for tha B1 Paso, Texas, furnace refining plant
'includes data for the Laurel Hill, L.I., N.Y., fire refining ^lant.
^Includes data for (at least part) of the Carteret, N J , fire refining (smelting) plant.
**Other products produced Include selenium, gold, silver, platinum, and palladium.
^Listed as enelter capacity (reverbacory matte smelting and converting), the refinery operation described pertain to flro
refining, where the major product Is listed as high conductivity silver bearing cast copper shapes.
^Copper. 1974, a special issue published by Metal Bulletin Limited (London: Ho date), p. 183.
In addition to the data already listed, this source provides refinery capacity data not given in the other sources cited
(for 1973 or 1974), consisting of the following['refinery operations: _
l (1) International Smelting and Refining Co., Rarltan, H J. (104,000 metric tons per year - 114,600 short tons).
V(2) Becle/Bl Paso, Lakeahore, Michigan (36,000 metric tons - 39,700 short tons). Note: This appearsIto be the
ease as the Calumet Division, Universal Oil Products Company refinery In Hubbell, Michigan (formerly known as
Calmaet and Hecla Corp., Universal Oil Products Company, 1968-1971, and simply as_Caltmet and Hecla, Inc.,
prior to 1968), Rile plant vas idle In 1970 and 1971 aad fappea rs~t o have been'closed down "by the end of 1971.
(3) Ranchers, Bluebird (6,000 metric tons • 6,600 short tons).
:Le refer to "generally recognised capacity" (see footnote "j," p. 165)
iData convurted from metric tons of 2,000 lbs. (i.e., short tons), by using the following relationship:
metric ton • 1000 kilograms
short ton - 907.185 kilograms
Ratio: 1000.000/907.185 -Jl.102311
Figures are rounded-off to the nearest hundred
Not available.
4-34
Arthur D Utile Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 9
UNITED STATES COPPER REFINERY CAPACITY
(Annual Capacity at End of 1975 In Short Tons of Product)
Company
Electrolytic:
The Anaconda Company
Asarco
Cerro Copper & Brass
Division of Cerro Corporation
Chemetco, Inc.
Inspiration Consolidated Copper
Kennecott Copper Corporation
Kennecott Refining Corporation
Magma Copper Company
Phelps Dodge Refining Corporation El Paso, Texas
Location
Great Falls, Ht.
Amarillo, Texas
Perth Amboy, N.J.
Tacoma, Wash.
St. Louis, Mo.
Alton, 111.
Inspiration, Ariz.
Garfield, Utah
Anne Arundel County, Md.
San Manuel, Ariz.
Annual Capacity,
Tons of Product
Reading Industries, Inc.
Southwire Company
Copper Division
United States Metals Refining Co.
Subsidiary of American Metal
Climax, Inc.
Lake and Fire Refining:
Kennecott Copper Corporation
Phelps Dodge Refining Corporation El Paso, Texas
Laurel Hill, L.I., N.Y.
Reading, Pa.
Carrollton, Ga.
Carteret, N.J.
Hurley, N.M.
Quincy Mining Co.
United States Metal Refining Co.
Subsidiary of American Metal
Climax, Inc.
White Pine Copper Co.
Total
Laurel Hill, L.I., N.Y.
Hancock, Mich.
Carteret, N.J.
White Pine, Mich.
252,000
420,000
168,000
156,000
44,000
40,000
70,000
186,000
276,000
200,000
420,000
72,000
20,000
72,000
175,000
103,000
25,000
20,000
15,000
85,000
90,000
2,909,000
SOURCE: American Bureau of Metal Statistics, Inc., (ABMS), Nonferrous
Metals Data, 1975.
4-35
Arthur D Little, Inc.
-------
Years
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 10
COPPER REFINERY EXPANSION IN THE UNITED STATES,
1958-1975
(Short Ton of Product; End of Year Figures)
Copper Refinery
Capacity
2,108,500
2,309,000
2,331,500
2,341,500
2,334,500
2,334,500
2,364,500
2,420,500
2,430,500
2,522,000
2,643,000
2,676,000
2,676,000°
2,793,000°
2,723,000
2,850,000
2,850,000
Change in
Copper Refinery
Capacity
200,500
22,500
10,000
- 7,000
0
30,000
56,000
10,000
91,500
121,000
33,000
0
117,000
-70,000
127,000
0
Change in
Copper Refinery
Capacity due
to New Plants
a
198.000
0
0
0
0
0
0
0
0
0
0
0
200.0001
0
132,000P
0
Change in
Copper Refinery
Capacity due
to Expansion
(Contraction)
of Existing Plants
2,500
22,500C
.d
10,000
7,000e
0
30,000f
56,000g
10,000h
91,500
121,000
j
m
33,000
0
-83,000'
-70,000n
- 5,000q
0
2,909,000
59,000
420,000
-361,000s
4-36
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
NOTES:
aThe new Kennecott Refining Corporation, Anne Arundel County, Maryland,
refinery.
^Expansion in the capacity of the White Pine Copper Co., White Pine,
Michigan, refinery (from 45,000 to 50,000 short tons) minus the
contraction in the capacity of the Inspiration Consolidated Copper,
Inspiration, Arizona refinery (from 47,500 to 45,000 short tons).
r
Expansion in the capacity of the Lewin-Mathes Co., Division of Cerro
de Pasco Corporation, St. Louis, Maryland, refinery (from 25,000 to
42,500 short tons).
^Expansion in the capacity of the White Pine Copper Corporation, White
Pine, Michigan, refinery (from 55,000 to 65,000 short tons).
g
Expansion in the capacity of the American Metal Climax, Inc.,
Carteret, New Jersey, refinery (from 121,000 to 125.000 short tons)
minus the contraction in the capacity of the American Smelting and
Refining, Tacoma, Washington, refinery (from 114,000 to 103,000
short tons).
^Expansion in the capacity of the Inspiration Consolidated Copper,
Inspiration, Arizona refinery (from 45,000 to 65,000 short tons)
plus expansion in the capacity of the Phelps Dodge Refining Corporation,
El Paso, Texas, refinery (from 290,000 to 300,000 short tons).
^Expansion in the capacity of the following refineries:
The Anaconda Company, Great Falls, Montana (from 150,000 to
180,000 short tons);
Inspiration Consolidated Copper, Inspiration, Arizona (from 65,000
to 70,000 short tons);
Kennecott Copper Corporation, Hurley, New Mexico (from 84,000 to
103,000 short tons);
minus the contraction in the capacity of the Kennecott Copper Corpora-
tion, Garfield, Utah, refinery (from 204,000 to 186,000 short tons).
^Expansion in the capacity of the following refineries :
The Anaconda Company, Great Falls, Montana (from 180,000 to
190,000 short tons);
White Pine Copper Company, White Pine, Michigan (from 65,000
short tons to 90,000 short tons);
minus the contraction in the capacity of the International Smelting
and Refining Company, Raritan, Perth Amboy, New Jersey (from 240,000
to 215,000 short tons).
4-37
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
^Expansion in the capacity of the following refineries:
Asarco, Baltimore, Maryland (from 198,000 to 318,000 short tons);
Asarco, Tacoma, Washington (from 103,000 to 108,000 short tons);
Phelps Dodge Refining Corporation, El Paso, Texas (from 300,000 to
320,000 tons);
minus the contraction in the capacity of the following refineries:
Lewis Mathes Co., Division of Cerro Corporation, St. Louis,
Missouri (from 42,500 to 39,000 short tons);
Phelps Dodge Refining Corporation, Laurel Hill, Long Island,
New York (from 175,000 to 155,000 short tons);
Calumet and Hecla, Inc., Hubbell, Michigan (from 60,000 to
30,000 short tons).
JExpansion in the capacity of the following refineries:
United States Metals Refining Co., Carteret, New Jersey, a
subsidiary of American Metal Climax, Inc. (from 150,000 to
175,000 short tons);
Asarco, Tacoma, Washington (from 108,000 to 126,000 short tons);
Kennecott Refining Corporation, Anne Arundel County, Maryland
(from 198,000 to 276,000 short tons);
Phelps Dodge Refining Corporation, El Paso, Texas (from 320,000
to 420,000 short tons);
minus the contraction in the capacity of the following refineries:
International Smelting and Refining Co., Raritan, Perth Amboy,
New Jersey (from 215,000 to 150,000 short tons);
United States Metals Refining Co., Carteret, New Jersey, a sub-
sidiary of American Metal Climax, Inc. (from 125,000 to 85,000
short tons).
^Expansion in the capacity of the Asarco, Tacoma, Washington, refinery
(from 126,000 to 156,000 short tons) plus expansion in the capacity of
the Quincy Mining Co., Hancock, Michigan, refinery (from 12,000 to
15,000 short tons).
^Magma Copper Company, San Manuel, Arizona.
Contraction in the capacity of the Phelps Dodge Refining Corporation,
Laurel Hill, Long Island, New York, refinery (from 155,000 to 72,000
short tons).
"Contraction in the capacity of the following refineries
The Anaconda Company, Great Falls, Montana (from 190,000 to
185,000 short tons);
4-38
Arthur D Little, Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
International Smelting and Refining Company, Raritan, Perth Amboy,
New Jersey (from 150,000 to 115,000 short tons);
Shutdown of Calumet Division, Universal Oil Products Company,
Hubbell, Michigan (annual capacity 30,000 short tons at the end
of 1971), which was idle in 1970 and 1971.
°Includes the "idle" capacity of the Calumet Division, Universal
Oil Products Co., Hubbell, Michigan refinery (30,000 short tons annual
capacity).
^The following new refineries started operations in 1973:
Chemetco, Inc., Alton, Illinois (40,000 short tons annual capacity);
Reading Industries, Inc., Reading, Pennsylvania (20,000 shorts tons
annual capacity);
Southwire Company, Copper Division, Carrollton, Georgia (72,000
short tons annual capacity).
Contraction in the capacity of The Anaconda Company, Great Falls,
Montana, refinery (from 185,000 to 180,000 short tons).
r
The new Asarco, Amarillo, Texas, refinery.
§
Expansion in the capacity of the Anaconda Company, Great Falls,
Montana, smelter (from 180,000 to 252,000 short tons) minus the shut
down of the following smelters:
Anaconda Company, Raritan plant, Perth Amboy, New Jersey
(115,000 short tons annual capacity)
Asarco, Baltimore, Maryland (318,000 short tons annual capacity).
SOURCE: Yearbook of the American Bureau of Metal Statistics, annual
volumes, 1958-1975. ~
4-39
Arthur D Little, I nc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Prior to 1971, most of the capacity expansion was in the form of
additions to existing plants; no new plants were built in'the U.S.
during the period 1959-1971. In 1971, however, Magma opened a new
200,000 annual short ton refinery in San Manuel, Arizona. By 1973,
three secondary refiners—Chemetco, Reading, and Southwire—had come on-
stream with a total capacity of 132,000 annual short tons. Further,
in 1975, Asarco began operations at its new 420,000 annual short ton
capacity refinery in Amarillo, Texas; at the same time, however, it
shut down operations at its 318,000 annual short ton capacity Baltimore
refinery.
4-40
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
E. VERTICAL INTEGRATION, CONCENTRATION, AND BARRIERS TO ENTRY IN THE
PRIMARY COPPER INDUSTRY
The degree of vertical integration and concentration in an industry
as well as the existence of barriers to entry are important considera-
tions in analyzing pricing behavior of firms. The degree of industry
concentration provides an indication as to whether or not firms in
the industry are capable of exercising discretionary price behavior
(i.e., influencing market prices), as opposed to being entirely
price-takers. Where concentration is low, there will normally be
such a large number of firms and each individual firm's share of
the market will be so small that no individual firm would be able to
influence prices significantly (i.e., firms are entirely price-takers).
Where concentration is high, the pricing and production decisions of any
one firm will have some effect on the pricing and output of other firms
in the relevant market; consequently, price-output determination by
the firms will be interdependent.
Next, the degree of vertical integration is important for two reasons.
First, in an industry which is highly integrated, producers' material
costs are somewhat insulated from the forces of market demand at inter-
mediate stages of production. This does not mean that producers, in
making pricing and output decisions, can ignore market forces, but
rather that the relevant demand forces emanate from downstream markets.
Second, economies of vertical integration or an existing high degree of
integration can constitute an effective barrier to entry into the
industry.
4-41
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The existence of barriers to entry into the industry is important
since the absence of barriers to entry can mitigate the effect that
a high degree of concentration would normally have on pricing and
production behavior of the major producers.
1. Industry Concentration
The U.S. copper industry is indeed highly concentrated, as shown
in Table 11. At the mining level, the three largest integrated producers
in 1974 accounted for 56.1 percent of total mine production, while the
seven integrated producers (including Asarco) together produced 78.3
percent of the total.
At the smelting level, the three largest producers accounted for
53.3 percent of total smelting capacity, while the seven integrated
producers (including Asarco) held 94. 7 percent of the total.*"
At the refining level, Anaconda, Kennecott, and Phelps Dodge
held 48.9 percent of refinery capacity, while the seven integrated
producers combined accounted for 83.8 percent.
As suggested previously, concentration in the semifabricating and
fabricating industries has, in the past, varied among different
semifabricating industries, but nowhere has it been high enough to allow
semifabricators to have a significant influence on pricing or production
policies in the industry. The domestic foundry and powder mill industries
are highly competitive; in the early 1960's there were approximately 535
foundries in the United States, and the eight-firm concentration ratio
^"For the copper industry as a whole, concentration ratios at the smelting
stage may be slightly overstated in Table 11, since a large number of
small secondary smelters/ingot makers are not represented in capacity
totals. However, including these figures would not significantly alter
the degree of smelting concentration in the entire industry.
4-42
Arthur D Little Inc
-------
TABLE 11
COPPER INDUSTRY CONCENTRATION
AT VARIOUS STAGES OF PRODUCTION, 1974

Mine
Smelting
Refining

Production
Capacity
Capacity

(Short tons
(S^ort tons
(Shore tons

of Recoverable
of
of Refined
Percentage of Total
Percentage of Total
Company
Copper)
Material)
Copper)
Mine 7roduction(%)a
Smelting Capacity(2)a
Anacorda
212,788
750,000
295 ,000
13.3
8.3
KenP.ecott
402,213
2,220,000
565,000
25.2
24.5
Phelps Dodge
281,338
1,850,000
537,000
17.6
20.5
Magma
149,645
800,000
200,000
9.4
8.8
Copper Range
66,623
360,000a
90,000
4.2
4.0
Inspiration
56,336
450,000
70,000
3.5
5.0
AsarCo
81,062
2,136,000
642,000
5.1
23.6
Seven Integrated Producers1
Total 1,250,005
8,566,000
2.399,000
78.3
94. 7
Percentage of Total
Refinery Capacity (%)f
10.3
19.8
18.8
7.1
3.1
2.5
22.5
83.8
Partially Integrated Producers
and
Independent Mining Companies
324,288
60,000
15,000
20.3
0.7
0.5
Primary Industry Total
1,574 293
8,626,000
2,414,000
98.6
96.3
84.3
Amax
Cerro
Chemetco
Southwire
'Reading
22,729
180,000
150,000
260,000
44,000
40,000
72,000
20,000
1.4
2.0
1.7
9.1
1.5
1.4
2.5
1.2
Secondary Industry Total
22,729
330,000
436,000
1.4
3.7
15.7

Grand Total
1,597,002
8,956,000
2, 850,000
100.0
100.0
100.0
NOTES: Components may not add up to the totals given due to rounding,
b
ADL estimates. Smelter capacity figures are given in short tons of copper material "feed"; refinery capacity figures represent output of
refined copper. Capacity figures in short tons of material "feed" were estimated using an Industry-wide average ratio of tons of material
input/tons of copper produce of 4.0.
SOURCES: American Bureau of Metal Statistics, Yearbook 1974, p. 22; Copper Development Association, Copper Supply and Consumption: Annual
Data 1975, p 6-7.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
in the foundry industry was only about 25 percent. Concentration
in the wire and brass mills was substantially higher, with reported
2
eight-firm concentration ratios between 65 and 81 percent.
2. Vertical Integration
In addition to a high degree of concentration, there is as well
a high degree of vertical integration in the primary copper industry,
particularly through the refining stage of production. Although most
of the major primary producers are vertically integrated through the
semifabricating and fabricating stages of production, and it is fre-
quently acknowledged that there is a significant degree of vertical
integration in the copper fabricating industry, no recent accurate
estimates are available concerning the actual degree of vertical
integration at the fabricating stage.
The number of foundries was reported in U.S. Department of Commerce,
1963 Census of Manufactures, p. 33D-10, p. 33D-20. The concentration
ratios were originally reported in Report by the Bureau of the Census
for the Sub-committee on Antitrust and Monopoly of the Committee on
the Judiciary, U.S. Senate, 89th Congress, 2nd Session, Concentration
Ratios in Manufacturing Industry (Washington, D.C.: U.S. Government
Printing Office, 1966). See also Charles River Associates, Inc. (CRA),
Economic Analysis of the Copper Industry (March, 1970), pp. 58-60;
and David McNicol, The Two-Price Systems in the Copper Industry,
unpublished doctoral thesis, Massachusetts Institute of Technology
(February, 1973), pp. 59-60.
2
However, effective concentration in the wire and brass mill sectors has
likely been significantly lower, for two reasons. First, published
ratios were formulated from value-added data which did not discriminate
between copper and non-copper-related production of a firm. In
several instances, larger fabricators produce non-copper products; to the
extent that smaller.firms do not do this, the value-added of the larger
firms would be overstated, relative to that of the smaller firms, thereby
inflating the importance of the large firms in terms on industry con-
centration. Second, U.S. tariffs on semifabricated copper products
have been low; sources of supply for the domestic market have therefore
been considerably expanded beyond domestic production, and the effective
degree of concentration in the industry thereby lowered.
4-44
Arthur D Little Inc.
-------
DRAFT R EPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Data in Table 12 indicates product flow for individual companies
from the mining to refining stages of production. The integrated primary
producers largely supply their smelters and refineries with company-
mined ores. Partially-integrated primary producers and independent
miners account for only a modest part of domestic production and
most of the output of the major firms is sold directly under
long-term contract to either Asarco or Phelps Dodge for smelting
and refining.
Past studies of the copper industry have suggested that as much
as one-third of refined copper fabricating capacity was captive
to vertically-integrated firms, but these estimates apparently
included both primary producers and secondary refiners as we have
classified them.1
The major domestic producers (particularly Anaconda, Kennecott,
and Phelps Dodge) are integrated forward into the production of copper
wire and brass mill products. David McNicol has estimated that as
much as 40 to 50 percent of the domestic copper wire and brass mill
industry may have been captive to the major producers during the past
2
10 to 20 years. There is relatively little, if any, forward inte-
gration into other semifabrication industries such as powder mills,
ingot makers, and foundries.
''"Charles River Associates, Inc. (CRA), Economic Analysis of the Copper
Industry, 1970, p. 58.
2
David McNicol, The Two-Price Systems in the Copper Industry, unpublished
thesis, Massachusetts Institute of Technology, February, 1973, p. 60.
4-45
Arthur D Little Inc.
-------
TABLE 12
PRODUCT FLOW FOR MAJOR INTEGRATED AND NON-INTEGRATED PRODUCERS
IN THE PRIMARY COPPER INDUSTRY
Company
Where Smelted
Uhere Refined
Sold By
The Anaconda Co., Butte, Mont.
The Anaconda Co., Yerington,
Nevada
Kennecott Copper Corp.
Phelps Dodge Corp.
Inspiration Consolidated Copper
Co.
White Pine Copper Co.
Copper Range Co.
Asarco
¦e-
c- Duval Corporation
Cyprus Pima Mining Co.
Cyprus Bagdad Copper Corp.
Cities Service Company
Miami Operations
Copperhill Operations
Quincy Mining Co.
Anamax Mining Co., Twin Buttes,
Ariz.
Anaconda, Anaconda, Mont.
The Anaconda Co., Anaconda,
Mont.
Own smelters, Garfield, Utah;
Ray, Ariz; McGlll, Nevada;
Hurley, N.M.
Own Plants, Douglas, Morenci,
and Ajo, Ariz.
Own Plant, Miami, Ariz.
White Pine, Mich.
White Pine, Mich.
(Xm plants.
Asarco, Tacoma, Washington,
Hayden, Ariz., and El Paso
Tex.
Phelps Dodge Corp. , Magma
Copper, San Manuel, Ariz.
Phelps Dodge, Ariz., Copper
Range, White Pine, Michigan
Inspiration Sin., Miami, Ariz.
Own Plant, Copperhill, Tenn.
Quincy, Mining Co., Hancock,
Mich.
Inspiration Consolidated Copper
Co., Miami, Ariz. Asarco.
Hayden, Ariz.
Anaconda, Great Falls, Mont.
The Anaconda Co., Anaconda,
Kont.
Own refineries at Garfield,Utah;
Hurley, N.M.Kennecott Refin-
ing Corp. at Ann Arundel
Phelps Dodge Ref. Corp.
Own plant, Inspiration, Ariz,
and Raritan Copper Wks.
White Pine, Mich.
White Pine, Mich.
Own refineries.
Asarco, Perth, Amboy,
N. J., Tacoma, Washington
Baltimore, Md.
Phelps Dodge at Laurel Hill,
N. Y. Magma Copper,
San Manuel, Arizona
Phelps Dodge, Laurel Hill,
N.Y.Copper Range, White Pine
Michigan
Asarco Refineries and Phelps
Dodge at Laurel Hill
Southwire
Quincy, Mining Co., Hancock,
Mich.
The Anaconda Co., Perth Amboy
N.J. Asarco, Perth Amboy,N.J.
U.S. Metals Refining Co.
Carteret, N.J.
Anaconda Sales Co.
Anaconda Sales Co.
Kennecott Sales Corp.
Phelps Dodge Sales Com-
pany Incorporated
Copper Range Sales Co.
Copper Range Sales Co.
Asarco
Asarco, Duval Sales Corp
Ametalco, Inc.
Cyprus Mines Corp.
Copper'Range Sales Cc
Cities Service Company
Metal Sales Dept.
Cities Service Company
Metal Sales Dept.
Quincy Mining Co.
Anaconda and Amax
Copper Inc.
SOURCE• American Bureau of Metal Statistics, Inc. (ABMS), Nonferrous Metal Data. 1974.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Little doubt exists, however, that the copper industry is less
vertically-integrated in the fabricating stage than in previous
stages (i.e., mining through refining), sufficiently so that a very
substantial market for refined copper exists outside of the major
producer-captive facility supply channels.
3. Barriers to Entry
Barriers to entry for fully integrated operations in the copper
industry appear to be substantial. Perhaps the most persuasive evidence
of this lies in the lack of new entry by a major integrated producer
during the last three decades.
Barriers to entry for nonintegrated operations at the mining and
milling level have been less of a constraint; many smaller independent
mining and milling facilities have been operating in the industry for
years, supporting themselves through factors such as regional markets,
lower processing costs due to richer ore bodies, or the use of regional
smelters and refineries owned by the major producers for toll or custom
smelting and refining of their output.
However, the significance of entry by smaller mines on primary
producer behavior is open to doubt. The output of these individual mines
is usually an extremely small part of total supplies, and the life
of such mines is frequently short. More importantly, the overall size
of the independent mining sector relative to mining production by the
primary producers has not significantly increased in the recent past.
4-47
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In his study Barriers to New Competition, J. S. Bain argued that the
major barrier to entry into the copper industry was the high absolute cost
of obtaining a sufficiently large ore body, although the existence of scale
economies as well as high capital costs were important factors as well.^"
The importance of ore reserves as a barrier to entry is in part
related to the competitive advantage derived from vertically Integrated
operations. A firm contemplating entry at the smelter and/or refinery
stage must find some sources of concentrate supplies. It is unreasonable
to suppose that an integrated producer in possession of an ore body
will want to foster the growth of a competitor by selling concentrate
on a large scale. Therefore, a new entrant must either rely on the pur-
chase of concentrate from a number of independent miners or must bear
the costs of discovering new ore reserves of sufficient size to support
integrated operations.
Once having discovered new ore reserves, a new entrant would still
be faced with extremely high capital costs for development of an
integrated mine-through-refinery operation. We estimate that minimum
efficient scale for an integrated operation would be an estimated
productive capacity of approximately 100,000 short tons of copper (Cu
content) on an annual basis. Assuming an estimated capital cost of
$5,000 per annual short ton of capacity (in constant 1974 dollars)
"^"See J. S. Bain, Barriers to New Competition (Cambridge, Massachusetts:
Harvard University Press, 1956) and 0. C. Herfindahl, Copper Costs and
Prices: 1870-1957, Published for Resources for the Future, (Baltimore:
John Hopkins Press, 1959).
4-48
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
to develop an integrated operation, the total minimum capital cost
of an integrated operation would be in the neighborhood of $500 million.
Projects of this magnitude almost certainly will be undertaken only
by large, well-established firms, or jointly by a group of firms.
4-49
Arthur D Little; Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
F. COSTS OF PRODUCTION
1. Primary Producer Costs
The primary producers are faced with two kinds of costs—variable
and fixed costs—at each of the four stages of processing of primary
metal—mining, milling, smelting, and refining. In some cases, cost
categories as viewed by copper industry management may not necessarily
reflect the economists' definition of fixed and variable costs; how-
ever, considering such cost categories in these terms will prove im-
portant for later analysis of the manner in which production costs
and shifts in such costs due to costs of compliance with EPA regula-
tions influence the pricing behavior of the primary producers.
Five relevant categories of annual operating costs or variable
costs can be identified: materials; energy and fuels; operating
supplies; plant maintenance; and part of sales, administration and
overhead.
Fixed costs are defined to include the following: general ad-
ministration costs (some portion); exploration and research costs;
interest expense; property taxes and insurance; depreciation; in-
come taxes; net income (i.e., a desired rate of after-tax return on
assets). The first four capital charges are real costs borne by each
producer. Costs of depreciation do not represent actual costs, that
is, they are not cash charges, but rather are balance sheet items
reflecting a cash flow. Net income is treated as a fixed cost by the
producers in pricing decisions (i.e., they must insure they receive
an Increment to revenue at least equal to the opportunity cost of their
invested capital).
4-50
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
2. Past Trends in Primary Prodacer Costs
Accurate estimation of production costs for copper in the United
States is a difficult undertaking, both because of the variations in
actual costs facing individual producers and because individual pro-
ducers do not normally disclose detailed cost-of-production data.
However, there is general agreement that:
• Costs of mining and concentrating have traditionally formed,
by far, the largest proportion of total production costs of
refined copper. Smelting and refining costs have represented
only a small proportion of the total cost, with smelters and
refineries functioning mainly as "service" operations on fixed
and relatively low profit margins.
• Overall, real costs of refined copper production appear to
have remained stable or to have increased only gradually during
the 1950's and 1960's. There is evidence, however, that real
costs have begun to rise sharply in the last few years.
0 Labor productivity growth, on the other hand, stagnated through
the 1950's and 1960's and productivity has actually registered
a slight decline since 1971 in the face of continued degradation
of average ore grades being mined in the U.S. The industry,
in effect, may have come close to exhausting possible productiv-
ity gains from existing technology.
Orris C. Herfindahl in the late 1950's advanced the hypothesis
that the long-run price of copper tends to equal the long-run economic
cost of copper or the price sufficient to induce continued investment
4-51
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
at all stages of production, from exploration to refining.^" According
to Herfindahl's estimates, the long-run economic cost of producing
copper in the United States was fairly stable at 25-30 cents per pound
between the early 1920's and 1957. Herfindahl argued that copper pro-
ducers, through technological change, were able to keep pace with real
increases in factor costs during this period.
Over the period 1957-1968, as pointed out in a paper by Raymond
2
Mikesell, the deflated average U.S. producers price for refined cop-
per remained reasonably close to the upper range of Herfindahl's es-
timated long-run cost of copper. After 1968, however, the average pro-
ducers price in real terms, climbed substantially higher.
Productivity growth in the copper industry, on the other hand, has
been relatively stagnant since the early 1960's, with productivity gains
lagging behind those experienced by other U.S. industries. Table 13
indicates that output per man-hour at the mining and milling stage rose
only slightly between 1963 and 1971 and registered a slight absolute
decline in the period after 1971.
The combination of a long-term trend towards escalation in the pro-
ducers price (in real terms) and stagnant or negative productivity
growth suggests that the long-run real economic cost of producing copper
has been rising in recent years. In economic terms, producers appear
to have begun operating on the sharply rising portion of the industry's
long-run average total cost curve, whereas previously they were opera-
ting op the relatively flat portion of the curve.
^"0rri6 C. Herfindah, Copper Costa and Prices: 1370-1957, published for
Resources for the Future (Baltimore: The Johns Hopkins Press, 1959).
2
Raymond F. Mikesell, "A Note on Orris Herfindahl's Hypotheses Regarding
the Long-Run Price of Copper from the Vantage Point of 1975", unpublished
draft paper, (November 7, 1975).
Arthur D Little Inc
-------
TABLE 13
INDEX OF OUTPUT PER MAN-HOUR SERIES FOR PRODUCTION OR NONSUPERVISORY
WORKERS, SIC 1021 (COPPER MINING AND MILLING), 1963-1975
(1967=1.000)
¦c*
i
l_n
OJ
>
3
a
cr
(L
3
P
Total average
U.S. domestic
mine production
of recoverable
Index of
Year
Average
employment
(thousands)
Average
weekly
hours
annual
man-hours
(millions)
Index of
man-hours
(1967=1.000)
copper
(thousands of
short tons)
Output
index
(1967=100.0)
output per
man-hour
(1967=1.000)
1963
22.7
43.1
50.875
1.291
1213.166
1.272
0.985
1964
22.1
42.9
49.301
1.251
1246.780
1.307
1.045
1965
24.7
43.4
55.743
1.415
1351.734
1.417
1.001
1966
26.2
43.5
59.264
1.504
1429.152
1.498
0.996
1967
19.1
43.0
39.394C
1.000
954.064
1.000
1.000
1968
21.3
47.0
48.053C
1.220
1204.621
1.263
1.035
1969
26.9
46.3
64.764
1.644
1544.579
1.619
0.985
1970
29.3
44.7
68.105
1.729
1719.657
1.802
1.042
1971
26.8b
42.9
59.785
1.518
1522.183
1.595
1.051
1972
30. 7b
41.6b
66.410
1.686
1664.840
1.745
1.035
1973
33.7b
42.3b
74.126
1.882
1717.940
1.801
0.957
1974
33.8b
41. lb
72.237
1.834
1593.590e
1.670
0.911
1975
28.4b
39.2b
57.891
1.470
1410.989e
1.479
1.000
NOTES
AND SOURCES:

c °
o »
a g I ?
"8 5 °
3
5 CO
I ^
Q o
(D
(p m
x -o
f? >
3
c/» "O
S O.
3 O
< ~
3D
O W
o
"5 H
§ I
° 2
O 3;
3 ^
Q.
s
V*
s
C
5'
2
3
Q)
§
o
CO
5

<0
3
CD
Q3
Q.
<

O
<5*
=r
CD
S
O
3
O

Q_
3"
CD

O
O
c
O
c
3>
5*

®
3
r+

c
g
^.S. Department of Labor, Bureau of Labor Statistics (BLS), Employment and Earnings, United States, 1909-72,
Bulletin No. 1312-9, pp. 10, 11 (for years 1963-1970 only).
bBLS, Employment and Earnings: 1971: Vol. 18, No. 9 (March, 1972), pp. 50, 81.
1972: Vol. 19, No. 9 (March, 1973), pp. 50, 81.
1973: Vol. 20, No. 9 (March, 1974), pp. 54, 85.
1974: Vol. 21, No. 9 (March, 1975), pp. 52, 85.
1975: Vol. 22, No. 9 (March, 1976), pp. 56, 89.
-------
r
To avoid errors due to prolonged strikes in these two years, total annual average man-hours have been computed
on a monthly basis before summing up to obtain the annual total.
dData refer to mine production of recoverable copper (copper content) in the form of blister. Source (1963-1973):
Copper Development Association, Inc. (CDA), Copper Supply and Consumption, 1955-1974 (New York: CDA, 1975),
pp. 8, 9.
e1974: U.S. Bureau of Mines, Mineral Industry Surveys, Copper in 1974 (April 8, 1975), p. 3. 1975: Ibid.,
Copper in 1975 (March 26, 1976), p. 3.
^The indexes of output per man-hour are computed by dividing the output index by the index of total average annual
man-hours.
ana
a o c
o C
5 o
D
30
5 a =
S 5
"8 J
I ^
0 CO
« m
X "O
& >
D
t/i Tj
1 3
< **
O
0 3;
1 8'
c r>
5" |2
«° 3
3 "
< r+
5" 3"
g «d
a
o
r>
c
=> 30
O
a 3D
"5 H
o
a.
I
H
a 2"
§ 3
D>
° S-
»' 2
3 §
S o
<. 3
pt o
3- TO
g i
•* 3
5 »
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Other evidence exists suggesting a rise in real factor costs in
recent years. First, average smelter and refinery charges in the copper
industry have escalated dramatically. In the 1960's, the traditional
rule of thumb in determining concentrate value was to assume about 9
cents per pound for smelting and refining charges. By 1973, average
smelter and refinery charges in the U.S. had risen to nearly 12 cents,
and in the ensuing two years the average figure increased to more than
20 cents per pound. This was an increase well in excess of the general
rate of inflation in the economy during the 1973-1975 period. Second,
as shown in Table 14, the costs of purchased energy in the copper indus-
try have Increased substantially faster than the general rate of inflation
since 1973.
The industry's productivity problem lies in the lack of development
of radically new technologies to take the place of conventional mining
practices associated with open-pit mines. The average copper content
of the ore mined in the United States declined from about .85 percent
in 1957 to .55 percent in 1972.^ Conventional stripping technology has
been unable to offset the increased cost associated with mining lower
grade ores.
Several new approaches may be utilized in the future to overcome
some of the potential constraints on growth of productivity in the in-
dustry. First, newly-developed pit slope engineering techniques may
be employed to steepen slopes and thereby decrease stripping ratios,
as well as to increase the amount of ore in a given mine which is
economically recoverable. In addition, the same design concepts asso-
ciated with steepening slopes can be utilized for predictable controlled
^"Raymond Mikesell, "A Note on Orris Herfindahl's Hypothesis Regarding
the Long-Run Price of Copper from the Vantage Point of 1975," unpublished
draft paper (November, 1975).
, cc Arthur D Little Inc
4-55
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE" 14
WHOLESALE PRICE INDEX SERIES FOR MAJOR COMPONENTS OF
OPERATING AND MAINTENANCE COSTS, U.S. COPPER INDUSTRY
(SIC 1021-C0PPER ORES AND SIC 3331-PRIMARY COPPER),
1963-1975
Years
Materials and
components, parts,
containers and
supplies (excl.
energy)
Purchased
electric
c
power
Purchased
fuels
(1967=100.0) (1974=100.0) (1967=100.0) (1974=100.0) (1967=100.0) (1974=100.0)
1963
94.3
61.2
101.3
62.1
96.1
52.0
1964
94.8
61.5
100.4
61.6
93.8
50.7
1965
96.3
62.5
100.1
61.4
95.6
51.7
1966
99.1
64.3
99.6
61.1
99.6
53.9
1967
100.0
64.9
100.0
61.3
100.0
54.1
1968
102.6
66.6
100.9
61.9
98.6
53.3
1969
106.3
69.0
101.8
62.4
100.1
54.1
1970
110.2
71.5
104.8
64.3
104.3
56.4
1971
113.8
73.8
113.6
69.7
110.0
59.5
1972
117.9
76.5
121.5
74.5
112.7
61.0
1973
129.2
83.8
129.3
79.3
125.6
67.9
1974
154.ld
100.0
163.ld
100.0
184.9
100.0
1975d
171.1®
111.0
176.5®
108.2
225.9
122.2
NOTES AND SOURCES;
aWholesale price index (WPI) for total manufactured goods.
The base year is shifted from 1967 to 1974, by dividing the series by the 1974 index.
°WPI 054-Electric power.
dU.S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review (January,
1976), various tables.
0
U.S. Department of Labor, Bureau of Labor Statistics, Wholesale Prices and Price Indexes
for January through December; average of data for January through December.
WPI 05 (Fuels and related products and power) minus WPI 054 (Electric power) minus WPI
0561 (Crude petroleum). This measurement provides a broad coverage of various types of
fuel used by the copper industry, in mining through refining (i.e., included, among
others, are natural gas, distillate, and residual fuels).
4-56
Arthur D Little; Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
We have computed this price index series as follows:
Let AP = AP^ + AP2W2 + AP W
where
AP : change in WPI 05 (Fuels and related products and power) between
1967 (1967=100.00) and a given year;
AP^ : change in WPI 054 (Electric power) between 1967 and a given year;
AP2 : change in WPI 0561 (Crude petroleum) between 1967 and a given year;
APg : change in "rest of WPI 05" (i.e., WPI 05 minus WPI 054 minus WPI 0561)
between 1967 and a given year;
3
W , W , W : weights in WPI 05 associated with P1 P. and P., respectively; I W = 1.0
1 Z J X J £m J
We can solve for as follows:
ap3w3 = AP - AP^ - AP2W2
where AP, AP^ and AP2 can be computed from the following series on P, P^ and P2:
Years
P
Pi
p2
1963
96.3
101.3
98.7
1964
93.7
100.4
98.3
1965
95.5
100.1
98.2
1966
97.8
99.6
98.9
1967
100.0
100.0
100.0
1968
98.9
100.9
100.8
1969
100.9
101.8
105.2
1970
105.9
104.8
106.1
1971
114.2
113.6
113.2
1972
118.6
121.5
113.8
1973
134.3
129.3
126.0
1974
208.3
163.1
211.8
1975
245.1
176.5
245.7
SOURCES:

1963-1973: U.S. Department of Labor, Bureau of Labor
Statistics, Handbook of Labor Statistics 1974, Table 129;
1974: U.S. Department of Labor, Bureau of Labor Statistics,
Wholesale Prices and Price Indexes, Supplement 1975 (September,
1975), Table 5;
4-57
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
1975: U.S. Department of Labor, Bureau of Labor Statistics,
Wholesale Prices and Price Indexes, monthly January through
December, 1975, Tables 6.
The weights W^, and are computed as follows:
Wx = 1.728/7.697 = 0.2245
W2 = 0.635/7.697 = 0.825
W3 = 1.000 - 0.2245 - 0.825 = 0.6930
where
1.728 is the weight in the total WPI associated with WPI 054 (Electric power);
0.635 is the weight in the total WPI associated with WPI 0561 (Crude petroleum); and,
7.697 is the overall weight in the total WPI associated with WPI 05 (fuels and related
products and power).
SOURCE:
U.S. Department of Labor, Bureau of Labor Statistics, Wholesale Prices and Price Indexes,
Supplement 1975 (September, 1975), Table 4.
4-58
Arthur DLittk Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
caving of slopes as an alternative to drilling and blasting under some
conditions. Finally, the development of self-propelled crushers and
belt-conveyors would eliminate the need for use of trucks in hauling
ore and overburden. All of these techniques, however, require substan-
tial, and initially expensive, alterations in traditional mining prac-
tices and are unlikely to be adopted in the near future by the industry.
3. ADL Estimates of Primary Producer Costs
As described in greater detail in the Technical Appendix to this
report, ADL has made engineering and financial cost estimates of histor-
ical and future average variable and fixed costs borne by the primary
producers, as part of the construction of an econometric simulation
model of the U.S. copper industry to assess the future impacts of en-
vironmental regulations and associated compliance costs on the industry."'"
As suggested earlier in the chapter, variable costs represent costs
incurred for inputs which can be varied in the short-term by changing
the firm's output; they increase as the firm's output increases, since
larger output normally requires increased variable inputs such as labor,
raw and intermediate goods, energy, etc.
Fixed costs, on the other hand, represent total obligations over a
given unit of time' (e.g., year) incurred by a firm for fixed capital
inputs which are independent of the level of output. A firm's fixed
capital includes plant equipment, and associated depreciation of build-
ings and equipment, property taxes, rental payments, capitalized
maintenance costs, and part of general administration.
"'"For a number of reasons discussed in the Technical Appendix, our
exploratory attempts at an econometric analysis of cost functions
facing the primary producers convinced us to use engineering and fi-
nancial cost estimates.
4-59
Arthur DLittleJnc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In making our cost estimates, we have assumed constant returns to
scale when firms are operating at between roughly 45-86 percent of
installed capacity; beyond this region, diminishing returns to scale
are assumed to set in. In other words, in the 45-86 percent range, av-
erage variable costs are equal to marginal costs; beyond 86 percent
of capacity the average variable and marginal cost schedules (functions)
not only rise sharply but also, of course, diverge.
Our estimate of the average variable costs for producing refined
copper (over all four stages of production) for the primary producers
in 1974 was 43c per pound, representing the weighted average of company-
specific production cost data for eleven major producers (including both
2
integrated and non-integrated companies.
Where production cost data were not available directly from companies
themselves, estimates of average variable costs were made by taking into
account differential ore grades, stripping ratios, recovery rates and
mining technology. Since smelting and refining processes involve quite
^ Refer to the Technical Appendix for nore detail.
2
Based on production cost data for Kennecott, Phelps Dodge, Newmont,
Duval, Cyprus Bagdad, Amax, Asarco, Copper Range, Inspiration, Cities
Service and Anaconda. The data refer to production costs before credits
for by-products (e.g., gold, silver, molybdenum; credits for gold
in 1974 have been estimated at about 2.5c/lb.; total credits in 1974
for all three major by-product metals have been estimated at about 4^/lb.).
This approach would tend to slightly overstate the average variable
costs facing the primary producers in 1974. However, it does make an
implicit allowance for ore grade degradation over time. Also as a
basis for econometric simulation of future market and investment ac-
tivity in the industry, the exclusion of by-product credits avoids
the assumption that in the future (a) the prices of the by-product
metals will remain constant at their 1974 levels(which is not really
desirable) or that (b) the prices of the by-product metals will grow at
certain rates (which introduces new and unnecessary complications and
sources of error in the analysis).
4-60
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
standard technologies with known input requirements, the cost differen-
tials observed were generally reflective of different ore grades and
mining costs among the different companies.
Our estimate of the average fixed costs for the primary producers
(over all four stages of production) for 1974 was about 29c per pound.
This figure, if anything, errs on the high side, by one or two cents
per pound; it was obtained by cross-checking from a number of different
sources historically observed average fixed cost figures for the pri-
mary producers.
Fixed costs facing the primary producers in any given year in the
future have been estimated by separating out fixed costs due to all sunk
costs prior to 1974, new productive investments (both expansion and
replacement) over the 1974-1985 period and new pollution abatement invest-
ments over the period 1974-1985. This is necessary because total fixed costs
will increase as new investment is undertaken in the future; the increase
in total fixed costs will correspondingly cause an increase in average
fixed costs.
In summary, average total costs for the primary producers in 1974
were estimated at 72c per pound.^ Costs of new capacity expansion have
been estimated at $5,000 per annual short ton (in constant 1974 dollars),
$1,600 per annual short ton of smelting and refining capacity and $3400
per annual short ton of mining and milling capacity.
Corresponds to the minimum point on the industry's average total cost
(ATC) function, at roughly 86 percent of installed productive capacity.
Arthur D Little; Inc.
4-61
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CHAPTER 5
THE DYNAMICS OF DEMAND FOR COPPER
A. INTRODUCTION AND SUMMARY
While the discussion in Chapter 4 concentrated on industry structure
and patterns of supply in the domestic copper industry, in this chapter
the focus is on patterns of copper consumption and the dynamics of demand
for refined copper. We first define explicitly both the relevant market
for refined copper and the concept of market demand used in this analysis.
Next, we review past patterns of consumption among domestic semifabrlcators
and fabricators. We then discuss the various factors affecting demand levels
over the period under analysis, with reference to an econometric analysis
of demand for refined copper. Finally, based on econometric analysis, we
present some estimates as to the relative sensitivity of demand to changes
in various price and income variables identified as having a causal influence
on quantities demanded.
Two appendices accompany this chapter. Appendix A presents a review of
trends In long-run substitution for copper (primarily from aluminum).
Appendix B provides tabulations on interindustrial relationships of copper.
The principal conclusions emerging from this chapter can be summarized
as follows:
1. For purposes of analyzing market demand, it is generally accurate
to think in terms of a unified market for refined copper, copper scrap, and
copper alloy ingot. This is because each type of scrap or alloy ingot can
be processed into unalloyed refined copper at a relatively small cost.
5-1
Arthur D Little, Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
2. By accounting definition, total output of refined copper and its
equivalent (e.g., unrefined scrap or copper alloy ingot must equal total
uses in a given year. The principal categories of use for refined copper
and its equivalent are: (1) consumption by semifabricators; (2) net
additions to inventories; (3) net exports. Net additions to inventories
can be further broken down among various types of users (e.g., stock
changes of primary refiners, stock changes of secondary refiners, changes
in Federal Government stockpiles, and stock changes of semifabricators).
3. The uses of copper and the demand for copper are not definitionally
identical. While "uses" refers to the disposition of copper on hand, demand
is an economic concept which refers to the quantities the buyers are wil-
ling to purchase at different prices, everything else remaining constant.
Demand may be defined to Include different use components; however,
because we are concerned principally with the dynamics of demand on the part
of domestic semifabricators, we have simply defined semifabricated demand to
include both semifabricators' consumption and net additions to semifabricators'
inventories. The resulting demand series represents the amount of refined
copper and its equivalent actually demanded in the market by semifabricators
during a given year.
4. Demand for refined copper equivalent is a derived rather than final
demand. Semifabricators demand refined copper equivalent not for purposes
of final consumption, but for use in the production of semifabricated products
which are, in turn, demanded by fabricators and end-users as intermediate
inputs in the production of final consumer or producers' goods. Semi-
fabricators' demand for refined copper equivalent is thus derived from the
5-2
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
demand of fabricators which in turn is derived from demand for final
products (consumer goods, investment goods—including construction).
5. Among semifabricating industries in 1974, wire mills, which use
only refined copper, consumed about 47 percent of total supplies of refined
copper equivalent. Brass mills, which consume refined copper and scrap in
fairly equal proportions, accounted for about 39 percent of total consumption.
Ingot makers, who use almost entirely scrap, were the third largest
consumers at seven percent. Foundries, consuming predominantly scrap,
used about four percent, with powder plants and "other industries" accounting
for the remainder.
The major industries consuming semifabricated goods are (in order of
importance): electrical and electronics products; building construction;
consumer and general products; industrial machinery and equipment; trans-
portation; ordnance and accessories.
6. The demand for refined copper equivalent is determined by at
least three principal factors: general levels of macroeconomic activity;
the prices of refined copper equivalent; and the prices of potential sub-
stitute goods for refined copper, such as aluminum and plastics, relative
to the price of refined copper.
Substitution of aluminum or another material for copper can occur in
either the short-run or the long-run. Substitution in the short-run involves
no major alterations in fixed plant and equipment or changes in producer
design. For the most part, this type of substitution is limited to residential
and nonresidential construction. In most cases, the capital fixity of plant
and equipment will limit possibilities for substitution in the short-run.
5-3
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
As a result, substitution will only occur mostly over the longer-run when
the relative price of a substitute material becomes low enough to justify
the capital costs of altering plant and equipment. Consequently, we would
expect the long-run own-price and cross-price elasticities to be greater
than the short-run price elasticities.
Among long-run substitute materials, it is generally agreed that
aluminum has been the most serious competitor to copper, having made the
most serious inroads in electrical conductor and heat-exchanger applications.
The most important potential instances of long-run substitution are in
telephone conductor cable and automobile radiators.
7. Most of the available empirical econometric studies of demand
for copper indicate substantial short-run inelasticity (or insensitivity)
with respect to price and activity levels. The long-run elasticity
estimates are all greater than the short-run elasticities.
Among the various price and income variables affecting quantities
demanded, our own econometric analysis indicates that a 1.0 percent increase
in the price of copper will lower demand of refined copper equivalent by
.47 percent in the short-run and .64 percent in the long-run. Furthermore,
a 1.0 percent decrease in the market price of aluminum will stimulate
substitution to aluminum, leading to a corresponding decrease in demand for
refined copper equivalent of .61 percent in the short-run and .84 percent
in the long-run.
We also estimate that a 1.0 percent increase in the production of durable
manufactured goods will generate a 1.3 percent increase in refined copper
demand in the short-run and a 1.8 percent increase in the long-run.
5-4
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
B. CONSUMPTION PATTERNS AND DYNAMICS OF DEMAND
1. Definition of the Market for Copper
For purposes of analyzing market demand, it is generally accurate to
think in terms of a unified market for refined copper, copper scrap, and
copper alloy ingot.
As noted at the beginning of Chapter A, except for wire mills, semi-
fabricators and fabricators use not only refined copper but also various
types of scrap and copper alloy ingot in their operations. While there
are significant physical differences among these products, and the various
types of copper cannot be regarded as perfect substitutes, each type of
scrap or alloy ingot can be processed into unalloyed refined copper at a
relatively small cost. Therefore, typically the difference between
refined copper prices and prices of various types of scrap and copper
alloy ingot would be roughly indicative of the added costs to the user of
substituting the latter form of copper for the former. Since there are
buyers for all possible combinations of products, arbitrage can be fully
effective, especially since copper merchants stand ready to trade in
virtually all types of copper.
2. Uses of Copper Versus the Demand for Copper
The principal use categories for refined copper and refined copper
equivalent (e.g., unrefined scrap or copper alloy ingot) are:
• consumption by semifabricators;
« net additions to inventories;
t net exports.
5-5
Arthur D Little, Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The category of net Inventory additions can be further subdivided into:
(a) stock changes of primary refiners; (b) stock changes of secondary
refiners; (c) changes in Federal Government stockpiles, and (d) stock
changes of semifabricators.
By definition, the total amount of copper supplied by the primary
producers, secondary refiners, and scrap suppliers in any year must equal
total uses of copper for that year.
The "jnaterials balancing" identity or accounting equation can be
represented as follows:
QPR + QSR + QSNR = QC + NE + AIGOV + AIF + AIRR + AIRS
where QPR represents the quantity of primary refined copper produced, QSR
is the quantity of secondary refined copper produced from scrap, and QSNR
represents the quantity of unrefined scrap supplied (and used directly);
QC is consumption by semifabricators; NE is net exports; AIGOV is the
change in government stockpiles; AIF is the change in semifabricator
inventories; AIRR represents the change in Inventories of primary refiners;
and AIRS is the change in inventories of secondary refiners.
Table 1 indicates the relative importance of alternative uses of refined
copper or refined copper equivalent for selected years from 1954 through
5-6
Arthur D Little Inc.
-------
TABLE 1
DISPOSITION OF COPPER SUPPLIES IN THE UNITED STATES FOR
SELECTED YEARS BEiWEEH 1954-1974
(Thousands of Short Tons of Cu. Content)
1954
1960
1965
1966
1967
1970
1971
1972
1973
1974"
Semifabricators Consumption (QC)
Reported
(+) Net Additions to:
o Seraifabricators Inventories of
Refined and Scrap Ingot (filF)
o Refinery Stocks of Refined
Copper (MRR)
o Refinery Stocks of Scrap
(AIRS)
o Government Stockpiles
(AIGOV)
(+) Net Exports of Refined Copper
and Scrap (NE)
(+) Inventory Accounting
Adjustment
= Total Supplies of Primary and
Secondary Refined Copper and
Scrap (QPR + QSR + QSNR)
1,916.5 2,079.3 2,995.4 3,368.6 3,164.2 2,930.5 2,956.0 3,266.3 3,481.7 3,106.2
- 26.0
- 40.6
- 25.0
199. 3
124.7
11 5
8.0
74.5
- 9.0
6.0
438.0
29.4
9.0
15.2
- 4 0
-122.5
256.1
17.2
63.0
4.9
3.0
-445.0
135.1
- 66.8
10.0
- 10.7
15.0
- 8.0
130.7
- 3.4
64.0
114.7
11.0
0.0
168.9
-67.9
-13.0
- 57.6
- 17.0
- 1.8
74.4
- 6.7
-62.0
54.4
-5.0
0.0
29.5
37.6
0.0
-108.3
-4.0
-33.8
72.6
23.9
75.0
145.a
1.0
132.5
-108.5
124.6
2,160.4 2,626.2 3,166.4 3,196.4 3,297.8 3,221.2 2,934 3 3,320.7 3,432.1 3,161.6
NOTES: Preliminary.
SOURCE: Copper Development Association, Copper Supply and Consumption. Annual Data, 1973, 1975.
a =?
c °
o 5
8 3
CD
3 IT
2 m
t& m
x -o
>
3
%' 3
-i
3 n
< ^
*2 O
o ^
3 ^
Q. 8
C
3 •
< ^
5 =r
S
" a
o
o
c
O
3 a>
o ni
" u
O
to 3D
^ -*
Ih
n 3"
° 2
3 §
2 a
5 3
S CL
< 3
3- S
8 3
^ 3
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
1 2
1974. ' Clearly, consumption by semlfabrlcators dominates among uses of
refined copper equivalent. Inventory changes at the semlfabrlcator level
have represented only a marginal proportion of total uses. Although In
some years net exports and changes In primary producer Inventories and
government stockpiles have represented a somewhat larger proportion of
total uses, their net Impact on total quantities demanded has been marginal.
The uses of copper and the demand for copper are not deflnltlonally
Identical. The term "uses" refers to the disposition of copper on hand Into
various categories such as consumption, inventory accumulation, etc.
Demand, on the other hand, Is an economic concept which refers to the
quantities the buyers are willing to purchase at different prices, every-
thing else remaining constant.
^J.S. copper production and consumption data developed by the U.S. Bureau of
Mines and U.S. Bureau of Domestic Commerce of the Commerce Department inevitably
involve inconsistencies due to differences in reporting coverage, etc. In
order to reconcile these inconsistencies and obtain a consistent accounting
flow of copper from production through consumption, the Copper Development
Association adjusts inventory data developed by the Bureau of Domestic Commerce.
For purposes of our overall materials balancing equation, we have used the
adjusted "apparent change" inventory figures of the Copper Development Associ-
ation; but in analyzing individual inventory components, we have preferred to
use the original U.S. Government data.
2
It is impossible to obtain an entirely accurate breakdown on inventories of
primary and secondary refineries as we have defined them. U.S. Department of
Commerce data on refinery stocks of refined copper and scrap reproduced by
the Copper Development Association have been used as proxies for stocks held
by primary and secondary refiners. Because of the reporting coverage of the
Commerce Department's Bureau of Domestic Commerce, some refined copper stocks
which we have attributed to the primary producers might logically be attributed
to secondary refinery inventories, while some scrap stocks which we have
attributed to the secondary refiners might actually be associated with primary
refinery inventories. However, these redistributed quantities would without
doubt be marginal and use of the Bureau of Domestic Commerce data does not
seriously affect the reliability of modeling results obtained.
5-8
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Data on copper flows are usually collected in terms of production,
consumption, and inventories. Therefore, demand must be estimated from
these figures, by adjusting either overall production or consumption
figures for changes in inventories and/or net exports. How this is
precisely accomplished depends on one's analytical objectives. From a
theoretical point of view, the choice of approach might be important, but
for the objectives of this study, this becomes relatively inconsequential.
When demand is defined as the demand of domestic semifabricators
(definition 1), the relevant figure (QD) can be derived from the consumption
side as follows:
QD = QC + AIF
Demand could also be defined, more broadly, to include net exports
and changes in government inventories (definition 2):
QD* = QC + AIF + NE + AIGOV
These two additional components, when positive, clearly represent additional
demand for domestic supplies of refined copper equivalent.
The net result of adjusting semifabricator consumption figures for
net exports and government stockpile changes, as well as semifabricators
inventory changes, will be as follows: QD* > QD in years when net exports
and government stockpile changes are positive and QD > QD* when net exports
and government inventory changes are negative.
Because we are concerned principally with the dynamics of demand on
the part of domestic semifabricators, we have chosen to focus directly on
the demand for refined copper equivalent on the part of domestic semi-
fabricators. Aggregate demand figures for the domestic semifabricators
5-9
Arthur D Little, Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 2
UNITED STATES SEMIFABRICATOR DEMAND FOR REFINED
COPPER AND SCRAP. 1954-1974
(Thousands of Short Tons of Cu Content)

QC +
AIF
QD
1954
1,916.5
-26.0
1,890.5
1955
2,418.7
24.0
2,442.7
1956
2,365.0
7.0
2,372.0
1957
2,106.4
- 2.0
2,104.4
1958
1,974.6
4.0
1,978.6
1959
2,318.6
-39.0
2,279.6
1960
2,079.3
8.0
2,087.3
1961
2,170.0
4.0
2,174.0
1962
2,361.1
5.0
2,366.1
1963
2,565.7
- 8.0
2,557.7
1964
2,775.0
10.0
2,785.0
1965
2,995.4
9.0
3,004.4
1966
3,368.6
63.0
3,431.6
1967
2,850.4
-49.0
2,801.4
1968
2,813.5
-14.0
2,799.5
1969
3,164.2
10.0
3,174.2
1970
2,930.5
64.0
2,994.5
1971
2,956.0
-13.0
2,943.0
1972
3,266.2
-62.0
3,204.2
1973
3,481.7
0.0
3,481.7
1974a
3,106.2
75.0
3,181.2
NOTES: Preliminary.
SOURCE: Copper Development Association, Copper Supply and
Consumption, Annual Data, 1973, 1975.
5-10
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
industries under definition 1 are presented in Table 2.
3. Patterns of Consumption and Demand Among Domestic Semifabricators
and Fabricators
Demand for commodities can be classed broadly into two categories:
(1) demand for finished products (i.e., consumer goods); and (2) derived
demand for intermediate goods used in the production of finished goods.
The demand for refined copper and its equivalent is such a derived demand.
The right side of Figure 1 in Chapter A graphically illustrates the
fact that semifabricating industries demand refined copper and its
equivalent not for final consumption, but as intermediate inputs in the
production of semifabricated products. The demand for semifabricated
products on the part of fabricators and end-use industries is, in turn, a
derived demand, derived from the demand for final goods being produced by
fabricators and end-use industries.
While we focus, in the remainder of this chapter, on patterns of
consumption and the dynamics of demand for refined copper and its equivalent
on the part of semifabricators, it is important to keep in mind the important
role played by end-use industry demand for semifabricated products in
determining semifabricators' demand for refined copper and scrap.
As indicated briefly at the beginning of Chapter 4, there are six
major groups of direct consumers of refined copper and scrap: four copper
semifabricating industries—wire mills, brass mills, foundries, and powder
mills; ingot makers; and a group of "other" industries such as chemicals,
steel, and aluminum.
Ingot makers are, in effect, Intermediate processors of refined copper
and scrap, producing copper alloy ingot, the bulk of which they sell to
5-11
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 3
CONSUMPTION OF COPPER PRODUCTS BY
DOMESTIC SEMIFABRICATORS. 1974°
(Thousands of Short Tons of Cu Content)
Ref ined
Copper
Scrap
Total
Percentage
of Total
Wire Mills
1,433.4
-
1,433.4
(46.1)
Brass Mills
670.3
563.2
1,233.3
(39.7)
Foundries
28.7
115.4
144.1
( 4.6)
Powder Mills
12.0
17.7
29.7
( 1.0)
Ingot Makers
4.7
215.0
219.7
( 7.1)
Other
2.5
38.5
46.0
< 1.5)
Total
2,156.6
949.6
3,106.2
(100.0)
NOTES; Preliminary.
^Old and new scrap.
SOURCE: Copper Development Association, Copper Supply and Consumption,
Annual Data, 1955-1974.
5-12
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
the other semifabricatlng industries, principally brass mills and foundries.
While ingot makers and other industries are not copper semifabricators as
commonly defined, for convenience we shall refer to the aggregate demand
schedule of the six consuming groups as the demand for refined copper and
its equivalent on the part of semifabricators.
The one characteristic shared by the four semifabricating industries
is their use of copper as a basic input. Their production technologies
are almost completely different, and their products are not substitutes
or complements in any important ways.
Wire mills and brass mills have traditionally been the largest consumers
of refined copper and its equivalent accounting for about 86 percent of
total consumption in 1974 (refer to Table 3). Wire mills, which use only
refined copper, consumed about 47 percent, with brass mills, which consume
refined copper and scrap in fairly equal proportions, accounting for about
39 percent. Ingot makers, who used almost entirely scrap, were the third
largest consumers at seven percent. Foundries, which consume predominantly
scrap, used about four percent of total supplies, with powder plants and
"other industries" accounting for the remainder.
Over the last two decades, brass mills have generally accounted for
39-42 percent of total consumption; wire mills, on the other hand, have
gradually increased their proportion of total consumption from 37 percent
in 1956 to the above-mentioned 47 percent. The proportion of total con-
sumption attributable to ingot makers and foundries has declined somewhat
over the last two decades.
5-13
Arthur D Little Inc.
-------
TABLE 4
PRODUCTION OF FABRICATED COPPER PRODUCTS, 1966. 1970, 1974
(Thousands of Short Tons)
1966
Metal
Content
Percent
of Total
1970
Metal
Content
Percent
of Total
1974'
Metal
Content
Percent
of Total
Ln
I-1
Wire Mill Products
Bare Wire
Insulated Communi-
cation
Other Insulated
Total
Brass Mill Products
Sheet
Rod and Mechanical
Wire
Plumbing Tube
Commercial Tube
Total
Foundry Products
Sand Castings
Permanent Mold
Die Castings
Other
134.5
323.0
789.5
1,247.0
656.5
521.0
236.5
249.0
1,663.0
428.0
23.0
15.0
37.0
3.9
9.4
22.9
36.2
19.0
15.1
6.9
7.2
48.2
12.4
0.7
0.4
1.1
113.0
350.0
701.5
1,164.5
441.5
402.0
189.0
224.0
1,256.5
310.0
24.5
11.0
30.0
4.0
12.4
24.9
41.3
15.7
14.3
6.7
7.9
44.6
11.0
.9
.4
1.0
109.5
383.0
830.5
1,323.0
530.0
493.5
176.0
207.5
1,407.0
282.5
12.5
9.0
28.5
3.5
12.4
26.8
42.7
17.1
15.9
5.7
6.7
45.4
9.1
.4
.3
.9
3 °
1 I
£ O
o ?
13

m
X T3
f? >
3
a> o.
- n
< **
5. o
o 2;
3 -¦
Q_ 8
c r1
5*
CO 3
o
3 ® _
< ^ —
o
3 3)
O *
- O
q 31
3 -i
a ?
§ 3
® 2
CD 3"
€
a.
o
o
3 §.
" 2
? 3
m a.
o
5. 3
f-» o
3* ©
8 i
"¦* 3
-h
—I c
s %
Total
503.0
14.6
375.5
13.3
332.5
10.7
>
=r
c
Powder Products
Granular
Flake
Total
Grand Total
30.0
3.5
33.5
3,446.5
1.0
100.0
21.5
2.0
23.5
2,820.0
.7
.1
.8
100.0
31.5
3.0
34.5
3,097.0
1.0
.1
1.1
100.0
EL NOTES: Preliminary.
{L
3
n
S0URCE; Copper Development Association, Copper Supply and Consumption, 1955-1974.
-------
TABLE 5
U S COPPER CONSUMPTION BY BROAD END-USE CATEGORIES, 1960-1976
(Thousands of Shore Tons)
Ln
I
>
=p
c
-r
o
r
Building Construction
Transportation
Consumer and General
Products
Electrical and
Electronic Products
Industrial Machinery
and Equipment
1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974°
478 5 539 5 623 0 648 0 750 5 779 5 780 0 647.5 637 5 711 0 632 0 696 0 749 5 820 5 626.5
293 5 297 0 338 5 352 0 398 0 429 5 452 0 351 0 400 5 414 0 333 5 379 0 411 0 459.0 380 0
342 5 358 5 384 0 397 5 469 0 513 5 741.0 752 5 812.5 784 5 601 5 587 0 664 0 702.0 604 0
619 5 604 5 627 0 673 5 752 5 818.0 947 5 797 0 795 0 899.5 835 0 853 5 979 0 1,118.5 1,017.5
452 0 446 5 484 0 506 0 556 0 569 5 634 5 519 0 543.0 529 5 484 0 479 5 554 5 586.0 501 0
s a
* <1
-i CO
c °
S? >
!•+ II
o H
3
I -
CD
TOTAL
2,186
3 2,246 0
2,456
5
2,577 0
2,926.
.0 3,110 0
3,555.0
3,067 0
3,188 5
3.338 5
2,820 0
2,910 0
3,240 0
3,596.0
3,097 0
CD
3

PERCENTAGE
COMPOSITION

<
9
3

1960
1961
1962

1963
1964
1965
1966
1967
1968
1969
19 70
1971
1972
1973
a
1974
o*
3
Building Construction
2a 9
24 0
25 4

25 1
25 6
25 1
21 9
21 1
20 0
21 3
21 9
23 2
22 3
22 3
20 0
Q.
C
2.
Transportation
13 4
13 2
13 8

13 7
13 6
13 8
12 7
11 4
12 5
12 4
11 6
12. 7
12 2
12 5
12 1
3*
CO
Consumer and General
Products
15 7
16.0
15 6

15 4
16 0
16 5
20 8
24 5
25 5
23 5
20 8
19 6
19 8
19 1
19 3
3
<
s
Electrical and
Electronic Products
28 3
26 9
25 5

26 1
25 7
26 3
26 6
26 0
25 0
26 9
28 9
28 5
29 2
30 3
32 5
Industrial Machinery
and Equipment
20 7
19 9
19 7

19 7
19 1
18 3
18 0
16 9
17 0
15 9
16 8
16 0
16 5
15 8
16 J

TOTAL
100 0
100 0
100 0

100 0
100 0
100 0
100 0
100 0
100 0
100 0
100 0
100 0
100 0
100 0
100 0

NOTES ^Preliminary

SOURCE 1969-19 74 Copper Development Associati
on,

ion.1955-
1974, 1960-1968
Cha rles
River Associates,
lnc (CRA),
Economic
Analvs1s

of the Copper
Indust ry
(March, 1970), p
12

X
O
(0 S
® m "o ^ j
x -o 2 .
'
O ZT
O - <*
« § 3
3 „ 8.
s 8
3 §
8 o
5 3
U a.
3
O
(D
S 2
- <°
£ 56
{L
8
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
As mentioned above, the demand for semifabrlcated products is a derived
demand; "semis" are used as inputs in the production of durable consumer
and investment goods. Table 4 provides a breakdown of the various semi-
fabricated products of the four semifabricating industries and gives production
levels for 1966, 1970, and 1974 in terms of metal content. Although total
output appears to have declined by 10 percent between 1966 and 1974,
fluctuations in intervening years not shown make it difficult to discern
any secular declining trend. Production of wire mill products Increased
in absolute terms and as a percentage of the total. Powder mill output
remained fairly stable in both absolute and percentage terms, while total
production of brass mill products and foundry products declined. Brass
and wire mill products account for approximately 85 percent of total pro-
duction by metal weight for the entire period.
Table 5 presents data on consumption of copper by end-use industries
while Figure 1 charts the growth trends evidenced in that consumption.
The end-use (fabricating) industrial categories that predominate in the
consumption of semifabrlcated copper are the following in order of importance:
« Electrical and electronics products;
• Building construction;
• Consumer and general products;
• Industrial machinery and equipment;
• Transportation;
• Ordnances and accessories.
The electrical and electronics products industry group has grown to
be the principal consumer of copper accounting for somewhat less than
5-16
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
one-third of all annual copper consumption. Building construction continues
to be a significant consumer of copper for electrical wiring and pipe. The
consumer products industry group grew significantly during the late 1960's;
however, its use of copper declined after 1969. While part of this decline
reflected macroeconomic slowdown, part of it may have reflected substitution
of plastics for copper. The Industrial machinery and equipment industry
and the transportation industry increased their consumption of copper
through 1966; however, by 1970, both industries returned to consumption
levels found in 1960.
A. Dynamics of Demand
In Table 2, we presented an aggregate demand series for refined copper
and its equivalent on the part of domestic semifabricators between 1954-197A.
Economic theory and knowledge of the industry suggests that quantities of
refined copper and its equivalent demanded during this period were determined
by at least three principal factors:
• General levels of macroeconomic activity;
• The prices of refined copper and its equivalent;
« The prices of potential substitute goods for refined copper, such
as aluminum and plastics, relative to the price of refined copper.
Other factors, such as the prices of complementary commodities and
factors of production, probably had some influence on quantities of refined
copper demanded, but there is little £ priori evidence to suggest a degree
of influence substantial enough to require their inclusion as explanatory
variables in an analysis of demand for copper.
For the most part, the economic theory behind these variables acting
as demand determinants is straightforward. As economic activity and income
5-17
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
increase, greater quantities of producers' durable goods and consumer
durables using copper inputs will be demanded; this will, in turn, lead
to a greater derived demand for copper on the part of semifabricators.
Similarly, as copper prices increase, semifabricators and end-users will
react by cutting back their consumption in most instances. When prices
decrease, in most instances semifabricators and end-users will demand more.
The manner in which fabricators and end-users react to changes in the
relative prices of substitute goods is often more complex, however.
There exist a number of substitutes for copper in its various uses.
These substitutes include aluminum, stainless steel, zinc and plastics.
Each substitute is a competitor to copper in limited situations. For
example, aluminum is a substitute for copper mainly in wire products and
electrical machinery, given its similarly high conductivity. For consumer
products, plastics are the more Important substitutes.
Substitution of aluminum or another material for copper can occur in
either the short-run or the long-run. Short-run substitution for copper
can take place whenever an alternative material can be used without requiring
major alterations in fixed plant and equipment, or changes in product design.
The major Instances of this sort of substitution are probably to be found
in residential and nonresidential construction. For example, the leading
substitutes for copper drainage pipe are plastic and cast iron pipe. Copper
pipe is preferred on technical grounds, but if the price becomes too high
or copper is simply unavailable, contractors can readily use plastic or
cast iron. Decisions on what sort of pipe to use are made frequently, so
substitution is short-run in the sense of requiring no investment and the
effects of a change in price probably occurring rapidly.
5-18
Arthur D Little: Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Short-run substitution can also take place through variations in the
copper content of alloy semifabricated products. That is, a consumer who
normally uses semis of pure copper or alloys with a very high copper content
might switch to alloys with a lower copper content when prices are high.
There are also many ways in which the quantity of copper used per unit of
output can be reduced.
While it appears that there can occur, in some instances, a noticeable
short-run response to changes in price, in many other situations, the
capital fixity of plant and equipment will limit the possibilities for
substitution in the short run. While copper and its substitutes may exhibit
the same required physical properties in use, the capital in place in the
using industry cannot generally be used in processing the substitutes for
copper. As a result, substitution for copper will occur only when the
relative price of a substitute for copper becomes low enough to justify
engineering and tooling costs required to alter the capital equipment of
the using sector. The full substitution from copper to a competing commodity
will occur only in the long run. In economic terms, the long-run own-price
and cross-price elasticities will be greater than the short-run price
elasticities.
Technological advances can contribute to long run substitution (LRS)
in two ways. On the one hand, fabricators and end-users are responsive to
technical as well as economic considerations in choosing to use copper versus
a substitute. Thus, LRS may be stimulated by changes in the technicd
and practical feasibility of substitution (i.e., mechanical and physical
properties achieved in using a substitute material, safety, ease of handling
5-19
Arthur D Little Inc
-------
DRAFT REPORT—The reader is cautioned concerninguse,
quotation or reproduction, of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
and storing, size or weight limitations). Technological developments can
also alter the relative price ratios at which substitutes for copper may
be economical. For example, developments in the last decade in the use
1 2
of aluminum telephone cables and automobile radiators made aluminum,
in theory at least, a realistic substitute at prevailing relative prices.
Long-run substitution has been a serious concern on the part of
the copper industry especially since 1947, when the price of copper went
above the price of aluminum for the first time. Although the relative
price of copper has fallen sharply on occasion in the past (e.g., during
1957 and again during the last half of 1970), the upward trend was resumed
shortly thereafter.
Industry observers are not in complete accord on the prevalence and
importance of LRS, and comprehensive and detailed quantitative information
is unavailable on the degree to which LRS has actually occurred in the
industry during the past thrity years. However, it is generally agreed that
aluminum has been the most serious competitor to copper, having made the
most serious inroads in electrical conductor and heat-exchanger applications.
The most important potential instances of LRS are in telephone conductor
cable and automobile radiators. Conductor cable and automotive radiators
account for roughly 25-30 percent of total demand for primary copper in the
United States'. There is also clearly LRS in the demand for copper electric
transmission cable, and the possibility of LRS in the demand for several
^"American Metal Market, January 4, 1968, p. 1.
2
American Metal Market, January 11, 1968, and May 25, 1967; Modern Metals,
May, 1966, p: 33.
5-20
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
other markets has been mentioned in the trade press. In general, LRS is
present in most of the markets for copper wire, and these constitute
60 percent of the demand for refined copper. More detailed information
on LRS in specific cases is provided in Appendix A.
During the last two decades, world market prices for refined copper
have often experienced substantial and at times violent fluctuations as
noted in the next chapter. Producers in the industry have at times voiced
fears that, regardless of the relative price of refined copper, a lack
of stability in that price over time would by itself stimulate fabricators
and end-users to substitute other materials for copper.
It seems unlikely, however, that price fluctuations alone encourage
LRS for copper. Most copper consumers base their purchasing plans not
on daily price fluctuations occurring on a free market such as the London
Metal Exchange (see Chapter 6), but rather on fluctuations of the monthly
or quarterly average price. Short-term fluctuations leading to unusually
favorable or unfavorable dates for buying can be expected to cancel each
other out in the long run, regardless of the general buying practices of
most firms. Thus, expectations of future long-term relative price trends
are likely to be the most important determinant of LRS, as part of long-
term investment planning on the part of user Industries.
5-21
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
C. ECONOMETRIC MODELING OF THE GENERAL DEMAND FOR COPPER
To reiterate, the demand for refined copper and its equivalent can
be said to be a function of macroeconomic activity levels (driving the
activity levels of the end-user industries), the price of refined copper,
and the price of substitute products. In an econometric analysis of demand
for copper, these would serve as the independent variables.
Demand equations can be specified showing the relationship between
the quantity (of copper) demanded and only one of these variables or between
quantity demanded and all of these variables simultaneously. In the former
case, for example, the relationship between the total quantity demanded
and the unit price for refined copper equivalent—assuming other variables
are held constant—can be stated as:
Q = F(P)
or
Q = «0 + V M
This equation can be represented graphically by a demand curve (schedule)
which indicates the total quantity of refined copper equivalent demanded by
a group of users (in this case domestic semifabricators) for various possible
changes in price. Thus, in Figure 1 the demand curve indicates that if
everything else is held constant and the price of refined copper is P^,
semifabricators will demand units of refined copper equivalent. If the
price were to fall to P2, Q2 would be demanded.
The other factors affecting the quantity demanded are held constant in
order to isolate the relationship and quantity. If these factors were
included, the relationship in Figure 1 would be:
5-22
Arthur DLittklnc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
[
Q
Q
Q
FIGURE 1
5-23
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Q = F(P, PS, Y) (2)
This equation simply indicates that although price (P) affects the
quantity demanded (Q), the quantity demanded is also a function of the
prices of substitute commodities (P8), and the income or activity levels
(Y) of the users.
The demand curve suggested by Equation 2 is quite general: it indi-
cates only that the variables are causally related in some way to quantities
demanded. In order to introduce greater specificity into the demand
equation, it is necessary to look at the production function for semi-
fabricators. This production function is simply a technical relationship
indicating the maximum amount of output which can be produced by a pro-
ducer or industry with each and every set of possible factor inputs
(capital, labor, materials). The exact form of the demand schedule for
refined copper equivalent, because it is a derived demand, will reflect
the relationships expressed in the aggregate production function for
semifabricators.*
Even given the need to reflect the production function for semifabricators
however, the exact form of the equation can still be specified in different
ways, each of which involves different assumptions concerning price and
income responsive behavior on the part of semifabricators (and, by
implication, fabricators and end-users) over time. For example, the demand
equation introduced above could be specified in a linear or log-log form.
^Technically speaking, the derived demand schedule will fall out of the
first order conditions for cost minimization subject to the production
constraint. Derived demand equations are derived for Cobb-Douglas pro-
duction functions under conditions of perfect and Imperfect competition in
both factor and product markets. See ADL working paper entitled "Overview
of Theoretical and Econometric Foundations of Statistical Cost Analysis"
(July 2, 1975).
5-24
Arthur D Little: Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
If a log-log form Is used, and the equation Is estimated on an
annual basis, the nature of the log-log form will cause the estimated
price and income elasticities (represented by coefficient estimates
associated with each variable) to be constant annually over the entire
sample period. This imposed constancy of the elasticity estimates can
be undesirable if it is felt that in reality price elasticities change
from year to year, given changes in such factors as taste and market
conditions. The linear form requires no such assumption, and permits the
estimation of differing elasticities as they may change from year to year.
On the other hand, the linear form requires the assumption that,
whatever the price level, and absolute increase in price of a certain amount
will lead to a corresponding absolute decline in the quantity demanded.
Thus, a $1.00 increase in price will lower the quantity demanded bv the
same amount whether the initial price is $10 or $100. In reality, one
would expect that a $1.00 price increase would lead to a proportionally
smaller decline in quantity demanded if the initial price were $100
rather than $10.
The log-log form, on the other hand, allows one to assume that a pro-
portional increase in price from any price level will lead to a corresponding
proportional decrease in quantity demanded. In the log-log specification,
a $1.00 price increase from a $100 price level would have a proportionally
much smaller impact on the quantity demanded than a $1.00 increase from a
$10 price level.
Any model of demand applied to a body of data imposes certain structural
constraints. If the range of price variation has historically been small,
the assumption of a fixed incremental quantity response to an incremental
5-25
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
price change (as in the linear form) may not be worrisome. In fact, in
such a case, the ability of the linear formulation to estimate differing
elasticities over the sample period may be analytically helpful. In
light of these considerations, we have chosen to use the linear form of
the demand function in our own analysis.^"
The linear form of Equation 2 can be written as follows:
Q = "O + "lP + °C2pS + tt3Y (2a)
The general demand curve in Equation 2a could be utilized to model the
demand for refined copper equivalent for each semifabricating industry
(wire mills, brass mills, foundries, powder mills, ingot makers, and
other industries) separately or for the group of all semifabricating
industries consuming refined copper equivalent. Since a derived demand
curve reflects the characteristics of the production function of the con-
suming industry, a demand curve estimated for the aggregation of the semi-
fabricating industries would reflect an amalgamation of each of the pro-
duction functions of these industries. If the objective is to estimate
the parameters of the individual production functions, such an aggregation
2
would probably generate aggregation errors. However, in order to
examine the relationship between aggregate demand for copper and price and
activity variables, such a disaggregation is not necessary. Furthermore,
^"As discussed in Chapter 6, the Engineering and Mining Journal producers'
price series has been used in estimating the demand equations. Changes in
the real (i.e., deflated) E/MJ price have been of measurable magnitude.
Therefore, the use of the linear form of the demand curve was deemed
justified.
2
See Theil, H., Principles of Econometrics (New York: John Wiley & Sons,
1971), p. 556-573.
5-26
Arthur D Little Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
attempts in the literature to disaggregate demand analysis to individual
semifabricating industries have not proved successful.^*
One final issue remains: the existence of long-run substitution in
demand that characterizes derived demand for copper. The demand equation
above represents the short run (in this case, a year). The resultant
elasticity coefficients are short-run in nature.
The fact that long-run substitution in demand can require a period of
years as changes in capital equipment take place implies that end-users of
copper only "partially adjust" to a new copper price level each year. Their
equipment will only depreciate so fast each year and because such equipment
will net be replaced immediately, the derived demand for copper is more
elastic in the short run than in the long run. In the long run, the end-
use industries can fully adjust to new factor prices (price changes being
assumed once-for-all) through structural and equipment alterations; hence,
demand will be more elastic over the long run.
This difference in short-run and long-run elasticities in price respon-
siveness can be seen graphically in Figure 2. D in Figure 2 is the long-
Li
run demand schedule of group of copper using industries and D is the short-
run demand curve. The curves are assumed to be in equilibrium at (Q^, F^).
If we assume there is a once-for-all price decrease from P^ to P^, the long-
run desired quantity demanded would be Q^. However, in the short-run,
equipment and structural requirements cannot be altered quickly enough.
The copper-using industries would therefore end up operating on a new short-
run demand curve D , demanding Q9, which represents only partial adjustment
S £
^"See Charles River Associates, Inc. (CSA), Economic Analysis of the Copper
Industry (March, 1970).
5-27
Arthur D Little Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Q
FIGURE 2
5-28
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
to the new price situation.
Eventually, as the copper-using industries continue to adjust by
altering plant and equipment, their short-run demand schedule will move
outward from D until it reaches a new short-run demand curve D1 .
s s
Equilibrium is again achieved at (t^, P2) by producers operating at the
intersection of the short-run demand curve D'g and the long-run demand
curve D .
Li
Using equational form, these concepts can be articulated explicitly.^
Equation (3), given below, is similar to Equation (2a) except that it
relates the desired quantity demanded Q^*> by semifabricators, in a given
year (rather than the actual quantity demanded Qt> to prices and activity
levels:
^t = "o + alPt + "2*S + a3Y ' ^
Where the desired quantity demanded and the actual quantity demanded are the
same, there is no problem. However, as discussed above, users of copper
may not be able to consume Q * (the desired quantity) because of technological
constraints. Although, in the long-run, they shall move toward Qfc*» they
can only adjust partially to that level over the short run. We can repre-
sent this latter situation as follows:
Qt - = HQ* - Q(;_1), o
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
which means simply that the users of the factor (i.e., copper) adjust the
level of their actual demand from year t-1 to year t (estimated as
Qt - in some proportion X of the difference between desired demand
(Q*) and actual demand during the preceding period (Q^ . If no tech-
*
nological constraints existed, X = 1 and = Qfc. In that case, the short-
run and long-run demand responses (and elasticities) would be equivalent.
Using Equation (3) and (4) we can write:
Qt = V + "lXPt + VPt + VTt + (1 " (5)
We
can see that in Equation (3), determines the long-run own price
elasticity. If that equation were linear in the logs, would be that
elasticity. In Equation (5), helps quantify the short-run elasticity,
since the equation is specified with actual prices and actual quantity
demanded, rather than desired quantity demanded. If Equation (5) were
estimated in log-log form, the short-run elasticity would be Hence,
a knowledge of X indicates the difference between the short-run own-
elasticity (egR)* and the long-run own-price elasticity (e^) of demand, as
follows:
I 6lrIx = I6srI °^1 •
^"The difference between short-run and long-run elasticity also applies to
cross-price elasticities and to the differential impact of Y in Equation 5.
2
For a more detailed discussion, refer to the Technical Appendix to this
report, Supporting Paper 1, "Econometric Analyses of the Copper Industry:
General Theoretical Considerations and Critical Review of Selected
Empirical Studies."
5-30
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
D. APPLICATION OF THE GENERAL DEMAND MODEL TO THE COPPER INDUSTRY: SOME
RESULTS
Equation (5) introduced a technique for estimating the price effects
for both the long-run and the short-run. Furthermore, the impact of
production levels of the industries using copper can be estimated. However,
in order to estimate these elasticities, proper data series are required.
An aggregate demand series for domestic semifabricators was presented
in Table 2. Equation G5) states that the amount of refined copper equivalent
demanded by semifabricators is affected by the price of refined copper (P^.) ,
g
the price of competing substitutes (P^_), and the production levels of
the consuming industries (Y^). The price series used for P is the deflated
EMJ price of copper.
We have focused our analysis of copper substitutes on aluminum because
of its overriding importance as a potential competitor to copper. The
g
price series used for P is therefore the monthly average New York dealers'
buying price of new aluminum clippings. Production levels of consuming
industries have been represented by the Federal Reserve Board (FRB) index
of industrial production (durable manufacturers' production). We could
have also utilized production levels (or indices) for the semifabricating
and fabricating industries. Other analysts have examined some of these
alternatives. ^
For example, an index of construction activity was examined by Fisher-
Cootner-Baily in "An Economic Model of the World Copper Industry," The
Bell Journal of Economics and Management Science, 3, 2 (Autumn, 1972),
568-609.
5-31
Arthur D Little; Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
While the detailed estimation of the sensitivity of the demand for
copper to prices and macroeconomic activity is contained in the Technical
Appendix to this report, it is useful to present some preliminary estimates
from our research of others. Table 6 contains price and activity elasticity
estimates for Equation (5). The activity variables utilized in the four
studies differ. The aluminum price estimates also differ. These different
data series will lead to different elasticity estimates. Further, the long-
run elasticity estimates depend crucially upon the estimate of X. In fact,
the major reason for the different long-run elasticity estimates in the
four studies is alternative estimates of X.
There exist technical econometric reasons why some data series are more
appropriate than others in estimating price sensitivity. These technical
details are examined in the Technical Appendix. However, a cursory examina-
tion of Table 6 does confirm some of the insights introduced earlier in
this chapter. For example, 17 out of 18 short-run elasticity estimates
indicate substantial inelasticity (or insensitivity) with respect to price
and activity. The long-run elasticity estimates are all greater than the
short-run estiamtes, indicating that the response of demand to relative
prices and acitlvity is, indeed, more sensitive in the long run. However,
about half of the long-run estimates are still in the inelastic range (i.e.,
less than 1.0). The long-run elasticity estimates of Charles River Associates,
Inc. (CRA) are quite high. However, there exist econometric reasons why
these estimates may be suspect.^"
^"For details, see the Technical Appendix to this report, Supporting Paper 1,
"Econometric Analyses of the Copper Industry: General Theoretical Con-
siderations and Critical Review of Selected Empirical Studies."
5-32
Arthur D Little Inc
-------
TABLE 6
PRICE AND Af!TTVTTY F.T.ASTT r.T TY ESTTMATF.S
FROM VARIOUS STUDIES
Elasticities (At the Mean)

Short-Run
Long-]
Own-Price (EMJ Price)
-.47
-.64
Cross-Price (Aluminum)
.61
.84
Activity Variable (FRB Index of

Durable Manufacturers)
1.30
1. 78
Own-Price (EMJ Price)
-.21
-.90
Cross-Price (Aluminum)
.24
1.01
Activity Variable (FRB Index of

Industrial Production)
.33
1.40
Own-Price (EMJ Price)
-.17
-.82
Cross-Price (Aluminum)
.20
.98
Activity Variable (U.S. Index of

Construction Materials)
.15
.73
Own-Price (EMJ Price)
-.21
00
00
CM
1
Cross Price (Aluminum)
.46
6.30
Activity Variable (FRB Index of

Durable Manufacturers
.26
3.56
Own-Price (EMJ Price)
-.33
-. 77
Cross-Price (Aluminum)
.66
1.57
Activity Variable (FRB Index of

Durable Manufacturers)
.44
1.06
Own-Price (EMJ Price)
-.12
-. 39
Cross-Price (Aluminum)
.35
1.13
Activity Variable (FRB Index of

Durable Manufacturers)
. 32
1.05
NOTES AND SOURCES:
Source
ADL (Model)3
Fisherr-Cootner-
Baily
FisheryCootner-
Baily
Charles River
Associates, Inc.
(CRA)c
D. McNicol
D. McNicol
Period of Analysis
1950-1973
1950-1958; 1962-1966
1957-1958; 1962-1966
1950-1967
1949-1966
1949-1966
3 a
3
Q)
*<
CD
X
"8
CD
3
O
o
3
Q.
C
5'
(O
O
o
3
n
c
o
D
30
r-t
03
E?
>
a
h
o
n
H
3
CO
3
3D
f+
ZT

o
Q_
1

c
H
~o
o
3*
o

o>
^4
o
o
Q.
CD

3"
C/l
8

O
Qi

3
5
(A
5
a>
CD
o
3
o

CD
CD
0)
Q.

O
3"
CD
£
o
3

O
Q.
3"
CD
O
o

O
c
3
c
r*
3
3

CO
CD

c
3
<-~
s
2 ~ —
CD
Refer to the Technical Appendix to this report.
3F. Fisher, P. Cootner, M. Baily, "An Economic Analysis of the World Copper Industry," The Bell Journal of Economics
and Management Science, 3,2.(Autumn, 1972), 568-609.
• * c
Charles River Associates, Inc. (CRA), Economic Analysis of the Copper Industry (March, 1970), pp. 278-315.
=r d
D. McNicol, "The Two Price Systems in the Copper Industry," Unpublished Ph.D. dissertation,
Massachusetts Institute of Technology (February, 1973), pp. 68-69.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The AOL estimates Indicate a 1.0 percent increase in the price of
copper will lower demand (consumption) of refined copper equivalent by
.47 percent in the short run and .64 percent in the long-run. Further-
more, a 1.0 percent decrease in the market price of aluminum will stimulate
substitution to aluminum (i.e., a decrease in demand for refined copper
equivalent of .61 percent in the short-run and .84 percent in the long-
run). The ADL income (activity) elasticities are both greater than unity,
indicating that a 1.0 percent increase in the production of durable
manufacturers generates a 1.3 percent short-run and 1.79 percent long-
run increase in the demand for refined copper.^
It must be mentioned that the two-tiered price system and rationing existed
at various times over the historical period. Alternative estimates of
demand elasticities for differing sample periods which did not include
rationing years, yielded similar estimates for the short-run elasticities.
However, the estimate of X did change since the long-run elasticities differ.
Information on rationing is not thorough enough to introduce it effectively
into the analysis. None of the analyses in Table 6 appear to have accounted
for rationing.
5-34
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX A
LONG-RUN SUBSTITUTION FOR COPPER1
This appendix presents detailed information on trends in long-
run substitution for copper in markets.
A. CONDUCTOR APPLICATIONS
Aluminum has made significant inroads into copper markets in cer-
tain electrical conductor applications, specifically in busbar and
switchgear, building wire, communication cable, and power cable. To a les-
ser degree, aluminum has been substituted, on occasion, for copper in motor
and motor control parts and in automotive electrical apparatus and consumer
electronics goods.
In the building wire industry, substitution of aluminum for copper
has been increasing rapidly since 1964. The amount of substitution is
directly related to the conductor size: the larger the conductor, the
greater the percentage of aluminum building wire.
Substitution of aluminum for copper in the small building wire sizes
is minor because little monetary savings per unit length can be realized
in these sizes. In addition, mechanical connectors of aluminum to aluminum
or aluminum to copper are a problem, particularly in the smaller wire
sizes. Training of electricians on how to make proper connections when
installing aluminum building wires has not always been done, and the resul-
tant troubles have caused many building contractors to abstain from the use
of aluminum conductor building wire in email sizes.
^The material in this appendix draws heavily on National Materials Advisory
Board, Mutual Substitutability of Aluminum and Copper, Report of The Panel
on Mutual Substitutability of Aluminum ana Copper of the Committee on
the Technical Aspects of Critical and Strategic Materials, National Materials
Advisory Board prepared for the General Services Administration, (Wash-
ington D.C.: April, 1972).
. . Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The use of aluminum conductors in the communications industry is
minimal at present. However, there is much research activity in this field
by both manufacturers and end users because large savings in communication
conductor costs are indicated if a number of technical problems can be
solved.
The substitution of aluminum for copper in the power-cable field has
progressed expeditiously and, in recent years, approximately 40 percent
of the insulated power cables and almost 100 percent of the bare conductors
have been aluminum. Aluminum has such a weight advantage over copper that
aluminum-conductor, steel-reinforced cable has been used for most long-
transmission lines for more than a decade. Recently Introduced aluminum
alloys are being used as conductors on overhead transmission lines.
Copper remains the first choice for automotive wiring at current prices.
In areas where space in an existing design is not a problem, the use of
the larger sizes of aluminum wire will Increase. Examples of such applica-
tions are battery cables, air conditioners, clutch coils, alternators,
anti-skid devices, horn coils, and some accessory motors.
Copper and aluminum are used widely as electronic consumer items
(TV receiver, radios, record players, tape recorders, etc.) For many
years the normal electrical conductor in consumer items was an Insulated
copper wire. However, with the advent of solid-state electronics, a large
Increase in aluminum usage occurred because of its excellent heat-sink
capabilities. With the increasing usage of printed circuits or wiring
boards of epoxy glass and epoxy coated steel, and of thin and thick film
ceramic units, nickel, gold, silver, tantalum, and rhodium, as well as
aluminum have begun competing with copper for this application.
A-2
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
B. HEAT-EXCHANGER APPLICATIONS
Substitution of aluminum for copper in radiators is possible given
the fabrication techniques and the available supply of metal in the required
sheet and strip forms. Automotive radiators have been built of aluminum
in limited quantities and are similar in appearance and heat-transfer
characteristics to copper radiators.
All but a small proportion of the motor vehicles currently in service
use radiators constructed of copper and copper alloys. Copper has been
traditional for this application because of its heat transfer properties,
corrision-resistance, ease of fabrication, and ease of joining the various
components by conventional "soft" soldering techniques.
Experience has shown that copper radiators are quickly and economically
repairable with the use of minimal additional copper. Present repair tech-
niques for aluminum radiators are either unreliable or available only at
great expense at a limited number of shops. Most aluminum radiators today
are replaced when leaks occur.
The major deterrent to volume production of aluminum radiators seems
to be high capital equipment costs plus the unamortized cost of equipment
presently used for production of copper radiators. Total cost of industry
conversion has been estimated to be more than $200 million.
Currently, more than 90 percent of the primary surfaces in automotive
air-conditioner evaporators and condensers are aluminum, and domestic
refrigerators and freezers have used all-aluminum evaporators and steel
condensers for years. Copper and aluminum are completely substitutable in
this area.
A-3
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Copper tubing is still the predominant primary surface in heat exchangers
for commercial refrigerators and freezers, and room, central residential,
and commercial air conditioners. Aluminum tubing is used in less than
10 percent of these products. Extensive manufacturing development is
necessary before aluminum could be considered completely substitutable for
copper in these applications.
Aluminum-alloy tubing in air conditioners has up to twice the wall
thickness of copper, but still maintains a weight and cost advantage.
Production processes for most aluminum tube commercial and residential
air conditioners and commercial refrigerator and freezer heat exchangers
are similar to those for copper tube heat exchangers with the exception
of joining or assembly methods. The cost of converting an assembly line
for copper-tube heat exchangers to aluminum is relatively low because most
of the production equipment could be used with either metal, but not
simultaneously.
Additional field experience is required before aluminum will be sub-
stituted widely for copper in room-air-conditioner condensers and commercial
heat exchangers using water as a secondary refrigerant or as a heating medium.
These products account for approximately 25 percent of the total tubing
requirements and pose specific corrosion problems to aluminum. Codes now
limit the use of aluminum-tube heat exchangers mounted in ducts. However,
these codes are being re-evaluated and soldered aluminum-tube heat exchangers
may be accepted in the near future.
Aluminum has been tried in five different U.S. power plants. In two
cases, failure occurred in about a year; in another instance, failure
occurred in five years; and in the other two, condenser tubes lasted
ten years. Fresh water was used for cooling in all cases.
A-4
Arthur D Little; Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
There are problems, seemingly insurmountable, that must be overcome
to use aluminum in the main condenser of power generating stations. The
necessary volume of circulating or cooling water is very great and its
quality is extremely variable. To insure against attack of aluminum tubing
by water, controls and conditioning equipment not customarily used in
electrical generating stations would be required.
Applications Requiring Corrosion Resistance
Copper and aluminum compete directly in many conductivity and heat-
exchanger applications, and in some structural applications, but rarely
in applications in which corrosion resistance is the prime requisite.
In many applications, copper and aluminum are not mutually substi-
tutable. Even where an overlap exists (valves and fittings for example),
a serious decline in copper usage has not occurred.
C. ELECTROPLATING AND COATINGS
Copper has been, and will continue to be, widely used in coatings
applied by electroplating and in forms made by electrodeposition. Aluminum
coatings by electroplating are not easily applied and currently are in
negligible use. In coating applications, copper and aluminum are not in-
terchangeable because the electro-deposition of aluminum requires highly
special procedures. In recent years, electrodeposited coatings of aluminum
would have cost 6 to 10 times those of copper, technical difficulties would
require major changes in equipment.
Recent developments in the thermal decomposition of liquid and vapor
phase aluminum organometallic compounds may, however, permit the use of
aluminum in coatings for steel and in protective paints in the future.
A-5
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
D. ALLOYING APPLICATIONS AND COATINGS
Copper is essential in all U.S. coins because of the requirements
of the large automatic vending machine industry. These machines are
designed to accept coins with the properties of coin silver. To match
these properties, silver-free coins must contain a high percentage of
copper.
Aluminum is not used in any U.S. coins. It is too light in weight
to operate coin-operated machines and has less wear resistance than current-
ly used metals in coins. Thus, aluminum is an unlikely candidate for use
in this field in the foreseeable future.
E. ORDNANCE AND ACCESSORIES
Although other materials have been employed for certain fuse compon-
ents, copper alloys continue to be the major ingredient. Periods of critical
shortage in copper supplies have prompted efforts to substitute other
materials in fuses for several years. Efforts to replace copper with aluminum
also have been related to reducing weight.
In recent years, more than 30 different fuses have been used by the
U.S. Army. Among standard models, the number of copper and/or aluminum
components varies from practically none to a significant proportion. In
some, the original functioning requirements were such that other materials
(such as steel) were satisfactory for almost all components. In others,
aluminum alloys have replaced copper alloys to a certain extent as the
result of a gradual substitution program. In still others, especially
the recent models developed for entirely new projectiles, aluminum alloys
comprise a comparatively large proportion of the materials used. Thus,
a part-by-part analysis of the degree to which copper alloys have been or
may be replaced by aluminum alloys becomes impractical.
A-6
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
For the manufacture of cartride cases, no commercially available
aluminum alloy has proven ideal enough to seriously threaten the use of
copper.
A-7
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX B
INTERINDUSTRY RELATIONSHIPS OF PRIMARY COPPER,
UNITED STATES, 1967
From To Description ($ millions)
38.01
27.01
Industrial Inorganic and Organic
Chemicals
12.3
38.01
37.01
Blast Furnaces and Basic Steel
Products
25.8
38.01
37.02
Iron and Steel Foundries
6.7
38.01
37.04
Primary Metal Products, n.e.c.
22.8
38.01
38.01
Primary Copper
823.8
38.01
38.02
Primary Lead
.4
38.01
38.03
Primary Zinc
3.8
38.01
38.04
Primary Aluminum
8.5
38.01
38.05
Primary Nonferrous Metals, n.e.c.
67.6
38.01
38.06
Secondary Nonferrous Metals
23.6
38.01
38.07
Copper Rolling and Drawing
871.7
38.01
38.08
Aluminum Rolling and Drawing
23.8
38.01
38.09
Nonferrous Rolling and Drawing, n.e.c.
13.8
38.01
38.10
Nonferrous Wire Drawing and Insulating
426.5
38.01
38.11
Aluminum Castings
9.8
38.01
38.12
Brass, Bronze, and Copper Castings
89.2
38.01
38.13
Nonferrous Castings, n.e.c.
2.5
38.01
40.02
Plumbing Fittings and Brass Goods
17.9
38.01
42.03
Heating Equipment, except Electric
8.5
38.01
42.08
Architectural Metal Work
40.7
38.01
48.05
Printing Trades Machinery
4.4
38.01
48.06
Special Industry Machinery, n.e.c.
4.7
38.01
49.01
Pumps and Compressors
5.9
38.01
49.05
Power Transmission Equipment
6.8
38.01
53.04
Motors and Generators
8.8
SOURCE: U.S. Department of Commerce, Input-Output Structure of the U.S.
Economy: 1967, Volume I, Transactions Data for Detailed Industries,
A Supplement to the Survey of Current Business, 1974.
B-l
Arthur D Little, Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
INTERINDUSTRY RELATIONSHIPS OF PRIMARY COPPER,
UNITED STATES, 1967
(Continued)
From To Description ($ millions)
38.01
53.05
Industrial Controls
6.1
38.01
68.01
Electric Utilities
1.2
38.01
71.02
Real Estate
1.5
38.01
83.00
Scrap, Used and Secondhand Goods
1.5
38.01
88.00
Total Intermediate Output
2,547.8
38.01
93.00
Net Inventory Change
14.1
38.01
94.00
Net Exports
171.8
38.01
97.10
Federal Government Purchases, Defense
-106.3
38.01
97.20
Federal Government Purchases, Others
18.8
38.01
99.02
Total Final Demand
98.3
38.01
99.03
Total Output
2,646.1
38.01
99.04
Transfers-Out
83.9
SOURCE: U.S. Department of Commerce, Input-Output Structure of the U.S.
Economy: 1967, Volume I, Transactions Data for Detailed Industries,
A Supplement to the Survey of Current Business, 1974.
B-2
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
INTERINDUSTRY RELATIONSHIPS OF COPPER ROLLING AND DRAWING,
UNITED STATES, 1967
From To Description ($ millions)
38.07 9.00 Stone and Clay Mining and Quarrying .8
38.07 11.01 New Construction, Residential Buildings
(Nonfarm) 138.4
38.07 11.02 New Construction, Nonresidential
Buildings 87.8
38.07 11.03 New Construction, Public Utilities 17.7
38.07 11.05 New Construction, All Other 7.6
38.07 12.01 Maintenance and Repair Construction,
Residential Buildings (Nonfarm) 34.2
38.07 12.02 Maintenance and Repair Construction,
All Other 23.9
38.07 13.01 Complete Guided Missiles .2
38.07 13.02 Ammunition, Except for Small Arms, n.e.c. 6.2
38.07 13.03 Tanks and Tank Components .3
38.07 13.05 Small Arms .5
38.07 13.06 Small Arms Ammunition 100.4
38.07 13.07 Other Ordnance and Accessories .6
38.07 17.06 Coated Fabrics, Not Rubberized .3
38.07 20.01 Logging Camps and Logging Contractors .5
38.07 27.01 Industrial Inorganic and Organic Chemicals .2
38.07 27.04 Miscellaneous Chemical Products 2.7
38.07 32.04 Miscellaneous Plastics Products .3
38.07 36.02 Brick arid Structural Clay Tile .1
38.07 37.01 Blast Furnaces and Basic Steel Products 6.0
38.07 38.01 Primary Copper 45.3
38.07 38.04 Primary Aluminum .7
SOURCE: U.S. Department of Commerce, Input-Output Structure of the U.S.
Economy: 1967, Volume I, Transactions Data for Detailed Industries,
A Supplement to the Survey of Current Business, 1974.
B-3
Arthur D Little Inc
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
INTERINDUSTRY RELATIONSHIPS OF COPPER ROLLING AND DRAWING,
UNITED STATES, 1967
(Continued)
From
To
Description
($ millic
38.07
38.07
Copper Rolling and Drawing
77.1
38.07
38.08
Aluminum Rolling and Drawing
82.5
38.07
38.09
Nonferrous Rolling and Drawing, n.e.c.
13.3
38.07
38.10
Nonferrous Wire Drawing and Insulating
579.9
38.07
38.12
Brass, Bronze, and Copper Castings
11.5
38.07
38.14
Nonferrous Forgings
24.9
38.07
40.01
Metal Sanitary Ware
1.8
38.07
40.02
Plumbing Fittings and Brass Goods
50.2
38.07
40.03
Heating Equipment, Except Electric
24.1
38.07
40.04
Fabricated Structural Steel
2.3
38.07
40.05
Metal Doors Sash and Trim
1.5
38.07
40.06
Fabricated Plate Work (Boiler Shops)
26.7
38.07
40.07
Sheet Metal Work
8.1
38.07
40.08
Architectural Metal Work
4.8
38.07
40.09
Miscellaneous Metal Work
2.7
38.07
41.01
Screw Machine Products and Bolts, Nuts,

Rivets, and Washers
93.9
38.07
41.02
Metal Stampings
68.4
38.07
42.01
Cutlery
1.3
38.07
42.02
Hand and Edge Tools Including Saws
3.5
38.07
42.03
Hardware, n.e.c.
35.9
38.07
42.05
Miscellaneous Fabricated Wire Products
14.1
38.07
42.08
Pipe, Valves, and Pipe Fittings
98.1
38.07
42.11
Fabricated Metal Products, n.e.c.
7.1
38.07
43.01
Steam Engines and Turbines
17.2
38.07
43.02
«
Internal Combustion Engines, n.e.c.
8.7
SOURCE: U.S. Department of Commerce, Input-Output Structure of the U.S.
Economy: 1967, Volume I, Transactions Data for Detailed Industries,
A Supplement to the Survey of Current Business, 1974.
B-4
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
INTERINDUSTRY RELATIONSHIPS OF COPPER ROLLING AND DRAWING,
UNITED STATES, 1967
(Continued)
From To Description ($ millions)
38.07 44.00 Farm Machinery 12.1
38.07 45.01 Construction Machinery 4.1
38.07 45.02 Mining Machinery 1.0
38.07 45.03 Oil Field Machinery 1.6
38.07 46.01 Elevators and Moving Stairways 1.6
38.07 46.02 Conveyors and Conveying Equipment 4.3
38.07 46.03 Hoists, Cranes, and Monorails 2.5
38.07 46.04 Industrial Trucks and Tractors .7
38.07 47.01 Machine Tools, Metal Cutting Types 2.3
38.07 47.02 Machine Tools, Metal Forming Types 1.0
38.07 47.03 Special Dies and Tools and Machine
Tool Accessories 7.3
38.07 47.04 Metalworking Machinery, n.e.c. 6.4
38.07 48.01 Food Products Machinery 1.3
38.07 48.02 Textile Machinery 3.0
38.07 48.04 Paper Industries Machinery 10.0
38.07 48.05 Printing Trades Machinery 2.4
38.07 48.06 Special Industry Machinery, n.e.c. 10.2
38.07 49.01 Pumps and Compressors 11.7
38.07 49.02 Ball and Roller Bearings 3.0
38.07 49.03 Blowers and Fans 4.5
38.07 49.04 Industrial Patterns .2
38.07 49.05 Power Transmission Equipment 6.0
38.07 49.06 Industrial Furances and Ovens 5.6
38.07 49.07 General Industrial Machinery, n.e.c. 4.2
SOURCE: U.S. Department of Commerce, Input-Output Structure of the U.S.
Economy: 1967, Volume I, Transactions Data for Detailed Industries,
A Supplement to the Survey of Current Business, 1974.
B-5
Arthur D Little, I nc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
INTERINDUSTRY RELATIONSHIPS OF COPPER ROLLING AND DRAWING,
UNITED STATES, 1967
(Continued)
From To Description ($ millions)
38.07
50.00
Machine Shop Products
30.6
38.07
51.01
Computing and Related Machines
2.9
38.07
51.02
Typewriters
.2
38.07
51.03
Scales and Balances
.2
38.07
51.04
Office Machines, n.e.c.
.9
38.07
52.01
Automatic Merchandising Machines
.2
38.07
52.02
Commercial Laundry Equipment
.3
38.07
52.03
Refrigeration Machinery
135.2
38.07
52.04
Measuring and Dispensing Pumps
1.2
38.07
52.05
Service Industry Machines, n.e.c.
1.6
38.07
53.01
Electric Measuring Instruments
4.3
38.07
53.02
Transformers
17.6
38.07
53.03
Switchgear and Switchboard Apparatus
46.2
38.07
53.04
Motors and Generators
27.7
38.07
53.05
Industrial Controls
6.8
38.07
53.06
Welding Apparatus
9.5
38.07
53.07
Carbon and Graphite Products
.6
38.07
53.08
Electrical Industrial Apparatus, n.e.c.
4.4
38.07
54.01
Household Cooking Equipment
1.4
38.07
54.02
Household Refrigerators and Freezers
1.4
38.07
54.03
Household Laundry Equipment
1.3
38.07
54.04
Electric Housewares and Fans
3.2
38.07
54.05
Household Vacuum Cleaners
.9
38.07
54.06
Sewing Machines
.3
38.07
54.07
Household Appliances, n.e.c.
3.6
SOURCE: U.S. Department of Commerce, Input-Output Structure of the U.S.
Economy; 1967, Volume I, Transactions Data for Detailed Industries,
A Supplement to the Survey of Current Business, 1974.
B-6
Arthur D Little; Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
INTERINDUSTRY RELATIONSHIPS OF COPPER ROLLING AND DRAWING,
UNITED STATES, 1967
(Continued)
From
To Description
($ millions)
38.07 55.01 Electric Lamps
38.07 55.02 Lighting Fixtures
38.07 55.03 Wiring Devices
38.07 56.01 Radio and Television Receiving Sets
38.07 56.03 Telephone and Telegraph Apparatus
38.07 56.04 Radio and Television Communication
Equipment
38.07 57.01 Electron Tubes
38.07 57.02 Semiconductors
38.07 57.03 Electronic Components, n.e.c.
38.07 58.03 X-Ray Apparatus and Tubes
38.07 58.04 Engine Electrical Equipment
38.07 58.05 Electrical Equipment, n.e.c.
38.07 59.01 Truck and Bus Bodies
38.07 59.02 Truck Trailers
38.07 59.03 Motor Vehicles and Parts
38.07 60.01 Aircraft
38.07 60.02 Aircarft Engines and Parts
38.07 60.04 Aircraft Equipment, n.e.c.
38.07 61.01 Shipbuilding and Repairing
38.07 61.02 Boatbuilding and Repairing
38.07 61.03 Locomotives and Parts
38.07 61.04 Railroad and Street Cars
38.07 61.05 Motorcycles, Bicycles and Parts
38.07 61.06 Trailer Coaches
.9
9.0
35.7
.8
28.1
6.1
2.5
1.8
27.4
.9
9.9
4.9
3.8
.6
119.9
1.6
2.1
8.8
14.4
.7
9.1
2.3
.2
4.4
SOURCE: U.S. Department of Commerce, Input-Output Structure of the U.S.
Economy: 1967, Volume I, Transactions Data for Detailed Industries,
A Supplement to the Survey of Current Business, 1974.
B-7
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
INTERINDUSTRY RELATIONSHIPS OF COPPER ROLLING AND DRAWING,
UNITED STATES, 1967
(Continued)
From To Description ($ millions)
38.07
61.07
Transportation Equipment, n.e.c.
1.0
38.07
62.01
Engineering and Scientific Instruments
1.2
38.07
62.02
Mechanical Measuring Devices
12.7
38.07
62.03
Automatic Temperature Controls
16.6
38.07
63.03
Photographic Equipment and Supplies
1.0
38.07
64.01
Jewelry, Including Costume, and Silver-
ware
19.8
38.07
64.02
Musical Instruments and Parts
2.0
38.07
64.03
Games, Toys, Etc,
.7
38.07
64.04
Sporting and Athletic Goods, n.e.c.
3.2
38.07
64.07
Buttons, Needles, Pins and Fasteners
22.6
38.07
64.12
Miscellaneous Manufactures, n.e.c.
15.0
38.07
65.01
Railroads and Related Services
6.0
38.07
68.01
Electric Utilities
.7
38.07
69.01
Wholesale Trade
2.4
38.07
71.02
Real Estate
4.1
38.07
83.00
Scrap, Used and Secondhand Goods
33.2
38.07
88.00
Total Intermediate Output
2,582.0
38.07
93.00
Net Inventory Change
.3
38.07
94.00
Net Exports
18.5
38.07
97.10
Federal Government Purchases, Defense
4.5
38.07
97.20
Federal Government Purchases, Other
3.9
38.07
99.02
Total Final Demand
26.6
38.07
99.03
Total Output
2,608.6
38.07
99.04
Transfers-Out
258.9
SOURCE: U.S. Department of Commerce, Input-Output Structure of the U.S.
Economy: 1967, Volume I, Transactions Data for Detailed Industries,
A Supplement to the Survey of Current Business, 1974.
B-8
Arthur DLittfclnc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CHAPTER 6
COPPER PRICING MECHANISMS, PRICE FORMATION
AND THE TWO-TIER PRICE SYSTEM
A. INTRODUCTION AND SUMMARY
An adequate understanding of the manner in which supply and demand
forces have interacted in the copper industry in the past cannot be
attained without a firm grasp of the rather complex set of institutional
arrangements which characterize copper markets, the process of price
formation among firms in the industry, and, as a directly related matter,
the emergence and rationale of the "two-price system" for copper which
in the past has been a dominant phenomenon impinging upon the pricing
behavior of the domestic primary producers. This chapter therefore focuses
on these three closely interrelated subjects.
After a discussion of the various Important copper market institutions,
their functional bases and the significance of the various price series
associated with them, we will review historical trends in prices. This
will set the stage for a description and analysis of the pricing behavior
of the primary producers within the context of a important characteristic
of postwar copper markets, namely, the predominance of the so called
"two-price system" for copper. Finally, we will examine the various
theoretical explanations that have been advanced for the pricing behavior
of the primary producers during periods when the two-price system has
been in effect.
The principal conclusions of this chapter can be summarized as follows.
6-1
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
1. The major Institutional arrangements governing copper markets
include: two organized exchanges, the London Metal Exchange (LME) and
the New York Commodity Exchange (Comex); merchants; and, of course, the
major primary producers. The LME and Comex are basically hedge and
speculative, rather than physical markets. Metal merchants are trading
firms which typically trade in all types of copper products as well as
in various other metals.
2. The term "outside market" is sometimes used to describe all
trade in copper apart from domestic sales made by domestic primary producers.
As referred to here, the outside market encompasses the secondary industry
(including the secondary refiners), sales of U.S. and foreign producers
at other than the prevailing domestic producers price, merchants, and
transactions in physical copper on the LME and Comex.
3. In spite of a number of different pricing bases in existence,
the bulk of refined copper sales during the postwar period have been made
directly or indirectly on the basis of one of two distinct price regimes.
The first is the domestic producers price, a set of nearly uniform price
quotations used by the major primary producers, and frequently, by Noranda,
one the the Canadian producers, for sales in the U.S. The second is the
IHE price, spot and forward quotations prevailing on the London Metal
Exchange, which has been used by most producers most of the time as a basis
for sales outside North America.
4. Within the U.S. during the past three decades, about 76 percent
of average annual consumption has been transacted at the domestic pro-
ducers price; about 12 percent on average has been marketed by the principal
6-2
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
secondary or custom refiners at their own established prices reflecting
the prevailing price for scrap and the remaining 12 percent has consisted
on average of Imports and merchant copper sold at a price identical to
or close to the LME price. Because movements in the price of domestic
scrap tend to follow closely movements in the UIE price, however, an
average of 24 percent of refined copper consumption can be said to have
been marketed at prices closely reflecting movements in the LME prices.
5. The significant aspects of the pricing behavior of the copper
industry during the postwar period can thus be adequately described by
focusing on the history of the LME and domestic producers prices. In
general, LME price movements have been relatively volatile and sensitive
to speculative pressures and short-run shifts in supply and demand.
By contrast, the producers price has tended to change only slowly, usually
lagging significant trends in LME prices by several months.
6. The most significant characteristic of postwar copper markets
has been the existence in nine of the 27 years between 1947-1974 of a
two-price system for refined copper, characterized by a wide divergence
between the outside market price for copper (i.e., the LME price) and
the domestic producers price. The two-price system developed during periods
of rising or excess demand for refined copper and was brought about when
participating producers (U.S. and some foreign) chose to ration their
available copper supplies to customers at a price below the level which
would have cleared the market. Three distinct periods when the two-
price system was in effect can be identified as follows: (1) from late
1954 to mid-1956; (2) from January, 1964 to March, 1966; and (3) from
April 1966 to early 1970. During each period, a different combination of
6-3
Arthur D Little: Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
foreign producers participated along with U.S. producers.
7. There appears to be no complete, simple, logical explanation or
set of explanations for the rationing behavior of the principal U.S. and
foreign producers during the periods of the two-price system. All of the
proposed explanations are either logically inconsistent or ace unable to
explain certain "anomalous" behavior on the part of the producers.
Rationing during periods of excess demand and high copper prices (as
reflected in IHE prices) is clearly inconsistent with the motive of short-
run profit maximization. Since the major producers themselves commonly cite
I
the fear of long-run substitution for copper by end-users if copper prices
are allowed to rise too high or are too volatile, the explanation might lie
in an analysis of longer-term motives. Here, the producers suggest that
they have preferred in the past to forego short-run profit maximization in
order to maximize profits in the long-run by avoiding substitution away
from copper.
8. The long-run substitution explanation for rationing is supported by
evidence that producers have at times rationed markets selectively—fully
supplying semlfabrlcator customers with a high propensity for long-run
substitution, such as wire mills, while rationing severely customers with
a low propensity for long-run substitution, such as brass mills. Such
behavior occurred only at certain times during the periods of the two-price
systems, however; at other times, markets were apparently rationed across-
the-board.
9. A second explanation for producer rationing suggests that
partially or fully Integrated producers acted as monopolists to limit the
availability of refined copper supplies and thereby drive up the market
price at which semifabricated and fabricated goods were sold, in other
6-4
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
words, It Is argued that by regulating supplies, they increased their
profits at the fabricating stage while foregoing short-run profit increases
at the mining through refining stages. Such behavior, however, could
well stimulate long-run substitution as prices rose.
Neither hypothesis explains why different foreign producers par-
ticipated in the three different two-price systems. Moreover, sufficient
quantitative data are unavilable to fully support any of the explanations
for the existence of the two-price system.
6-5
Arthur D Little Inc
-------
DRAFT REPORT-The reader Is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
A. COPPER MARKET INSTITUTIONS AMD REFINED COPPER PRICES
Although there are many distinguishable copper prices and the
institutional arrangements of the copper markets are complex, we can
briefly identify the following major institutional arrangements governing
the copper markets: two organized exchanges, the London Metal Exchange
(LME) and the New York Commodity Exchange (Comex); merchants; and the
major (primary) sellers themselves.
The LME and Comex are basically hedge and speculative, rather than
physical markets. Their principal function 1b hence to provide hedging
facilities for both producers and fabricators rather than as markets for
spot sales for physical deliveries. Comex's trading rules virtually
preclude Its use as a physical market. However, the LME can be, and some-
times is, used as a physical market, but even In Europe its role as a
physical market 1b very limited.
Metals merchants, meanwhile, are trading firms which typically trade
in all types of copper products, as well as in various metals, and organize
the refining of numerous small lots of material (i.e., scrap, secondary
blister, and the output of small mines and smelters).
As indicated earlier, the term "outside market" is sometimes used to
describe all trade In copper apart from sales made by the producers.
The outside market encompasses the secondary industry (including the
secondary refiners), some of the smaller foreign producers, merchants,
and transactions in physical copper on the LME and Comex.
The great bulk of refined copper sales by the major producers are
handled through their own subsidiary sales agencies. Some sales agencies
6-6
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
handle not only the refined output of their parent companies, but also
copper refined by several other domestic and foreign primary producers,
and it is not uncommon for the output of a small primary producer to be
sold through the sales agency of a larger producer. Sales by these
agencies represent current orders by buyers for future physical delivery
of copper at an agreed upon price.
While a number of price bases have been employed at different times
during the post-World War II period in the buying and selling of refined
copper, the bulk of refined copper sales have been made directly or
indirectly on the basis of one or two distinct price regimes:
• The domestic producers' price, a set of nearly uniform price
quotations used by the major U.S. primary producers and, for a
good part of the postwar period, by Noranda, one of the Canadian
producers, for sales in the U.S.; and
• The LME price, spot and forward quotations prevailing on the
London Metal Exchange, used by most producers most of the time as
a basis for sales outside North America.
Practically the whole of the world's mine production which is traded
internationally Is sold at prices based on the DIE. The actual price is
not necessarily the daily spot quotation, nor the forward price, nor yet
an average of the two, but in most cases it is arrived at by application
of a formula which is related directly to Exchange quotations.*
*Sir Ronald Prain, Copper: The Anatomy of an Industry (London: Mining
Journal Books Limited, 1975), p. 95.
6-7
Arthur D Little Inc.
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Within the U.S., refined copper has been bought and sold on average
in the following proportions during the postwar period:
• About 76% of average annual consumption has been sold by U.S.
primary producers at the domestic producers' price;
• About 13% of average annual consumption has been marketed by the
principal secondary or custom refiners at their own established
price generally reflecting the prevailing price for copper scrap
plus operating margins;
• The remaining 11% of consumption on an average annual basis has
consisted of imports from foreign producers and the LME, and
copper handled by U.S. metals merchants, mostly sold at the LME
price or a price closely reflecting that price.
Because movements in the price of domestic scrap tend to follow closely
movements in the LME price, however, an average 24% of refined copper
consumption in the U.S. can be said to have been marketed on the basis
of LME prices.
1. The Copper Exchanges: The IME and Comex1
Of the two exchange markets on which copper is quoted, the LME is
certainly the more Important in terms of volume of transactions, physical
deliveries, and Influence on world copper prices generally. As has already
^The discussion presented here draws upon the following principal sources:
(1) Raymond F. Mikesell, "The Nature of the World Market for Copper,"
unpublished paper (Eugene, Oregon: University of Oregon, June, 1974);
(2) Ferdinand E. Banks, The World Copper Market: An Economic Analysis
(Cambridge, Mass.: Ballinger Publishing Co., 1974), pp. 41-49;
(3) Charles River Associates, Inc. (CRA), Economic Analysis of the
Copper Industry (March, 1970), Chapters 5 and 6.
(4) Sir Ronald Prain, Copper: The Anatomy of an Industry (London:
Mining Journal Books Limited, 1975), Chapters 7 and 8.
6-8
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
been noted, producers'prices outside the United States tend to follow LME
quotations rather closely and long-term contracts employ a variety of
formulas for pricing copper related to IMS prices. Although there is
frequently a price differential of several cents per pound for the same
type of copper between the two markets as a consequence of the time and
cost of shipping copper, government trade controls, and other factors,
arbitrage transactions between the Comex and the LME tend to limit the
amount of the differential. There are a number of important differences
in the two markets that require explanation.
The London Metal Exchange (LME)
The DIE dates from 1882, although copper and other metals had been
quoted in London much earlier. During World War II and the immediate
post-war period, when the government controlled the price of strategic
metals, the exchange was closed; but it reopened in 1953, and since that
time a steady increase in activity has been noted.
The LME deals exclusively in nonferrous metals—copper, lead, zinc,
tin and silver. Two copper contracts are traded on the LME: one for
electrolytic wirebar, and one for electrolytic cathode.^ Cathodes nor-
mally trade at a discount under wirebar, reflecting conversion costs.
Contracts may be traded for "spot", "ninety days", and any market day in
between. The minimum contract is for 25 long tons and dealings are
^"LME permits trading in electrolytic wirebars, cathodes, and fire refined
ingot or ingot bars. HCRF wirebar may be delivered for electrolytic
wirebars at a discount, but with this exception substitutions are not
permitted.
6-9
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
conducted in multiples of 25 tons. Dealings on the LME are not simply
paper transactions. Purchasers can always obtain delivery of metal on
the day agreed-upon (and in the case of spot transactions» the following
day) at any of the registered LME warehouses at the seller's option.
Copper for delivery on contract terms is held in warehouses in London,
Birmingham, Liverpool, Manchester, Hull, or Glasgow in the United Kingdom;
Rotterdam in the Netherlands; Hamburg in Germany; and Antwerp in Belgium.
Insistence on delivery has remained paramount and is reflected in the
fact that contracts may not contain any force majeure provisions.
Trading on the I&E takes place through representatives of member
firms who are seated in a circle around the exchange floor and who made
bids and offers to each other across the ring. Deals are made when a
bid or offer is accepted and contracts are issued promptly. Dealers may
hold a position In the metal traded on any market day between the current
day and three months forward, with the final day for liquidation being
the last market day before the contract matures. Dealing members accept
the responsibility of honoring their own contracts. (This differs from
the Comex where the Clearing Association has responsibility for honoring
transactions). Two rings operate daily, Monday through Friday. Trading
commences at noon and at 3:45 p.m. Copper, like the other metals on the
exchange, is traded for a period of five minutes with two-five minute
sessions. During each trade period or ring, one five-minute session
is devoted to copper wirebar and the other to cathode. Closing prices in
the noon session become the official prices and form the basis for the
6-10
Arthur D Little. Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
major share of long-term contracts on which LME quotations are based.'''
No official prices are announced as a result of the afternoon session.
Dealings outside the market ("kerb" dealings) are permitted both in the
morning and In the afternoon, and trading Is allowed outside regular
market hours.
The LME price, although It Is determined by a small number of trans-
actions dally, is important as It has been used as a transaction price by
a number of major producers. During the postwar period, with the exception
of five and one-half years, It has been the policy of the Anglo-American
Corporation (AAC) and Rhodeslan Selection Trust (RST), both of whose
2
properties are In Zambia, to sell at the LME price. Union Mlnlere du
The LME Price quotes dally are based either on the last transaction entered
Into or on the closing bids and offers made during the short period In
which dealings occur, and these prices reflect business done In what are
usually only small tonnages of copper. Yet these same quotations are used
as a basis for pricing Infinitely greater quantities of metal which are sold
directly by producers to fabricators outside the Exchange. In other words,
producers and fabricators use the LME quotations In much the same way as
one might use an official stock exchange quotation for a private share
deal, and the transaction In no way represents physical copper actually
being dealt In across the floor of the Exchange. (See Praln, op. clt., p. 95).
2
The African producers have departed from the policy of selling at the U1E
price on two occasions. First, during the period 1955-1957, RST sold at
announced producer prices, while AAC, UMdHK, the Canadian producers and
Chile sold at a common producers' price.
In the period 1964-1966 RST and AAC sold at a common producer price.
Union Mlniere, the other major African producer, sold at an announced
price. In 1958, Sir Ronald L. Praln stated that the UMdHK price followed
the Metals Week weighted average export refinery price more closely than
the I21E price (see Sir Ronald L. Praln, "Copper Pricing Systems;" address
to the Organization for European Economic Co-operation, Paris, June 25,
1958, reprinted in, Selected Papers of Sir Ronald Lindsay Praln. Vol. II
[London: B. T. Batsford], p. 15).
Furthermore, during the two years prior to the "second producers' price
experiment" AAC and RST had supported the LME price at a fixed level. These
periods are discussed in more detail below. The Korean War must also be ex-
cluded here, as in this period the maximum domestic producers' price was set
by the government (see Charles River Associates, [CRA], op. clt., p. 122).
6-11
Arthur D Little: Inc.
-------
DRAFT REPORT—The reader it cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Haut Katanga (UMdHK), whose properties are In Zaire, has also generally
sold at a price closely related to the LME price. Also, sales of Canadian
and Chilean copper made outside the United States have usually been based
on the LME prices.
The Hew York Commidity Exchange (Comes)
The Comex copper contract are for 25 short tons of either electro-
lytic wirebar, high conductivity fire-refined copper (HCFR), Lake Copper,
electrolytic cathode, or 99.88 percent fire-refined copper, all specified
according to American Society for Testing Materials (AFTM) standards.^
Electrolytic cathodes and high conductivity fire-refined (HCRF) copper
may be substituted at fixed differentials.
Price movements on Comex have a daily limit of 2 cents per pound
for all trading months except the spot months. This limitation,
'Trading on the Comex Is done by floor brokers working in a ring through
bid and offer procedures daily from 9:45 a.m. to 2:10 p.m. At the end
of the day purchases and sales on the Comex are "cleared" through the
Clearing Association composed of commission houses and trading firms.
The Association guarantees fulfillment of all contracts handled by Its
members. This procedure differs from that of the LME which is a market
of "principals" (i.e., the participating brokers underwrite the per-
formance of each contract).
All members of the Clearing Association maintain guarantee funds and fixed
original margins within the Association. Trading takes place for delivery
in seven specified months—January, March, May, July, September, October
and December.
Delivery on Comex contracts may be made on any day during these months,
at the seller's option, to any registered Comex warehouse. Warehouses
are located in Chicago, St. Louis, and Franklin Park in Illinois; El Paso,
Texas; Reading, Pennsylvania, New York City; and Tacoma, Washington.
A semi-fabricator who purchased a contract on Comex might receive fire
refined copper in Tacoma on May 31, while it wanted electrolytic wire-
bars in New York on May 1.
I
6-12
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
together with the system of trading for delivery in seven selected months
and at any day during the month at the seller's option, is designed to
prevent the price from being disproportionately affected by a few large
transactions. However, this system complicates the use of Comex as a
hedging medium and as a basis for establishing prices for contracts
outside the market. It also complicates the problem of comparing LME
and Comex spot and forward prices and or arbitrage between the two exchange
markets. However, formulas have been adopted to compare the prices in the
two markets in a manner which will eliminate to the maximum degree possible
the distortions arising from the different trading and delivery arrange-
ments.
On the Comex, cathode trades at a discount of one-eighth of a cent
a pound below electrolytic wirebar, and the lower grades of fire-refined
copper at a discount of a quarter of a cent per pound. Since the cost of
casting cathode into wirebar is generally more than one-eighth of a
cent a pound and the actual market value of lower grade fire-refined is
less than one-fourth of a cent per pound discount from electrolytic
wirebar, it is to the producers' advantage to deliver these lower grades
against Comex contracts. Hence, the Comex warehouses contain mainly the
lower grades of copper. Such grades serve as a source of direct supply
to brass mills and foundries. Other U.S. fabricators tend to purchase
wirebar from merchants, whose prices fluctuate at a premium above the
Comex quotations. By pricing their copper in close relation to Comex
prices, both merchants and consumers are able to employ the Comex for
hedging purchases and sales for future delivery against price changes.
6-13
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In summary, Comex is considerably less Important In world copper
markets than is the LME. Like IKE, Comex is basically a hedge and specu-
lative market, but Comex is even less of a physical market than LME, and
the Comex price is not generally used for sales on the "outside" market.
Arbitrage between the LME and Comex generally keeps the prices close
together.
2. The Merchant Market^"
Generally merchants buy and sell copper outside the principal pro-
ducer-consumer channels. Merchant copper traded in the U.S. is related
to the Comex price. Merchants for the most part do not invest in pro-
duction facilities, but they can and will hold or finance stocks. In the
United States, where there Is more integration in the copper industry,
merchants may be experiencing somewhat less scope for their activity
than in Europe. For one thing, Comex has a smaller physical turnover than
the LME, and although its facilities for hedging and speculating are
quite as developed as those to be found In London, it is not especially
oriented toward the international market.
Merchants tend to make extensive use of independent refineries.
They also buy a great deal of scrap for refineries handling secondary
materials. Many of the physical deliveries on the LME result from the
transactions of merchants; and by the same token they carry out arbitrage
operations on a worldwide basis. They are usually busiest when the demand
for copper is highest, since during these periods more copper than ever
^"See Banks, op. clt., pp. 41-43.
6-14
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
will come from the smallest mines (i.e., mines that under normal circum-
stances are only marginal producers and possibly have not committed their
production to any given refinery) or scrap. There are also the periods
when buyers or sellers are most likely to misjudge requirements and thus
need the service of merchants.
U.S. merchants are able to sell in European markets; but for the
most part American producers frown on these operations, and it is believed
that they have taken steps to see that their regular customers do not
succeed in transferring any large amount of the excess copper to mer-
chants and thus to the "free" market.
3. The U.S. Producers' Price
Since shortly after World War II, the major U.S. primary producers
have, in effect, used a common basis for determining the price at which
they sell refined copper to affiliated and independent fabricators within
the U.S. This domestic producers' price has represented a common set of
price quotations for delivery of wirebars, ingots, and ingot bars to any
2
consuming destination within the continental United States. Cathodes
have until recently been available at a slight discount, indicating the
On this point it is interesting to note that some producers, before 1961,
reserved a portion of their output for sales to merchants. These trans-
actions were later largely terminated (mostly at the insistence of the
copper companies operating in Africa) on the grounds that sales of this
type contributed to destablizing the market, and many producers inserted
"no resale" clauses in their contracts. It is probably true that similar
no resale clauses are still employed by many American producers (see
Banks, op. cit., p. 43).
2
The domestic producers' price was quote delivered Connecticut Valley
until July, 1950. Kennecott thereafter quoted its price as delivered any-
where within the continental United States; the other major producer did
not follow suit until January, 1954.
6-15
Arthur D Little; Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
absence of melting and casting costs. Cakes and billets, on the other
hand, have sold at premiums which cover additional casting costs. In
1973, however, two major producers began referring to their cathode price
as the standard producers' price In response to the use of the cathode
price by the Cost of Living Council in setting ceilings on refined copper
prices in the U.S.
Metals Week (formerly E/MJ Metal and Mining Markets) publishes a dally
weighted average producers' price quotation based on U.S. mine production
and current selling prices of U.S. producers, reduced to a delivered wire-
bar basis.^ An f.o.b. refinery quotation is also published, which represents
the producers' delivered price quotation minus a standard shipping cost.
This Metals Week price, or its weekly or monthly arithmetic average, pub-
lished in Engineering & Mining Journal (E/MJ) is often referred to when
speaking of the domestic producers' price for refined copper. U.S.
producers usually sell on the basis of the price prevailing on the date
of shipment, regardless of when the buyer placed his order. Some sales,
however, are made at the average weekly or monthly price quotation as
published In E/MJ or American Metal Market; other sales may be made at a firm
price prevailing on the date of the sale.
Prior to 1971, the "E/MJ domestic refinery price" represented a weighted
average of the U.S. producer price and the IMS price, with the U.S. pro-
ducers' price getting more than 97.5% of the weight.
2
An additional producers' price quotation is published daily in the American
Metal Market; the monthly arithmetic average of these quotations is published
annually in Metal Statistics. The E/MJ price reportedly reflects the prices
at which copper is actually traded in the U.S. somewhat more accurately than
the U.S. producers' price series; moreover, Flsher-Cootner-Baily have indi-
cated in a past econometric study of the world copper industry that modeling
results they obtained using the E/MJ price were uniformly better and more
reasonable than those obtained using the U.S. producers' price series.
(Franklin M. Fisher, Paul H. Cootner, Martin N. Bally, "An Econometric Model
of the World Copper Industry," The Bell Journal of Economics and Management,
3, 2 [Autumn, 1972]).
6-16
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
During the 1947-1974 period, approximately 76% on average of U.S.
fabricators' total annual consumption of refined copper was purchased at
the domestic producers* price; excluding the strike years of 1959 and
1967-1968, this average figure would rise to about 78%. About 73% of
total annual production of refined copper was sold at the producers' price
on average; this figure is slightly lower than the consumption figure
because it excludes that proportion of domestic annual production by
Kennecott and Anaconda which was refined from Chilean copper and re-
exported abroad to be sold at prevailing international prices.
The Outside Market and U.S. Secondary Refiners
The term "outside market" has often been used to denote all trade in
copper in the U.S. other than sales of the major U.S. producers. The term
has been so applied because of the dominant role played by the major
producers in providing the bulk of refined copper supplies to U.S. fabri-
cators.
Although refined copper within the U.S. could be bought on the outside
market at a number of different prices during this period, including the
London Metal Exchange spot and forward price, the Comex price, the E/MJ
export refinery price, the U.S. merchants or dealers' price, and the
custom smelter price, the two most important prices bases at which the bulk
of outside market sales of refined copper quoted were the LME Price and
the price set by- custom refiners.
Asarco, Amax, and Cerro have been widely recognized as the principal
custom refiners in the U.S. secondary copper industry during the postwar
period. While the secondary character of most if not all of Amax's and
6-17
Arthur D Little lnc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Cerro's refined copper production Is beyond dispute (I.e., nearly all of
their refined copper Is produced from scrap), the same is not true for
Asarco, which has over the years reportedly used an increasing proportion
of primary ore and blister as Inputs in its smelting and refining operations.
The ambiguity of Asarco's position in the copper industry is reflected
in its pricing policies as well. Prior to August, 1967, Asarco sold at
least some proportion of its output at a "custom smelter" price published
in both Metals Week and Engineering and Mining Journal. After August, 1967,
Asarco suspended the practice of quoting a custom smelter price, and
generally followed producers' price quotations in its sales. Asarco
executives and other industry observers have privately indicated that prior
to 1967, less than 50% of Asarco's output was actually sold at the custom
smelter price.
Given the ambiguity of Asarco's position prior to 1967, and the fact
that Asarco has behaved essentially as a primary producer since 1967, we
have classified Asarco as a primary producer in this study and have included
Asarco's output in the figures for total primary refined copper production
in the U.S. sold at the producers' price during the postwar period.
With Asarco thus excluded, Amax and Cerro have accounted for at least
75% of U.S. secondary refined copper production from scrap in most years
since 1946, with the remainder divided among a number of small secondary
refiners. These two firms can thus be considered "representative" of the
U.S. secondary copper industry.
Amax and Cerro sold their refined copper output on their own individual
pricing basis. We have estimated that refined copper sold on this basis
6-18
Arthur D Little. Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
accounted for an average of about 13% of total annual domestic production
of both primary and secondary refined copper In the U.S. during the post-
war period; sales by Amax and Cerro accounted for roughly 12% of total
annual consumption of refined copper during the period.
Because both custom refiners have depended heavily on the copper scrap
market for material Inputs in the production of refined copper, the
profitability of their operations has been dependent on maintaining
flexible pricing policies which enable them to respond to fluctuations in
the price of copper scrap.
A recorded historical price series for sales by Amax and Cerro is
unavailable; in lieu of this, we have developed an estimated price series
based on the dealers' buying price for //2 heavy copper seraph and estimated
annual operating margins for the two customer refiners which reflect
commercial costs, operating costs, and gross profits before taxes. This is
a "fictitious" price series in the sense that it does not necessarily
represent actual prices charged by these custom refiners at any one point
in time, but rather an approximate estimate of their average pricing behavior
over the study period.
The Outside Market: Foreign Producers, the IHE and Metals Merchants
The remaining 11% of annual U.S. refined copper consumption has
generally come from one of three sources: directly purchased Imports
from foreign producers, sales on the London Metal Exchange, or purchases
from U.S. metals merchants. With the exception of refined copper exported
^Dealers' buying price for //I heavy copper scrap prior to 1956.
6-19
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
from Noranda In Canada to the United States (which has usually been sold
at the domestic producers' price), imported refined copper and merchant
copper has generally been sold in the U.S. on the basis of the price
prevailing on the London Metal Exchange or at a price closely reflecting
that price.
The major producers have refrained from selling copper in large
quantities on the IME not only because their customers often require non-
standardized grades and shapes of copper to suit their specific needs,
but also because the Standard Contract on the LME requires physical delivery
of the copper in European warehouses, a requirement which is economically
prohibitive for selling copper to customers in other parts of the world.
Moreover, the major producers normally insist on the inclusion of
a force majeure clause In their sales agreements; such clauses are not
permitted under the IMS contract system.
B. HISTORY OF REFINED COPPER PRICES
The history of refined copper prices since World War II is compli-
cated, because of the number of different pricing bases in existence and
the variety of influences of both a market and administered nature leading
to changes in these different prices over time. However, in spite of the
number of different prices in effect over the study period, most refined
copper sales by the major U.S. and foreign producers were made directly or
indirectly on the basis of either the domestic producers' price or the
HIE price (spot or forward quotation). Although the refined copper output
of U.S. secondary refiners such as Amax and Cerro was sold at prices re-
flecting the price of scrap, a good deal of the movement in copper scrap
prices occurred either in response to or in anticipation of movements in
6-20
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
the IME price. The significant aspects of pricing behavior in the postwar
copper Industry can thus be adequately described by focusing on the
history of the DIE and domestic producers' prices.
Table 1 provides average annual figures for the E/MJ domestic refinery
price, the LME spot price, the price for #2 heavy copper scrap (#1 heavy
copper scrap prior to 1956) and the secondary refinery price, all in 1974
dollars.
As a general rule, LME Price movements have been relatively volatile
and sensitive to speculative pressures and short-run shifts in copper
demand and supply. By contrast, the producers' price has tended to change
only slowly, usually lagging signficant trends in I21E Prices by several
months.
The essential facts concerning price movements and the pricing
behavior which underlay them can be fairly easily grasped by dividing
the entire study period into a number of smaller periods on the basis of
changing supply and demand conditions in the copper industry and the
particular response of copper producers to those changing conditions.
• 1947-1953: A period marked by government controls of both prices.
The LME price was administered by the British Government until
August, 1953. A price ceiling on the domestic producers' price
was in effect from January, 1951 to February, 1953 in response to
Korean War requirements.
» November, 1953-July, 1956: The period of the first so-called
"two-price system" for refined copper. A sudden and excessive
Increase in the demand for copper led to a rapid rise in the LME
6-21
Arthur D Little. Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 1

PRICES OF
REFINED COPPER AND COPPER SCRAP,
1947-1974

(Average Annual c/lb. in
Constant 1974 Dollars)

EM/J Domestic
LME
Secondary
#2 Heavy Coj
Year
Refinery Price
Spot Price
Refinery Price
Scrap Pri<
1947
52.44
58.74
57.94
40.43
1948
50.08
54.81
55.24
39.33
1949
42.39
48.36
46.04
30.58
1950
45.35
47.72
80.42
37.72
1951
47.13
53.63
90.22
41.54
1952
46.88
62.67
85.24
36.81
1953
54.59
60.99
86.11
42.51
1954
55.57
58.53
64.65
45.93
1955
67.77
79.36
77.04
60.77
1956
71.03
69.75
68.90
53.62
1957
48.36
44.78
54.10
32.84
1958
41.20
39.70
48.91
28.12
1959
49.29
47.14
53.04
35.65
1960
50.62
48.69
50.79
33.42
1961
47.50
45.64
52.04
34.58
1962
48.63
46.63
52.47
34.30
1963
48.63
46.65
53.54
35.27
1964
50.20
69.10
56.51
40.81
1965
54.32
90.97
73.66 '
53.50
1966
54.90
104.93
87.52
67.79
1967
56.81
76.15
68.58
49.26
1968
60.09
80.42
67.14
47.04
1969
65.58
91.46
78.48
59.16
1970
76.56
84.77
70.92
52.34
1971
65.32
62.58
60.42
35.02
1972
62.12
59.58
72.43
47.88
1973
68.67
94.26
84.24
58.57
1974
76.65
93.10
79.89
54.88
SOURCE: E/MJ Domestic Refinery Price: Metals Week. Engineering & Mining Journal.
LME Spot Price: American Bureau of Metal Statistics Yearbook.
Secondary Refinery Price: Arthur)D. Little, Inc.
#2 Heavy Copper Scrap Price: Metal Statistics.
6-22
Arthur D Little, Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review,
price; the domestic producers' price, on the other hand, was kept
substantially below the market-clearing level by U.S. producers,
who rationed their customers. One foreign producer, RST, also
sold copper at substantially below the LME price.
• July, 1956-early, 1964: Except for a brief period of rising demand
in 1958-1959, a period of generally slack world demand for refined
copper characterized by decline or relative stability in both the
domestic producers' price and LME prices and general equilibrium
between the two price series (with 1ME prices maintained below the
domestic producers' price, reflecting the differential cost of
tariffs and transport).
• Early 1964-Late 1970: The period of the second and third "two-
price systems," characterized by excess demand for copper, a very
dramatic increase in the LME Price, and a wide differential between
the I21E price and the producers' price, which was again kept well
below the market-clearing level.
The second and third two-price systems are distinguished principally
by the difference in the group of firms which participated in
selling copper below the free or open market price. During the
second two-price system between January, 1964 and March, 1966, all
of the major foreign producers joined U.S. producers in selling
at essentially the domestic producers' price.^ Between April,
1966, and late 1970, during the third two-price system, the major
"^Foreign copper was sold at a slight premium (generally 1.5
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
foreign producers returned to selling at the LME pricewhile
U.S. producers continued to sell at the domstic producers' price.
• Late 1970-early 1973: A period of slack demand and declining or
fluctuating prices in which LME price quotations were generally
below the producers' price. U.S. price controls on refined copper
were instituted in August, 1971, but the producers price remained
below the established price celling until April, 1973.
• Early 1973-Late 1974: A period of great instability in world copper
markets characterized initially by a sharp Increase in world demand
and prices and ultimately by a similarly sharp decline in both
demand and prices. Some increase in the producers' price was
permitted by the U.S. government in December, 1973; price ceilings
were formally abolished in May, 1974. Controls on the domestic
producers' price remained in effect through April, 1974.
C. THE TWO-PRICE SYSTEM AND PRICING BEHAVIOR OF THE PRIMARY PRODUCERS
With respect to the pricing behavior of the primary U.S. and foreign
producers, probably the most significant characteristic of postwar copper
markets has been the existence in nine of the 27 years between 1947-1974 of
a two-price system for refined copper, characterized by a wide divergence
between (1) the free or outside market price for refined copper as repre-
sented by the LME price and (2) the price at which domestic U.S. producers
and some of the major foreign producers sold their output.
Noranda returned to selling within the U.S. at the domestic producers price
in 1968.
6-24
Arthur D Little: Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The two-price system developed during periods of rising or excess
demand for refined copper and was brought about when participating pro-
ducers chose to ration their available copper supplies to customers at
a price below the level which would have cleared the market.
As noted above, there were actually three two-price systems in effect
during three different periods: (1) from November, 1954 to July, 1956;
(2) from January, 1964 to March, 1966; and (3) from April, 1966 to early
1970. Each of these was distinguished principally by differences in the
foreign producers who participated along with U.S. producers.
During periods when the two-price system was not in effect, either a
general equilibrium existed between the I21E price and the domestic pro-
ducers' price, or government controls were in effect on either one or
both prices.
The First Two-Price System (November, 1954-July, 1956)
The first two-price system was set off by a sudden increase in world
copper demand at the end of 1954. Between October, 1954 and April, 1955,
the LME price ranged from 4c to lie above the domestic producers' price.
Although U.S. producers raised their price twice, In January, 1955, and
again in March, rationing by the producers during these months was reported
in the trade press as the LME price still remained 5c/lb. above the pro-
ducers' price in April.
Then, in May, 1955, RST initiated what has been frequently called in
Europe the first "producers' price experiment," when it announced that it
would sell refined copper at a price approximately In balance with the
then prevailing domestic producers' price—about 10
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
LME price. The announced purposes, of this policy were to stabilize the
price of copper and keep the price low enough to prevent long-term
substitution away from copper.
During this period, Noranda adopted the policy of selling in the U.S.
at the domestic producers' price and abroad at the LME price. All of
the other major foreign producers continued to sell directly or indirectly
on the basis, of LME prices. Although the producers' price was subsequently
increased somewhat, rationing by RST and the major U.S. producers continued
until mid-1956, when declining demand for copper led to a rapid decline in
the LME price which eventually undercut the producers' price. In October,
1957, RST returned to its earlier policy of selling at the LME spot price
on the date of delivery.
Slack Demand and Support of the LME (July, 1956-January, 1964)
The demand for copper both worldwide and in the U.S. was generally
slack during the 1957-1964 period. In the recession year of 1958, both
the LME Price and the producers' price were lower than they had been in
nearly a decade. Although demand Increased somewhat in 1959 and again in
I
early 1960, producers continued to operate at substantially below capacity.
I
Most notable between late 1961' and mid-1963 was an attempt by two
of the African producers, RST and AAC, to prevent the LME price from
i
slipping below equilibrium with the. producers' price by cutting back on
production and shipments. The result was, in effect, a single, stable
world price for copper, as UMdHK and the Canadian producers continued to
sell at the supported U1E Price.
6-26
Arthur D Little; Inc
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The Second and Third Two-Price Systems (January, 1964-Late 1970)
The second two-price system developed in January, 1964 in response to
a sudden, unanticipated surge in worldwide copper demand and the LME
price. The two Zambian producers—AAC and RST—had insufficient inven-
tories to alleviate upward demand pressures; however, rather than follow
the LME upward, AAC and RST initiated what came to be known as the second
"producers' price experiment." The LME price was allowed to rise, and
both U.S. producers and the Zambian producers began rationing their
customers at a selling price well below the world free market price.
UMdHK, INCO, and Noranda adopted the Zambian producers' price.^ Excluding
tariff and transport differentials, the major producers thus continued to
sell at essentially a common world producers' price during the January,
1964 to March, 1966 period.
This second two-price system or "producers' price experiment" was
seriously weakened by pressure from the Chilean government on Anaconda and
Kennecott to increase the price at which they sold copper refined from
2
blister Imported from Chile. The Chilean government was anxious to maxi-
mize short-term revenues in a period of expanding world copper demand.
Following several smaller increases, the second two-price system
collapsed in early April, 1966, when Anaconda and Kennecott were forced to
increase the price of their Chilean copper from 42c/lb. to 62c/lb. (the
monthly average I21E spot price in April, 1966 was 86c/lb.). The foreign
^Noranda continued to sell in the U.S. at essentially the domestic producers
price.
2
The bulk of this copper was reexported for sale on the international market
after being refined in the U.S.
6-27
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer; since the document
may experience extensive revision during review.
producers refused to follow this Increase, AAC, RST, 1NCO, and Noranda
began selling at the IKE three months forward price on the date of delivery,
while UMdHK resumed its traditional policy of selling at an announced
price which closely followed the LME price.
A third two-price system maintained only by the U.S. producers in
the U.S. market was in effect more or less continuously from April, 1966
until late, 1970. Noranda sold at the LME price until August, 1968;
thereafter it sold in the U.S. at the domestic producers' price and abroad
at the LME price.
The third two-price system was Interrupted by a strike in the domestic
copper industry from August, 1967 to April, 1968. During much of this
period, the domestic producers' price was suspended. Demand reportedly
fell off early in 1967 because fabricators had already accumulated very
large Inventories in anticipation of the strike. At other times, however,
demand for copper remained excessive, as reflected by the wide differential
between the LME price and the price at which domestic fabricators were
obtaining rationed supplies.
Declining Demand and the End of the Third Two-Price System (Late
1970-1974)
LME prices fell off dramatically in mid-1970 as refined copper supplies
exceeded demand for the first time since 1964. This was due more to
simultaneous, recessionary trends in several of the developed nations than
to any spectacular increase in productive capacity among the major
U.S. and foreign producers.
6-28
Arthur DLittk Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The return of the IMS price to a level below the domestic producers'
price marked the end of the third two-price system. Until early 1973,
the market was nearly in equilibrium as measured by the differential
between I21E and producers' prices; substantial incrased capacity which
had been developed by the primary producers in response to the excess
demand conditions of the late 1960's was sufficient to absorb growth in
demand during this period. Although U.S. price controls were in effect,
the producers' price remained below the effective price ceiling.
Between early 1973 and early 1974, a sudden sharp increase in demand
led to a record increase in the LME. This was followed by an equally
sharp decline in the LME price during the remainder of 1974. Price move-
ments during this period were a direct reflection of simultaneous boom
and recessionary cycles which developed in the world's major economies:
unsettled economic conditions as well as international monetary Instability
led to wide-scale hoarding the speculation which exaggerated price move-
ments during this period. Prices of the U.S. primary producers remained
under government control until May, 1974; thereafter, producers increased
their prices only to be met by a plummeting LME price which forced down
the domestic producers' price.
D. EXPLANATIONS FOR THE TWO-PRICE SYSTEM
At least on the surface, rationing by the major copper producers during
periods of excess demand and high copper prices seems totally inconsistent
with the motive of profit maximization. The major producers themselves
have revealed little in detail about their motives: the common rationale
cited by the producers is the fear of long-run substitution for copper by
end-users if copper prices are allowed to rise too high or are too volatile.
6-29
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The May, 1970, report of the Houthakker Subcommittee on Copper to
the Nixon Administration's Cabinet Committee on Economic Policy cited
three principal explanations advanced by the industry for the second and
third two-price system.*
In the first explanation, some industry sources argued that the per-
sistent post-1964 gap between the IHE price and the domestic producers'
price was simply a matter of delayed recognition of a long-run secular
rise in the equilibrium copper price on the part of producers used to
ignoring short-run demand fluctuations. Producers were, in effect,
continually trying to catch up with what looked like a short-run Increase
in the DIE Price during this period.
The second and third explanations were justifications for rationing
on the basis that high and volatile outside market prices were nonreflectlve
of actual long-term trends in demand, but were rather caused by strikes,
government intervention, and other short-run pressures on the market.
Following the LME price under these circumstances would have invited
2
unjustified substitution away from copper.
Report of the Subcommittee on Copper to the Cabinet Committee on Economic
Policy, May, 1970, pp. 9-10.
I
Fisher-Cootner-Baily have argued that producers, in addition to fearing
long-run substitution, may resist a short-run rise in the producers' price
out of fear that independent miners and new entrants to the industry
may take the price rise as a signal of a long-run rise in demand in
the market. These Independents would then open new mines and/or step up
production in response to the higher price, leading to a long-run over-
supply of copper and depressed prices during a subsequent period of dampened
demand. They cite little evidence in support of this hypothesis, however.
Fisher-Cootner-Baily, "An Econometric Model of the World Copper Industry,"
op. clt., p. 573.
6-30
Arthur D Little: Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Long-Run Substitution as an Industry Problem
Long-run substitution (LRS) has been a concern in the copper industry
since 1947, when the price of copper went above the price of aluminum
for the first time. Industry observers are not in complete accord on
the prevelance and importance of LRS, but it is generally agreed that
LRS is an important consideration in some of the markets for copper but
not in others.
The most important instances of LRS are in telephone conductor cable
and automobile radiators. Both of these require technological changes and
are, as yet, largely potential areas of substitution. Conductor cable and
automobile radiators account for roughly 25% to 30% of total demand for
primary copper in the United States. There is also clearly LRS in the
demand for copper electric transmission cable, and the possibility of
LRS in the demand for several other markets has been mentioned in the
trade press. In general, LRS is present in most of the markets for copper
wire, and these constitute 60% of the demand for refined copper.
The defining characteristic of LRS for copper is the need for new
investment to effect the substitution. Investment may simply be a matter
of purchasing existing types of equipment or may require technological
Innovation. In either case, it is a high-cost move which is likely to be
undertaken only in the face of consistently high and/or fluctuating copper
prices which indicate that substitution will be justified in the long run
on a cost basis. Similarly, the substitution process is unlikely to be
reversed unless copper prices fall sufficiently below former levels to
both cover the costs of reinvestment in copper-using equipment and provide
significant long-run savings.
6-31
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Excess Demand and the Producers' Dilemma
David McNicol in his study of the two-price system* argues that in
the face of a sudden unanticipated surge in demand for the refined
copper, producers have three alternatives:
• They can choke off demand by letting refined copper prices rise
freely, in the process stimulating LRS (and, by implication,
a loss of long-run profits);
• They can maintain the price at a level below that which they
believe will stimulate LRS and still continue to supply the
entire market demand by stepping up output; or
• They can maintain the price at a level below that which will
stimulate LRS and ration their production at existing levels,
at the same time expanding long-run capacity to bring down
2
the equilibrium price level.
The first alternative Implies an unacceptable loss of substantial
long-run profits. Under the second alternative—assuming the producers
^David McNicol, The Two-Price Systems in the Copper Industry, unpublished
Ph.D. thesis, Massachusetts Institute of Technology, February, 1973.
2
Short-run production planning in th'e copper industry is generally done on a
five to six months' basis. Orders for semi-fabricated products are usually
placed a month in advance of delivery and the processing of refined copper
from mine output typically involves1 a three-month period.
Expanding capacity in an existing mine generally requires eighteen months
to three years; however, this involves effectively shortening the life
of the mine.
Although there is generally a ten to fifteen year lag between the decision
to bring a major copper deposit into production and the beginning of
production, the major producers typically have one or more mining projects
through the "exploration" stage of development. From that point, the
development period is generally the same as that required to expand
capacity in an existing mine.
Thus, for planning purposes, the short run Involves at least a period of
6-18 months from a given date, and possibly as long as three years, while
the long run would prevail at some point between 18 and 36 months in the
future and would continue Into the indefinite future.
6-32
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
have the capacity to meet existing demand in the short-run—McNicol argues
it is entirely possible that producers will have to operate so near to
capacity that their short-run marginal costs will rise above the maraimum
price level at which they can sell and still avoid LRS.
Rationing would appear to be the desirable alternative. However, the
problem with explaining rationing as a producer response to the threat of
long-run substitution is that, as the rationing process is usually described
by the producers, rationing would be a self-defeating process.^"
The key to preventing long-run substitution lies not in keeping down
the price of the producers' refined copper per se, but in preventing an
unacceptable rise in the price of semifabricated and fabricated copper
goods, since substitution decisions will be made at this latter stage of
the manufacturing process.
Yet according to McNicol as soon as producers begin to ration semi-
fabricators these semifabricators will either be unable to supply the demand
of their fabricator customers for semifabricated inputs, or they will have to
turn to the outside market to obtain their remaining refined copper needs
to meet the fabricators' demand. In both cases, the price of fabricated
goods will rise: in the former instance, because of excess demand for
fabricated output; in the latter instance, because semifabricators will
price their output along their new or shifted (Industry) marginal cost
2
schedule at the point where the new marginal cost schedule intersects the
industry demand schedule. Their marginal cost will equal the outside
3
market price for refined copper.
^"Producers have, undoubtedly, been aware of this fact, as it has been fre-
quently mentioned by industry observers in the trade press.
2
The upward shift in the marginal cost schedule is occasioned by the difference
between the outside market price and the pre-rationing primary producers price.
3
This assumes a largely competitive market for semifabricated goods, a not
unreasable assumption given the relatively low degree of concentration in
the domestic industry. 4 , ^,
6-33 Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Assuming a general policy of across-the-board rationing on the part
of the major producers, in the face of excess demand, rationing might
turn out to be a less beneficial policy than simply letting the price of
refined copper rise freely.^ At least in the latter case, producers would
be able to take advantage of the significant short-run profit gains.
The producers' dilemma thus arises from the fact that no matter which
alternative policy a producer adopts in the face of a sudden unanticipated
increase in demand, the economics of the industry (specifically, the low
short-run elasticity of supply and the high long-run elasticity of demand)
dictate that a producer may suffer negative consequences.
This assumes that producers ration their customers across-the-board
and do not discriminate among types of fabricators. The specific procedure
used In allocating producer copper during the two-price systems have never
been explained in detail by the producers. However, the Houthakker Sub-
committee report described a de facto allocation system in effect during
the second and third two-price systems based on two general principals.
First, all of the producers reportedly used some historical supply pattern
from the period 1961-1963 as the basis for determining allocations: customers
as of that period were to be retained, if possible. In addition, however,
producers reported that they made additions to and deletions from this
base list on the basis of "the best long-run interests of the firm."
This second principal obviously left producers a great deal of room for
altering historical supply relationships when It was considered necessary
or desirable to do so.
Thus, the Subcommittee found through direct communication with semifabri-
cators that, although a general correlation did exist between the pattern
Whether or not it is ultimately less beneficial depends on the precise cost
schedule facing fabricators, as well as the degree of discretionary pricing
which fabricators (as opposed to semifabricators) are capable of practicing—
two areas which McNicol does not specifically analyze.
6~3* Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
of allocation and the pattern of supply during the 1961-1963 period, at
times significant changes had occurred as well. Some customers received
only 40% of their refined copper needs from the major producers, whereas
earlier they had met 75-80% of their needs through producer copper.
Other firms found their allocations sharply increased.^"
McNicol's Solution to the Producers' Dilemma
David McNicol has proposed a solution to the producers' dilemma based
on the fact that (1) some refined copper markets, such as wire mills, have
a much higher propensity for LRS than other markets, such as brass mills,
and (2) Indirect price evidence indicating that production have at times
2
rationed markets selectively on the basis of their propensity for LRS.
Evidence concerning allocation procedures during the first two-price system
is equally spotty. In the 1964 Federal Court decision requiring Kennecott
Copper Corporation to divest itself of Okonite, a wire and cable firm which
it had acquired in 1958, the Court found no evidence supporting the Govern-
ment's contention that Kennecott had favored its own subsidiaries at the
expense of its independent customers during the first two-price system
and again in a high demand period in 1959.
i
'Briefly, McNicol argues that, given existing conditions in the U.S. wire
mill and brass mill industries, the differential between the price of wire mill
products and refined copper and the price ot brass mill products and refined
copper should remain constant if fabricators are not rationed. On the other
hand, if either wire mills or brass mills are rationed, the differential
between the prices of their products and that of refined copper should widen,
since the marginal price of copper inputs will be the price on the outside
market. This argument assumes that: (1) The unconcentrated nature of the wire
and brass mill market results in the price of fabricated goods equalling
marginal cost; (2) Marginal cost is equal to the price of metal inputs plus
marginal processing costs; (3) Marginal processing costs remain constant
until capacity is reached; and (4) Capacity is generally greater than output
in the two industries.
McNicol's argument requires that producers' markets be segmented; in other
words, that it be impossible for unrationed fabricators to resell part of
their supplies to rationed fabricators at a price approaching the outside
market price. RST and AAC reportedly inserted "no resale" clauses on their
sales contracts during the second two-price system; no apparent legal
restrictions exist to prevent foreign producers from following this policy.
U.S. producers might face antitrust prosecution if they did the same, but
it is likely that producers were able to discourage resales by firms in
unrationed markets, given their control over the supply of primary copper.
6-35
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Brass mills and wire mills have, together, accounted for roughly 83%
of refined copper demand in the past. If producers were to ration brass
mills while continuing to supply most, if not all, of the needs of wire
mills, producers could continue to produce at the same level of output,
while avoiding both LRS and the need to operate in the short run at a loss
or near loss. In other words, selective rationing would allow producers
to significantly improve their short- and long-run profit position com-
pared with the profit potential of the three alternative policies mentioned
above.
Domestic U.S. brass mills were, Indeed, rationed and wire mills not
rationed during the first two-price system (1955-1956) and during the
first half of the second two-price system (1964-mid-1965).
Unfortunately, the same evidence forces McNicol to conclude that
domestic wire mills were rationed along with brass mills' through the second
half of the second two-price system (mid-1965 to 1966) and throughout the
third two-price system (1966-1970). Besides the existence of across-the-
board rationing after 1965, the revised LRS explanation cannot explain
why producers continued to ration supplies after 1966, by which time they
should presumably have been able to overcome short-run capacity limitations
and increase output to meet the stepped-up demand.
McNicol's Second Explanation for Producer Rationing
Faced with this problem, McNicol develops a second alternative explana-
tion for producer rationing designed to explain both the rationing of
wire mills after 1965 and continued rationing beyond the period required
to expand long-run capacity. This second solution, termed the "quantity
6-36
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
discrimination" (QD) motive for rationing, Is based on the observation
that all of the U.S. producers and some of the foreign producers are
partially Integrated, possessing their own captive semlfabricating
subsidiaries, for the most part, In the form of wire mills.
McNlcol argues that during periods of rising or high demand, semi-
Integrated producers would have found it possible to increase their
profits at the semifabrication stage by cutting back on the total quantity
of refined copper they would supply to both their own subsidiaries and
to independent fabricators. The price of fabricated goods would be bid
up, either because fewer fabricated goods would be brought on the market
or because the cost of purchasing marginal quantities of outside market
refined copper would force an increase in the marginal cost of producing
fabricated goods.
In essence, the semi-Integrated producer would be acting as a mono-
polist to regulate the availability of supplies and thereby the market
prices at which fabricated goods were sold. While the producers' costs
of refining copper inputs to fabrication would remain the same, the
increased selling price of his subsidiary's fabricated output would provide
him with an increased profit margin.
It should be noted, of course, that this profit gain would be obtained
at the possible expense of LRS among wire mill customers, who might be
stimulated to switch to alternative materials because of the increased price
of wire mill products.
^The actual profit gain which a semi-integrated producer could realize would
depend on the demand elasticity for fabricated goods and his own marginal
cost schedule. Also relevant would be the marginal cost schedule of the
producer's semlfabriactor subsidiaries, which might, or might not, purchcase
additional copper on the outside market.
6-37
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The Problem of the Pattern of Participation
While the revised LRS motive and the QD motive In combination offer
at least a theoretically logical explanation as to why U.S. producers
rationed during the three two-price systems, the use of neither motive
can fully explain the irregular pattern of participation by the major
foreign producers during these periods.
AAC, INCO, and UMdHK rationed during the second two-price system
between 1964 and 1966, but not during the first and third. The non-integrated
nature of these firms means that they would not have rationed for the QD
motive. However, if they did ration during the second two-price system
for the LRS motive, why not during the first and third? McNicol suggests
that because producers do not have identical costs and do not sell in
precisely the same markets, rationing might have been profitable at times
for some of the major producers while not profitable for others. In other
words, these three producers might have been faced with less of a threat
of long-run substitution in their European markets or might have been
better able to expand production levels in the short run without a
corresponding loss of short-run profits. But this line of reasoning Is
primarily conjectural, with little firm evidence offered to support it."^
RST and Noranda, on the other hand, are both partially-integrated
firms which would have had both the LRS and QD motives for participating.
While both participated in the first and second two-price systems, RST
failed to participate in the third two-price system after 1966.
"HlcNicol refers to Fisher-Cootner-Baily's estimates of a much lower European
long-run demand elasticity for copper compared with long-run demand elasticity
in the United States. As McNicol points out, however, the weakness of this
line of argument lies in the absence of barriers dividng the European market
from the domestic U.S. market.
6-38
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
McNicol explains this by suggesting that the "Zambianization" of
the RST and AAC firms from early 1967 onward might have had an effect on
the willingness of the firms to participate, since the government of
Zambia was probably concerned with maximizing short-term revenues. How-
ever, RST went off the producers' price in April, 1966; and the Zambian
Government did not acquire the legal power to regulate the price of Zambian
copper until 1968. McNicol cites no other evidence to support the impli-
cation that the producers were attempting to placate the Zambian Govern-
ment in 1966 by shifting back to the producers' price.
Weaknesses of Available Explanations for the Two-Price System
In summary, there appears to be no complete, simple, logical explana-
tion or set of explanations for the rationing behavior of the principal
U.S. and foreign producers during the periods of the two-price system.
The producers themselves, if they are aware of such an explanation, have
declined to discuss it publicly. All of the available explanations are
either logically inconsistent and/or are unable to explain certain
"anomalous" behavior on the part of the producers.
The underlying weaknesses of both the revised LRS explanation and the
QD explanation for rationing lies in the difficulty of obtaining or
developing quantitative data to support these theories. In terms of the
LRS motive, as McNicol himself points out, it is almost impossible to
accurately estimate, for any one point in time, the price at which copper
end-users will begin switching to alternative materials (i.e., the long-
run elasticity of demand for copper).
To assume that producers themselves based their pricing behavior on
any more perfect knowledge of potential behavior on the part of copper
6-39
Arthur D Little Inc
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
end-users may be misleading. In addition, the revised LRS explanation
ignores a multitude of non-price factors, such as institutional rigidities,
expectations of technological change, and the like, which may be reasonably
expected to have exerted an Important Influence on LRS decisions.
In terms of the QD motive, it is similarly Impossible to accurately
estimate at just what combination of copper prices, long-run demand
elasticity In fabricator markets, and producer marginal cost schedules
producers would have faced a situation where they could gain more profit
from practicing quantity discrimination than they would lose from LRS
as the price of copper rose or remained relatively high.
This lack of quantitative data leaves a number of questions unanswered.
For example, since rationing for the QD motive has a stimulative effect on
LRS (by forcing up copper prices or maintaining them at a high level),
accepting the QD motive for rationing requires accepting the idea that
after 1965 producers felt that they would gain greater profits by rationing
wire mills as well as brass mills than they would lose through LRS for wire
mill products. But, if this was the case, why did producers not ration
wire mills prior to 1965? Did their perception of long-run demand elasticity
change? Were they proceeding on a trial-and-er^or basis? Questions such as
these cannot be satisfactorily answered given present information.^
McNicol hypothesizes that domestic producers may have initially begun rationing
wire mills in the autumn of 1965 in response to a foreign producers' price in-
crease which U.S. producers were not allowed to match because of U.S. Government
pressure to maintain price guidelines then in effect. Although the needs of
domestic wire mills were assumedly being met, the price differential between
U.S. and foreign refined copper led to a price differential between U.S. and
foreign wire mill products. Higher wire mill product prices abroad would have
stimulated a significant growth in wire mill product exports from the United
States. This, in turn, would have strained the capabilities of U.S. producers
to continue to meet all of the demand of the U.S. wire mills for refined copper.
Rationing would have solved this problem by bidding up the price of U.S. wire
mill products. The problem lies in explaining domestic rationing of wire mills
after January, 1966, when U.S. controls were placed on wire mill product exports.
6-40
Arthur D Little Inc
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CHAPTER 7
FINANCIAL CHARACTERISTICS OF THE U.S. COPPER INDUSTRY
AND THE PRINCIPAL COMPANIES
A. INTRODUCTION AND SUMMARY
In this chapter we present data on and discuss the operations of the
principal companies which account for most of the primary copper production
in the United States. We have in certain cases assembled data covering
the decade 1964 through 1974, and in other cases have chosen the year
1974 for comparisons. Full data for 1975 were not yet available during
the course of our work, although they became available for most of the
companies just before going to press. We incorporate 1975 information as
appropriate (e.g., in regard to EPA matters) and to the extent it was
feasible to do so. In any event, the use of 1974 as the base and/or last
year for much of the analysis is consistent with the calculations and
perspective employed elsewhere throughout this study.
The remainder of this chapter is organized into three major sections.
First, Section B contains an overview of the financial performance of the
principal firms in the Industry, based on comparisons of company financial
and operating data. This is followed, in Section C, by a discussion of
patterns of ownership structure, inter-firm relationships and extent of
vertical integration. Next, Section D presents a review of the capital
needs of the major firms in the industry and sources of capital. An
analysis of foreign sales and earnings of the major producers is addressed
next in Section E. Finally, Section F contains a detailed examination of
trends in debt and debt-equity ratios, the term structure of debt, and the -
7-1
Arthur D Little Inc
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
amount and means of pollution control financing.
A detailed description of the activities of each of the major pro-
ducing companies Is provided In Appendix A to this chapter which has
been prepared for further reference.
The basic points emerging from this chapter can be summarized as
follows:
1. Eleven principal companies account for most of the primary copper
production in the United States. The largest producers are vertically
integrated from the mining stage through fabrication of copper and brass
mill products. The principal producers are publicly-owned companies
whose shares are traded principally on the New York Stock Exchange. The
aggregate -book value of their corporate assets was approximately $17 billion,
and the market value of their common stocks totalled about $8 billion at
year-end of 1975.
2. Overall profitability for the copper producers, in terms of
operating margin on sales, has declined from about 23% in 1967 to 19% in
1974. Over the same period, profit margins for large industrial companies
and manufacturers in general was rather stable. In terms of after-tax
return on stockholders' equity, copper producers have shown a rate of
return equal to the FTC average for all manufacturing. However, the copper
industry has been characterized by much greater volatility in its rate of
return.
3. The copper industry is capital Intensive with typically more
than one dollar of assets behind each dollar of annual sales. Inventory
turnover, however, is relatively high. By-product recovery operations,
7-2
Arthur D Little Inc
-------
DRAFT REPORT — The reader Is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
especially for precious metals, and co-products such as molybdenum, have
been at times relatively significant to several companies; however, they
play a minor role in long term investment decisions regarding industry
growth and new copper mining capacity and at best an imperceptible role
in short-run price-output decisions.
A. Several of the major copper producers are also normally involved
in the production of lead and zinc, and others are engaged in primary
aluminum production and/or fabrication. A few producers participate
jointly in foreign copper mining companies, notably in Africa, Canada, and
South America; these companies derive 20-25% of total sales, and a higher
percentage of their after tax earnings from foreign operations.
5. Given access to ore bodies, the major barrier to entry into the
industry is the size of capital requirements, where the long-term investment
is highly risky in the face of a great deal of uncertainty surrounding
copper prices.
The minimum efficient scale of operations today would involve about
100,000 annual short tons of capacity. Investment requirements amount to
approximately $l,600/ton for the mining and milling stage, and $3,400/ton
for smelting and refining capacity (in 1974 dollars), so that provision
for integrated or full coverage of new capacity through refined metal
production would require a commitment of about $500 million.
The expected economic lifetime of investments is typically very long.
Such investment is rendered highly risky because of crucial dependence of the
success of such investment on the price of copper, which has been highly
volatile.
7-3
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Because ore bodies frequently Involve lead, zinc, silver, and/or
other metals of potential Interest in addition to copper, and because of
the riskiness of massive investments, the interests of the companies in
nonferrous metals projects are frequently intertwined. Joint ventures,
which constitute a means of diversification and pooling of risks, have
consequently become quite common in the industry.
6. Several major oil companies, which have considerable cash flow
for investment, and which have been diversifying their own holdings of
mineral resources, have, not surprisingly, recently taken an interest in
developing copper properties or have made investments in some of the
principal producing companies.
7. The financial performance of the companies suggests that firms
in the industry are typically long-term profit maximizers, with an operative
target rate of return on investments. Their pricing behavior as discussed
elsewhere, is always with an eye toward constant long-term competition
from aluminum. Their own interests in aluminum, while this represents a
small percentage of the aluminum industry, constitutes for them a natural
long-term diversification strategy.
8. Capital expenditures by most companies increased sharply in
recent years. A significant portion of the total industry capital expendi-
tures (i.e., about 25%) has been for pollution abatement, mostly associated
with SO2 control at smelters. About 60% of the total, however, represents
investment in mining and milling capacity. Aggregate capital expenditures
have averaged about 12% of gross plant in recent years; this is about
three times the level of depreciation charges.
7-4
Arthur D Little: Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
9. With capital expenditures increasing faster than internal cash
generation (from earnings, depreciation, and defined taxes), the cash-flow
position of the companies has deteriorated. Consequently, there has
occurred in recent years a sharp increase in external financing.
10. Long-term debt and stockholders' equity have both been increasing
for the copper producing companies over the last five years. However,
while overall debt has approximately doubled during this period, equity
has increased by less than 35%. As a result, debt-equity ratios for most
companies have increased significantly. Indeed, some companies are
believed to have temporarily reached prudent limits to debt in their capital
strucutre, and, as of 1975, awaited higher earnings and stock prices to
restore balance and financing flexibility.
7-5
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
B. FINANCIAL PERFORMANCE
1. General
Table 1 presents a financial overview of the U.S. primary nonferrous
metals Industries for the most recent five-year period, based on Federal
Trade Commission data complied for Enterprise Standard Industry Classi-
fication number 33. The picture has been one of modest growth in sales,
lower turn on invested capital, eroding profit margins, and higher debt.
Of course, this composite is the net effect of aluminum, copper, lead,
and zinc combined. Aluminum and lead-zinc subindustries have to be analyzed
separately but in general the composite accurately reflects the pressures of
the last five years of inflation, higher costs of capital, increased capital'
requirements for environmental controls, and the worst recession in many years.
2. Copper Companies
a. Summary Comparisons
Tables 2 and 3 present selected financial statistics for the principal
U.S. copper producers. These tables compare parameters which are believed to
be particularly important from the standpoint of the impact analysis. More
detailed summary financial data for each company are presented in the Appendix.
b. Profitability
Table 4 presents a 10-year record of return on stockholders' equity by
company. Table 5 compares the company data to the FTC average for all
manufacturing companies. Because the FTC data and the company data are
not necessarily on the same accounting basis (e.g., the latter are likely
to be inflated by inventory profits to a lesser degree) and cover a period
when wage and price control anomalies existed, it cannot be asserted that
differences in the average rates of return observed are statistically
significant. However, the indications are that the volatility of returns
7-6
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 1
FINANCIAL STATISTICS—PRIMARY NONFERROUS METALS CORPORATIONS

1969
1970
1971
1972
1973
1974

(in
billions
of dollars)

Sales
21.45
21.00
18.61
18.82
24.77
28.98
Net Bef. Fed. Inc. Taxes
2.24
1.87
0.88
1.05
2.11
2.67
Net Income
1.42
1.29
0.62
0.69
1.34
2.04
% Net Income to Sales
6.6
6.1
3.3
3.7
6.9
7.0
Rate of Profit on Stock-
holders ' Equity %

Before Fed. Inc. Taxes
20.7
10.3
4.8
9.0
21.6
12.7
After Fed. Inc. Taxes
13.0
7.6
3.8
5.6
15.3
8.6
Cash Dividends
0.57
0.61
0.51
0.37
0.54
0.48
% Dividend to Net Inc.
40
47
82
54
40
24
Balance Sheet Data

Cash and Govt. Sees.
1.08
0.99
0.91
0.92
1.15
1.27
Receivables
2.94
2.83
2.32
2.88
3.27
3.14
Inventories
4.29
4.59
4.10
4.27
3.75
4.84
Total Current Assets
9.02
9.04
7.85
8.66
8.59
9.57
Bank Loans
0.64
0.73
0.53
0.64
0.38
0.59
Total Current Liab.
3.86
4.13
3.28
3.69
3.77
4.62
Current Ratio
2.3-1
2.2-1
2.4-1
2.4-1
2.4-1
2.1-1
Cash Ratio
0.3-1
0.2-1
0.3-1
0.3-1
0.3-1
0.3-1
Long-term Debt
5.48
6.14
5.91
5.99
5.54
5.79
Source: Federal Trade Commission and Standard and Poor's Corporation.
7-7
Arthur D Little Inc.
-------
TABLE 2
SELECTED FINANCIAL STATISTICS FOR PRINCIPAL U.S. COPPER PRODUCERS
- 1974 BASE
COMPANY
(in order of
copper pro-
duction '74)
KENNECOTT
PHELPS DODGE
ANACONDA
NEWMONT MINING
PENNZOIL (Duval)
CYPRUS MINES
AMAX
ASARCO
COPPER RANGE
INSPIRATION CONS.
CITIES SERVICE
CD K
C. u
u
co m
01 m
—I <
a
V) v>
0.77
0.69
0.86
0.49
c
0.6
1.0
0.66
1.0
0.91
0.63
1.0
TOTAL
SALES
($ M)
1,664
1,026
1,673
548
942
424
1,164
1,344
169
97
2,806

u
1
c

i-H
co
C/3

o
>•«

1 CD

•w
Ui

CO o
1

o JO

c
0.

CO
O

CO
ao E
c

M •—1

a
E
o

a)
C E
a>

1-1
IM
3
-H

>-i
-H o
>
a>

4J
0
¦o
U

o
CO
C
U r-v

o
a.

o
a
t-
t—i
o
a;

3
4)
u A

CO
4_>

CO <1)

c
a

a i
u
o

c
a
c
3
o c
C
u
CO
1-1 o

u
C
o
x
a)
H W
QJ O
X
a*
>
a> in
a>
a>
o
•H
03
i
0)
tH
CO

a. r-
3
a

i—J
-i
Ss E
• 4J

•o
£
o.
r—i
a

r-» ui
co
V- «H
in o
u

s
O
o
>
o
o
2E
-H O-
><
JJ w
3 T3
a.
o
$603 MM
421
285
225
197
150
i
149
124
101
84
61
36%
41
17
41
21
35
13J
9
60
87
2
33.2
20.6
22.0
24.6
32.1
10. 5
23.9
26.7
2. 34
2.42
26.9
5.08
5.47
4.83
4.55
3.67
5.06
5.61
4. 71
7.66
3.92
7.58
11.0
5.1
7.0
4.0
c
7 5
6.0
8.2
6.0
5 6
7 0
10.0
24.2
27.3
17.3
12.2
8.2
d
19.1
l
8 3
6.2
57.3
46.3
3.0
c u
§ 0)
u
>N CO
O .=
c a>
o.
.011
nil
nil
.008
nil
nil
.042
nil
nil
nil
nil
4J C3
u .c
3
T3
3 CI
"8 K
o. 10
0.14
.162
.008
0.04
nil
f
1.10
£
2.05
0.21
.06
nil
Characteristic
Growth Rate
-Last 5 Years
Ou
a
B
Li

3
01

Ui
en
e
Q.

0)
0)
•H

01
>
y
e

0)
c
l-l
«—i
c
3
tfi

u
<0
H
3
«—(

CO
CO
.c
c/:
o
<
i-H
in
U
CO
13.6
27.1
8.5
13. OX
9.5%
2.52;
15.5%
322
26%
h
132
112
13. 52
12.5%
3 5%
8.0
-55!
6.52
29%
12.5%S
102
6.52
02
10.52
12.62
01 0)
u o.
i-l o.
n o
I* a. cj
a
a £ vi
rl 3
<3 <
$1.21
1.36
0.87
0.61
0.41
0,96
0.41
0.31
2.87
2.31
0.15
< 5
S-S
1 -
2 fD
re m
x -o
£ >
3
(/»
1 o
S o
< *+
5 O
§ ?
Q, 8
C J*
5 £
(O 3
3 8
< r»
"> W
g CD
a.
o
o
c
3
c °
o 2
r* -n
O H
3 3
O
a> 30
S H
li.
O 3*
— o
V» QJ
3 §
* §
5 a.
S 3
p)
3" «
8 i
3
-h
^ C
Si 8
-------
NOTES :

C
-t
a
r"
{L
D
o
* The figures are presented on a pre-tax basis, ceteris paribus. Excludes foreign price change effects, which would be important
in some cases.
3 As computed by Value Line Investment Survey, February 27, 1976, for the Metals & Mining companies; and as computed by
ADL for Cities Service and Pennzoil. Growth m Earnings/Share 1964-1974 for the Fortune 500 largest industrial
companies averaged 9.5%/year. 3 5 O
b < 2 o g
Share of Conalco production. n> gj § ^
c
Excludes United Gas Pipe Line Co., which was spun off.
d
x 2 =¦
¦a 5 o
Includes minority shares of Pima's production.
e
Before effects of expropriation by Peru of Marcona subsidiary assets
f
2 3 2
(D 30
cd m "o ^
x -o ^
I p
vo 50% share of Alumax production.
^ Amax now reports sales on a restated basis to include Alumax, Inc. (1974 sales of $464 million) on an equity basis.
a> Q. 1
i -o g 3
Mostly refined under toll agreements. Asarco equity in mine production amounts to 0.3 02 per share. < g ^ re
_ re 3 re
Q o Q>
< o Q-
E o ¦* ™
° ? Er 51
o S
financial manuals, and other sources believed to be reliable, but its accuracy and completeness are not guaranteed.
While reasonable care has been taken in data compilation and presentation, we cannot guarantee absolute comparability
from one company to the next, due to differences in the nature of earnings, and differences in accounting. However,
to the best of our knowledge, the above data present an accurate and meaningful basis for selective comparisons.
-------
TABLE 3
SUMMARY OF SALIENT FINANCIAL ASPECTS OF U S COMPANIES
-J
I
>
3
rr
c
-n
D
C
r*
d
Company
1974 Production
Sales Value
Primary Copper
@ 75c/lb
$MM
1971-1974
Average
Operat ing
Margin on
Total Company
Sales
Total Average
Capital Spending
1972-1974
SMM
Level of
Operating Profit
@ 75c/lb.
Copper, Co.
Average Margin
Only on Primary
$MM
Normal
Employment
Levels0
Mining,
Smelting
and Refining
Long Term Debt
12-31-75
% Total
Capitalization
Common Stock
at 12/31/75
Book
Value
$/Share
Market
Value
Z Book
Amax
$149
15.n
$ 227
22.5
1,500
21%
42.7
111
Anaconda
285
10.2
145
29.1
5,500
28d
54.8
31
Asarco
159£
6.7
101
10.7f
3,400
28
32 2
41
Cities Service
61
17. 5a
370
10. 7
2,000
32
60 5
64
Copper Range
101
13 4
6
13 5
2,800
23
44.9
41
Cyprus Mines
150
31.7
43
47.6
2.000
23e
29 4
74
Inspiration Consolidated
113b
24 4
29
27 6
2,200
26
35.1
59
Kennecott
603
19.0
187
114.6
11,000
21d
42.2
73
Newmont
225
29.9
48
67.3
4,400
27'
26.4
87
Pennzoil (Duval)
197
15.9
267
31 3
2,600
55®
15.5
125
Phelps Dodge
421
20 4
182
85.9
7 ,500
37
43.4
84
NOTES: Figure used in Standard and Poor's Copper Composite Average.
^Figure used is 1973 deliveries basis, 1974 figure not representative due to production difficulties.
CThe employment level in U.S primary copper production totals 45,000 for the above companies
^Total capitalization includes capitalized lease obligations
Total capitalization includes minority interests.
^Based on total Asarco mine production. U S. only was 78% of this. Average earnings from primary metals sales were $44 million pre-tax.
If prorated based on sales, copper would have accounted for $12.8 million.
SOURCE. Arthur D. Little, Inc. estimates.
The information presented above* has been obtained from company annual reports and SEC filing*?, statistical services,
financial manuals, and other sources believed to be reliable, but its accuracy and completeness are not guaranteed
While reasonable care has been taken In data compilation and presentation, we cannot guarantee absolute comparability
from one company to the next, due to differences in the nature of earnings, and differences in accounting Hovever,
to the best of our knowledge, the above data present an accurate and meaningful basis for selective comparisons
3
to
<
®
X
"8
S 3-
CD

3
v>
I £
3 o
< "
c °
o 5
E? >
r* 71
o' -t
3 30
3 30
o I
c H
3 I
° a
» o ¦* ®
O
3 —
Q. 8
c
5"
CO 3
o
3 m
< ^
5' J
S ®
• S
3 §.
" ?
S 3
5' o.
< 3
<-» o
3" <0
8 i.
-~ 3
=h 10
c
5e
-------
TABLE A
OVERALL RATE OF RETURN: PERCENTAGE NET INCOME TO NET WORTH
i
>
3
D
CT
21
R

1965
1966
1967
1968
1969
1970
1971
1972
1973
1974

Company
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)
(%)

AMAX
18.9
16.9
13.0
13.1
12.5
13.7
8.9
10.1
12.5
15.8

(Tax Rate)
(25)
(21)
(19)
(22)
(28)
(23)
(20)
(27)
(30)
(27)

Anaconda
7.2
11.2
8.8
8.0
8.5
5.7
-30
13.6
8.3
19.5
3
Q)
o
§
.Q
C
rt
o
3D
(Tax Rate)
(50)
(49)
(57)
(54)
(54)
(11)
(credit)
(4)
(24)
(34)
*<
CD
X
CO
g
w
E?
rt
>
T1
H
Asarco
14.6
17.7
13.3
12.5
15.5
13.1
6.8
7.2
14.7
14.6
cd
3

T3
O
Q.
H
1
(Tax Rate)
(24)
(22)
(45)
(21)
(19)
(29)
(Credit)
(Credit)
(37)
(28)
3
(/)
<
ct>
o
C
a
o
H
3"
CD
Cyprus Mines
10.9
12.6
13.1
13.7
13.6
14.4
13.4
12.8
15.4
17.2
3
<
»
O
r-f
3
O
3
Q>
d.
CD
(Tax Rate)
(30)
(27)
(17)
(23)
(31)
(26)
(35)
(20)
(31)
(36)
V*
5'
3
o
—~*
o
r-t
3T
n
Inspiration
13.3
12.1
6.0
11.6
24.1
27.1
12.5
15.8
16.7
10.4
a.
c
8
SI'
3
8
§
Consolidated

3*
CO
5"
0)
A
o
3
(Tax Rate)
(22)
(25)
(10)
(14)
(43)
(33)
(28)
(27)
(4)
(14)
3
<
<5*
CD
r*
3*
5T
<
Q.
O
o
Kennecott
12.3
13.6
7.9
10.9
14.9
15.8
7.3
7.3
12.2
11.7
5
CD
a.
Q
r-fr
3*
3
3
(Tax Rate)
(50)
(52)
(36)
(26)
(28)
(30)
(15)
(16)
(26)
(29)

O
c
3
8
3
5*
CO
Newmont
*
*
*
*
17.4
18.1
12.3
9.8
18.3
17.8

CD
3
iA
r+
c
jS
(Tax Rate)

(34)
(32)
(19)
(22)
(27)
(27)

Phelps Dodge
14.6
16.4
9.9
11.9
15.2
16.4
10.4
11.0
13.4
12.6

(Tax Rate)
(38)
(41)
(34)
(33)
(32)
(37)
(35)
(35)
(38)
(25)

Averages:

Pre-Tax Returns
19.7%
20.9%
13.0%
17.2%
22.5%
20.3%
5.5%
12.0%
18.2%
18.9%

After Tax Returns
13.0%
14.0%
9.1%
11.7%
15.3%
14.8%
4.2%
9.5%
13.5%
13.8%

Tax Rate
34 %
33 %
30 %
32 %
32 %
27 %
23 %
21 %
26 %
27 %

*Newmont became an
operating company with the merger <
of Magma
Copper in
1969.

-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 5
RATES OF RETURN ON STOCKHOLDERS' EQUITY
FTC
All Manufacturing
Pre-Tax After Tax
(%) (%)
Simple Average of
Major Copper
Companies
MEMO -
Inflation Rate
(Based on GNP
deflator,
Pre-Tax After Tax Index 1958 = 100)
(%) (%) (%)
1965
21.9
13.0
19.7
13.0
1.8
1966
22.5
13.5
20.9
14.0
2.7
1967
19.3
11.7
13.0
9.1
3.5
1968
20.8
12.1
17.2
11.7
3.3
1969
20.1
11.5
22.5
15.3
4.9
1970
15.7
9.3
20.3
14.8
5.5
1971
16.5
9.7
5.5
4.2
4.4
1972
18.4
10.6
12.0
9.5
3.6
1973
21.8
13. la
18.2
13.5
5.5
1974
23.4
14.9a
18.9
13.8
10.4
Averages
20.0
11.9
16.8
11.9
N.A.
Standard
Deviation
(%)
2.6(13%)
1.8(15%)
5.2(31%)
3.4(29%)
N. A.
Sources: Division of Financial Statistics, Federal Trade Commission,
Quarterly Financial Report for Manufacturing, Mining, and
Trade Corporations, 1975 eds.; and Arthur D. Little, Inc.
Fortune 500 ALL"INDUSTRY MEDIAN was 12.4% in 1973 and 13.6% in 1974.
7-12
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
has been greater over the period for the copper companies—i.e., their
business would appear to be risker than the FTC average.
Table 6 indicates furthermore that profitability in the copper
industry, in terms of operating margins on sales, has declined over the
last ten years whereas that for industrials generally has been maintained,
c. Special Characteristics
Table 2 indicates that:
• The industry is capital intensive, with typically more than $
of assets behind each $ of annual sales.
• By-product gold and silver production can be quite important
to the earnings of Asarco, Amax and Copper Range (silver);
Kennecott and Newmont (gold). By the same token, industry joint-
cost allocation and custom smelter contract practices can obscure
the economies at various levels.
• A 5
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 6
TRENDS IN OPERATING PROFIT MARGIN
Percent of Sales
Year
Large Industrial Companies^
Major Copper Companies
1964
15.9%
22.7%
1965
16.2
26.5
1966
16.4
29.3
1967
15.5
23.9
1968
15.8
22.9
1969
15.4
27.8
1970
14.5
23.4
1971
14.6
15.5
1972
15.0
16.6
1973
15.8
19.1
1974
15.4
18.7
Standard and Poor's composite data,
Standard and Poor's composite data,
Inspiration Consolidated, Kennecott
Phelps Dodge.
425 industrials.
based on Anaconda, Copper Range,
Copper, Newmont Mining, and
7-14
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
C. OWNERSHIP PATTERNS
1. Ownership
The principal producers of copper are publicly-owned companies whose
shares are traded on the New York Stock Exchange (and some on the regional
exchanges). The aggregate book value of their total corporate assets
waw approximately $17 billion, and the market value of their common stocks
totaled approximately half this (i.e., $8 billion) at year-end 1975.
We have not made a detailed study to determine the major shareholders
of these companies. However, in view of several major recent proposed
changes in ownership which have been widely publicized, we shall review
briefly the pattern which has emerged and offer such comments as seem
appropriate.
a. Asarco, Kennecott, Newmont and Phelps Dodge
Shares are widely held, as are Cities Service and Pennzoil.
b. Amax - Copper Range
For a number of years Amax held a 20% equity position in Copper Range.
In late 1974, an agreement in principle was reached between the companies
to merge Copper Range into Amax. In 1975, the Department of Justice sued
to block the merger on antitrust grounds. Also in 1975, Amax sold a block
of its stock to Standard Oil of California, which now holds approximately
20% interest in Amax. An additional 12% is held by Selection Trust Ltd.
(Selection Trust Ltd., a diversified mining and financing company
primarily concerned with minerals development, is affiliated with Charter
Consolidated, Ltd., in London, which in turn is prominently identified
with such companies as Rio Tinto Zinc Corporation, Ltd., and Anglo-
American Group companies).
7-15
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Amax has stated that if consummated, the proposed acquisition should
enable Amax to develop a portion of the Michigan copper deposits it has
under lease near the Copper Range holdings. The proven ore reserves in
Michigan that would be mineable upon the acquisition would total 121 million
tons with an average grade, fully diluted, of 1.20% copper. Of this total,
18 million tons are now under lease by Amax.
An even greater tonnage of possible reserves is estimated to lie
deeper than the current maximum mining depth of 2,200 feet.
c. Cyprus Mines - Pima
A major shareholder block in the case of Cyprus Mines is the family of
H. Mudd, who, together with associates, represent about 31.5% of the voting
power.
Cyprus consolidates the operations of Pima Mining Company—the 7th
largest U.S. copper producer—in its financial statements. Cyprus owns
50.04% of Pima's stock. The balance is split between Union Oil and Utah
International.
d. Pennzoil - Duval
Duval is now a wholly-owned subsidiary of Pennzoil Company. Pennzoil
got into the copper business via its 1968 merger with United Gas Corporation,
of which Duval was a subsidiary. Duval is the fifth largest producer.
e. Inspiration Consolidated - Anaconda - Crane et al.
In early 1975, Crane Company, through a subsidiary, acquired 5.5%
of Inspiration's stock, and subsequently made a bid to obtain control of
Inspiration. Anaconda had for some time held 27.6% of Inspiration's common
stock, and was its largest stockholder. Anaconda did not exercise control
over Inspiration, but, agreeing with the management of Inspiration, voted
to permit the sale of a substantial block to the Anglo-American Group of
7-16
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
South Africa (Hudson Bay Mining, Anglo-American Corporation, et al.)
thus precluding Crane's attempt to take control. Anaconda now owns 20.4%,
and the Anglo American Group 30% of Inspiration's stock.
Later in 1975, Crane made a tender offer for 23% of Anaconda's shares.
Anaconda's management was opposed to the offer. Shortly thereafter, Tenneco
proposed a merger of Anaconda through an exchange of securities, and
Anaconda's Board approved. But, in early 1976, Atlantic Richfield (ARCO)
made a cash offer for 27% of Anaconda, with an agreement with Crane Company,
giving ARCO a right of first refusal on Crane's holdings (then actually
about 19%) for a stipulated period. ARCO and Anaconda subsequently agreed
to merge Anaconda with ARCO and the required approvals for the merger are
pending.
f. Principal Joint Holdings
The following tabulation indicates the principal joint holdings of
tne major U.S. companies in copper production as of 1975.
Producer and Location
1974 Copper
Production
Participations

(tons)

Southern Peru Copper Corp.
133,000
Asarco - 51%
(Peru)

Cerro Corporation - 22.3%

Phelps Dodge - 16%

Newmont - 10.3%
ROAN Consolidated Mines
304,000
Amax - 20%
(Zambia)

Zambian Government - 51%
Granduc
31,900
Leased 50% each by Asarco
(British Columbia, Canada)

and Newmont, with Asarco

operating
O'okiep Copper Company
35,600
Amax - 17.0%
(South Africa)

Newmont - 57.5%
Mount Isa Mines
175,800
Asarco - 49%
(Australia)

Tsumeb Corporation, Ltd.
24,700
Amax - 29.6%
(South West Africa)

Newmont - 29.2%
Subtotal above „
705,000

(outside U.S.A.)

Anamax Mining
45,500
Amax - 50%
(Arizona)

Anaconda - 50%
7-17
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 7
PRINCIPAL U.S. COPPER SMELTING AND REFINING WORKS—1974
Smelter Capacity Refining Capacities
Company
M Tons
% Total
Rank
M Tons
% Total
Rank
Anaconda
210
11
(A)
295a
11
(4)
Asarco
380
19
(3)
630b
23
(2)
Inspiration
Consolidated
150
8
(6)
72
3
(8)
Kennecott
508
26
(1)
639
23
(1)
Newmont (Magma)
200
10
(5)
200
7
(6)
Phelps Dodge
402c
21
(2)
544
20
(3)
Copper Range*
85
4
(7)
90
3
(7)
AMAX2
-
-
(9)
250d
9
(5)
Cities Service
15
1
(8)
_
_
(9)

1950
100%

2720
100%

*Lake and Fire-Refined.
2
Oriented to Custom, Foreign Blister, Scrap.
^ew Jersey facility shut down in 1975, when Montana facility expanded
capacity by 38%.
^Baltimore refinery closed in December 1975. New Jersey facility to close
in 1976. New refinery in Amarillo, Texas came on stream in mid-1975 with
rated year-end capacity of approximately 215,000 tons/year (50% of planned
total for Amarillo).
c
New smelter at Hidalgo, N.M. , scheduled for operation circa 1976, will
add capacity estimated at 100 M tons/year or more, assuming continued
operation of the three existing smelters.
^Smelter-refinery complex as estimated by ADL.
7-18
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
g. Participation of Oil Companies
1,2
The recent ARCO interest in Anaconda marks the fifth major oil company
venture into U.S. primary copper production, via acquisition of operating
interests. The others were, as indicated above, Union Oil, Cities Service,
(1963), Pennzoil (1968), and Standard Oil of California (1975). The latter
was indirectly, through Amax, and appeared to be focused on Amax's sub-
stantial interests in coal. (It is the fourth largest producer).
We believe it is not yet appropriate to attempt generalization from
the foregoing. There are many other examples of oil companies diversifying
their interests in natural resources-based businesses, just as there are
many examples of nonferrous metals companies diversifynj.ng into coal, oil,
and gas. We would expect that in at least several important cases, the
provisions of the U.S. tax laws were an incentive.
2. Considerations Re: Smelting and Refining
Table 7 presents the smelting and/or refining capacity for the
principal companies. This represents nearly all of the U.S. capacity,
except for secondary refined capacity as represented by Cerro Corporation,
and other independent fabricators. Note that Asarco, Amax and Phelps
Dodge have refining capacity well in excess of their mine and/or smelter
capacity.
An important aspect of the primary copper (and also lead and zinc)
industries is that traditionally the cost of smelting and refining has been
small compared to the price of copper, and furthermore, these operations
^"As we went to press, Continental Oil Company was reportedly planning a
large new copper mining development, with annual production on the
order of 100,000 tons per year. Conoco would thus be the sixth major
oil company producer, although its entry is as a new producing firm,
increasing the number of competitors.
2
Exxon also recently announced its interest in a large ore body in Wisconsin,
containing significant amounts of copper and other mineral values. Exxon
is studying the opportunity to exploit this property.
Arthur D Little Inc.
7-19
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Proiect Officer, since the document
may experience extensive revision during review.
have been at a fixed and relatively low margin which is not very sensitive
to the price of the finished product. This, in turn, means that the smelting
and refining plants have been operated mainly as service operations in the
conversion of concentrate into usable metal and alloys. In smelter contracts,
changes in price of the primary metal are typically reflected back to the
mine and hence affect directly the value of the concentrate.
We illustrate the mechanism based on data from the copper industry
but a similar mechanism occurs in the lead and zinc industries. In the
'60's, the traditional rule-of-thumb in determining concentrate value in
the copper industry was to assume 4c/lb. for smelting charges and 5c for
refining charges so that the value of copper contained in the concentrate
is very approximately 9
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
3. The "Struggle Between Integrated and Independent Fabricators"
Although this study extends only through the refined copper stage of
production, we cannot overlook the fact that the large primary producers
are vertically integrated into fabricated products (wire and cable, tubing,
sheet, other brass mill products), and there is an interplay in the market
place between supply and price of new refined copper and the role of
copper scrap in the fabricating industries.
Refined copper is fabricated into higher value, intermediate, and
finished products by wire mills and brass mills, the former accounting
for about 46% of U.S. consumption, and the latter about 40%. The balance
of consumption is accounted for by foundries, ingot-makers, and powdered
metal usage. Overall, 40% or more of the brass mills' copper require-
ments are typically supplied by scrap materials.
The manufacturing divisions, subsidiaries, and affiliates of the
major primary copper producers are believed to account for roughly half of
total fabricating. Of the three producers, Anaconda appears to consume the
highest percentage of its own copper, Phelps Dodge the next highest and
Kennecott the least. However, we do not have sufficient data to make
generalizations. Also the vagaries of the market from year-to-year, and
the fact that the company buy and sell to and from each other, compli-
cates the pictures. From a financial standpoint, the conventional distinction
made between the integrated producers and the independent fabricators^"
such as Cerro Corporation, General Cable, Reading Industries, Triangle,
^"General Cable was spun off from Asarco in 1967, in connection with a
consent decree arising from an antitrust action. Cerro has a gross
fabrication capacity for tubing, wire and cable, and brass mills products
of 350,000 tons/year (nearly 15% of the total). Other large independent
capacity is represented by that owned and utilized captively by General
Electric Company and the Western Electric subsidiary of American Telephone
and Telegraph Company.
7-21 Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
is best expressed by the following comments from Standard and Poor's
Corporation in its 1975 nonferrous metals survey:
"For—integrated companies, this final production stage has tra-
ditionally served as an outlet for the primary copper produced. Thus,
such companies have typically endeavored to maintain low prices on fabri-
cated products, relying on the sale of primary metal for the bulk of
their profits."
The largest expense for most independent fabricators is the cost of
copper; thus profitability depends substantially on the fabricators'
mark-up or spread. As a result, again quoting Standard and Poor's,
"there is often a struggle occurring in the market—The integrated
producers seek to keep product prices on fabrications low enough to boost
demand and provide an expanding market for more profitable primary and
refined output, while the independent fabricators strive to raise product
prices and margins." Both groups generally prospered in the demand
crunch—high price environment of 1974; but the independents suffered less
in the recession—low price environment of 1975, benefitting from the lower
raw material costs. The integrated producers, with high fixed costs,
suffered reduced operating rates as well as reduced prices, and reported
substantial sales and earnings decline.
The subject of integrated versus independent producers is, we believe,
quite a bit more involved than this, as might be inferred from various
legal actions which have occurred^" or have been underway now for sometime,
and which appear to relate at least in part to the operations of the U.S.
"'"See U.S. vs. Kennecott Copper, in which Kennecott was required to divest
Okonite Company, a very large independent vrire and cable producer acquired
in 1958.
7-22
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
two-price system and the foregoing discussions (see Chapter 6).
More specifically, as has been stated in the "Notes to the Financial
Statements" of the major producers, in June, 1970, Triangle Industries,
Inc., a copper fabricator, instituted an action in the U.S. Disctrict
Court for the Eastern District of Pennsylvania against Asarco, Anaconda,
Cerro Corporation, Kennecott, and Phelps Dodge, alleging various violations
of the Federal antitrust laws and seeking treble damages and divestiture
by these producers of their copper fabricating facilities, and other
relief. Reading Industries, Inc. (another copper fabricating company),
filed a similar suit in October of 1970. These actions were subsequently
transferred to the U.S. District Court for the Southern District of New
York, and have been in pre-trial discovery stage. Counterclaims were filed
by some of the defendents. Cerro filled briefs and motions for dismissal,
claiming it was not a U.S. producer. Asarco and Triangle subsequently
agreed to have Asarco supply Triangle with copper under long term contract,
and Triangle withdrew its complaint against Asarco.
Since 1972, the Antitrust Division of the U.S. Department of Justice
has been conducting a grand jury investigation of the copper industry in
the United States generally. The primary producers were served with
subpoenas requiring production of documents and information relating to
copper prices since 1951; and exploration, development, smelting and
refining activities since 1955. In 1974, the jurisdiction of this invest-
igation was transferred to the U.S. District Court for the Southern
District of New York.
7-23
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The outcome of these actions should clarify the status of vertical
integration in the copper industry. However, because of the nature and
extent of our study, further treatment of these issues was beyond our
scope, and would at best be speculative. Our analyses then necessarily
have been based on the industry "as is," and as we and others outside
may observe it.
7-24
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
D. CAPITAL NEEDS AND CAPITAL SOURCES
1. Capital Needs vs. Internal Sources
In its 1975 Survey of capital requirements at nonfinancial corporations,
Business Week concluded that U.S. corporations in general were in the
throes of a capital crunch which showed no signs of abating. (Those
conclusions were based on data supplied by another Mc-Graw-Hill group,
the IMS subsidiary of Standard & Poor's Corporation). New outlays
for the plant and equipment grew nearly twice as fast as common equity over
the period 1969-1974, and internal cash generation fell far short of
requirements (including dividends to share holders). On average, 78% of
the growth needs of large U.S. companies during the 1969-1974 period
were satisfied through internal cash flow generation, with increased short
term and long term debt plus sale of new equity making up the difference.
The following tabulation (Table 8) compares the data for the major
copper-producing companies. Table 9 shows actual average capital expenditures,
the typically higher 1974 levels, and the expenditure rate in comparison
to depreciation charges. Table 10 summarizes the estimated capital expenditures
made on primary copper production only; and the amount of this for pollution
control. Copper Range and Cyprus Mines covered most of their requirements
from internally-generated funds. In fact, Copper Range's and Cyprus'
debt was only slightly higher at the end of 1974 than five years earlier,
and debt-to-equity ratio remained about the same.
7-25
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 8
INDICATORS OF THE NEED FOR CAPITAL FUNDS
5-Yr Growth in 5-Yr Cash Flow
Plant Equipment as % of Total
Company % Growth Needs
Amax 102% 53%
Asarco 97 78
Anaconda 43 61
Cities Service 30 72
Copper Range 38* 94*
Cyprus Mines (a) 96
Inspiration 192* 64*
Consolidated
Kennecott 47 83
Newmont Mining (b) 76
Phelps Dodge 92 62
Pennzoil Co. 15 57 (c)
NOTES: aNot available for purposes of comparison. The 442% indicated
reflects IMS/Cyprus method of reporting, accounting, and
restating for consolidation of subsidiaries over the period
in question.
^Not meaningful for purposes of comparison, due to large
investment holdings.
Capital Expenditures net of retirement and disposals in
some years.
*S0URCE: Arthur D. Little, Inc. All other figures are as presented
by Business Week's Capital Survey, September 22, 1975.
7-26
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 9
THE PATTERN OF CAPITAL EXPENDITURES AND DEPRECIATION CHARGES
Reported 1970-74 Average
Capital Expend!- Capital Expendi-
tures — Gross tures as Percent Depreciation Rate
Company $MM Gross Plant 1974-% Gross Plant
Average

1972-74
1974

Amax
227
338
17.8%
3.3%
Anaconda
144
194
7.4
2.8
Asarco
101
138
13.7
4.6
Copper Range
6
7.5
4.8
4.4
Cities Service
370
447
10.8
3.9
Cyprus Mines
43
67
11.6
5.9
Inspiration
29
18.8
13.7
5.7
Kennecott
187
218
9.7
4.3
Newmont
48
56
12.1
4.2
Pennzoil
267
279
11.0
5.4
Phelps Dodge
182
275
11.9
2.4

Average
11.3%
4.3%

Standard
Deviation
3.4
1.3
SOURCE: Arthur D. Little, Inc., based on Standard & Poor's Corporation,
Value Line, and Company reports.
7-27
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 10
ESTIMATED CAPITAL EXPENDITURES FOR THE
DOMESTIC PRIMARY COPPER INDUSTRY
1972 1973 1974 1975
Millions of Dollars
Mining and Millinga
233C
420
465
430
Smelting Capacity
18
45
70
74
Refining Capacity'5
6
34
56
44
Pollution Control

Smelters
105d
150
180
142
Other
3
5
8
18
TOTALS3'®
365
654
779
708
NOTES: aIncludes capitalized mine development expenses and interest
^during construction.
1973-1975 refinery expenditures dominated by Asarco's new
Amarillo refinery.
.Reasonable agreement with 1972 Census.
Cf. MA-200(73)-2, Expenditures for Pollution Abatement, U.S.
Department of Commerce Report, 1973.
Cf. Census Reports for Ore Mining and for Copper Smelting and
Refining (SIC 33).
SOURCE: Arthur D. Little, Inc. estimates.
7-28
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Among the other companies, debt-to-equity ratios typically increased.
However, it is difficult to generalize; and the analysis must proceed on
a specific, case-by-case basis, since the accounting for foreign govern-
ment interventions in company operations (noticeably in Chile, Peru, and
Zambia), and the effect of acquisitions and spin-offs on consolidated
financial statements must be evaluated.
2. Debt
Section F (presented subsequently) develops detail on the principal
copper producers in regard to the trend in debt-equity ratios, the term
structure of debt, and the increasing significance of pollution control
debt. Total long-term debt at year-end 1974 exceeded $2 billion, and
debt-equity ratios were approaching 30/70. (Cf. Tables 3 and 17).
The overall average for the 550 companies studied by Business Week
showed a capital structure with 60% equity and 40% debt (long term and
short term), as of the end of March 31, 1975.
3. Equity Capital
- Stock Prices
Figure 1 indicates the pattern of stock price changes for the major
copper producers versus other metals stock groups and the Standard and
Poor's Industrial Stock Composite. The extreme volatility over the
recent period has important implications in regard to incremental cost
of capital, suggesting that investors would normally demand a substantial
risk premium on new equity offerings. A more precise formulation of the
cost of capital problem will be discussed, including the work of Pogue
with the Capital Asset Pricing Model, in a separate section. (Cf. the
Technical Appendix).
7-29
Arthur D Little Inc
-------
FIGURE 1
BEHAVIOR OF COMMON STOCK PRICES
COPPER
- ALUMINUM
METAL FABRICATING
INDUSTRIAL STOCK COMPOSITE
faXS
STOO PRICE INDLXLS
I94'-I943=!0
, LOCAWITHUIC 3CM.C
'60 "61 '62 '63 I'64 '65 *66 | "67 | *68 '69 '70 '71 72
I '31 l 52 I '53 '54 | '55 56
'76 77
78 i 79
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
- P/E Ratios
For a zero or nearly zero-growth company, one model of the cost of
equity capital is the reciprocal of the price-to-earnings ratios. In
general, P/E ratios of industrial issues have declined over the last 10
years (1965-1975), from an average of about 17, to about 10 recently.
Copper issues sold at about 10 times earnings in 1965 (or 60%
of the Industrial's P/E), and at about 6.2 times 1974 earnings (65%
of the Industrial's P/E); for 1975 the comparison was not easy to
establish because of several complicating developments with respect to
the copper companies, including consolidations, acquisitions, and losses
on operations for some companies.
In current dollar terms, these P/E relationships suggest a cost of
new equity capital in the range of 15-19%, consistent with data and
estimates of the cost of capital made by Pogue, and our own estimates as
explained formally in the Technical Appendix to this report.
See Arthur D. Little, Inc. (ADL), Econometric Simulation and Impact
Analysis Model of the U.S. Copper Industry, Technical Appendix to Economic
Impact of Environmental Regulations on the U.S. Copper Industry (1976).
Supporting Paper 3: "Analysis of the Cost of Capital for the Primary
Producers."
7-31
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
E. DOMESTIC AND FOREIGN SALES AND EARNINGS OF NONFERROUS METALS COMPANIES
1. General
The foreign versus domestic sales and earnings from nonferrous metals
operations are estimated in Table 11. This information is based on or
computed from 1974 data presented in company annual reports and reports
to the SEC. (While reasonable care was taken in compiling this data and
presenting it in a consistent fashion, we do not guarantee its absolute
accuracy or comparability because of variations in accounting from company
to company).
Very few companies reported foreign earnings in a clear manner, and
even where statements are made they were often somewhat ambiguous.
Of the nine major primary copper producers listed, there is considerable
variation in the percentage of earnings accounted for by foreign operations:
• Copper Range has a very snail percentage of foreign sales revenues
and earnings, Inspiration did not report any at all.
• Anaconda did not indicate net foreign sales, but reported $115
million in 1974 sales from Anaconda Canada Ltd. The net equity
of nonconsolidated foreign affiliates abroad contributed 13.5%
of its total after-tax earnings.
• Kennecott indicated that 16% of their sales was derived from
customers abroad, producing 16% of earnings after tax.
• Phelps Dodge had foreign sales as percent of total sales revenue
equal to 2% or less and foreign earnings after tax equal to 4%
or less of total earnings.
• Amax's, Asarco's and Newmont's foreign sales are 20-25% of total
sales, and their foreign after-tax earnings as percent of total
after tax earnings ranges from about 30% for Newmont and Amax
to over 60% in the case of Asarco.
7 32 Arthur D Little lr»c
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 11
1974 DOMESTIC SALES AND EARNINGS FROM NONFERROUS METAL
OPERATIONS AND FOREIGN SALES AND EARNINGS—AS COMPARED
TO TOTAL EARNINGS
Company
Asarco
Amax
Anaconda
Cyprus Mines
Copper Range
Inspiration
Consolidated
Kennecott
Newmont
Phelps Dodge
Sales from
Domestic
Nonferrous
Metals Plants
$ (millions)
$1,260.1
607.0
1,567.3d
279.01
166.6
97. lk
999.561
301.2
1,026.1
Earnings
From
Domestic NFM
Operations
$ (millions)
$ 89.7
95.0b
173.0®
82.7j
28.3
9.91*
248.81
70.7
138.3
Foreign
Sales as
Percent of
Total Sales
Revenue
23.2%
18.0
1].0 Est.
28.0
10.0
nil
16.0
25.0
< 1.0
Foreign Earnings
(After Tax)
As
Percent
of Total
$ (millions)
$ 93.4
62.07a,C
14.4g
52.7a
N.A.f
nil
27.0m
37.8
1.524n
67%
30.6
13.5*
371
42
N.A.
nil
16m
30
1.4
a,c
NOTES: aIndicates before taxes.
^Includes $19 million equity in Alumax.
Twenty percent of its earnings from operations before income taxes, explora-
tion and unallocated corporate expenses were derived from its operations out-
side of the United States, primarily in Australia, Western Europe, Japan,
Zambia, and Canada. In addition, approximately 9% of its income before
taxes and extraordinary items was derived from dividends from foreign
investments, primarily in Africa.
(0.2 x 219) + (0.09 x 203)
203 = 30-6/°
Applicable foreign earnings from operations, excluding exploration and un-
allocated corporate expenses were $43.5 million in 1974; $6.45 million of
foreign exchange gains were included in 1974 earnings. Trading income,
consisting primarily of profits on copper and silver transactions, was $12.5
million in 1974 (based on sales of $32 million, and BTE of $20 million) and
is included in earnings from operations.
^Sales 93.7% of net sales—i.e., excludes sales between divisions, uranium
oxide sales, etc.
Total operating earnings showns.
^N.A.: Not Available
7-33
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
^Anaconda's equity in net income of affiliated companies in Mexico and
Brazil accounted for $14.1 million in 1974. These foreign affiliated
companies' contributions, after all applicable taxes, amounted to
$10.8 million or 10.1%. Anaconda also received $5.45 million of interest
from Chilean investments, which after tax of 34% (effective 1974 rate)
was $3.6 million.
^Based on net after taxes before extraordinary income, X =
There was an extraordinary item which contributed $140.37 million to net
income which involved settlement on the 1971 expropriation loss with the
Government of Chile. If this item is considered, then 62.6% of total 1974
net income—i.e., $247.1 million, including the extraordinary item, was
related to foreign activities.
^Includes manufacturing and nonferrous metals. Manufacturing includes
copper and aluminum wire and cable, and some steel conduit and specialty
steels.
^After tax basis estimated excluding minority interests. See separate
material on Cyprus in statistical appendix.
Includes interest income.
'''Total metal and metal product sales were $1,160.1 million, out of total
sales revenues of $1,664.2 million. Of these metal and metal products
sales, $999.56 million were of nonferrous metals and products. Reports do
not state amount attributable to United States. Earnings show total before
tax earnings from metal and metal products operations, including items
that are not nonferrous.
mlncome derived from foreign sources before extraordinary credit represented
about 16% of 1974 consolidated income before extraordinary credit. In
addition to this $27 million, the company had an extraordinary credit
(net of tax effect) of $42.3 million related to compensation from Chile
for a 1971 expropriation of property. If the credit and net foreign
sources ($69.3 million) are considered as percent of net income after tax
and the extraordinary item, the percent from foreign sources was about
one-third of 1974 total net income.
Reported $1,524 million dividends included in reported earnings from foreign
manufacturing interests abroad.
7-34
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
2. The Hazards of Foreign Investments
Extraordinary losses, as discussed in the financial reports of the
major nonferrous metals mining companies, illustrate the risk of foreign
holdings today. Indeed, the last several years would suggest the related
write-offs are "ordinary" and not "extraordinary" losses in the course of
business—as the panorama of nationalizations in Chile, Peru, Mexico, and
Africa unfolds. In most cases, Overseas Private Investment Corporation
insurance was available to cover much of the loss. But this is phasing
out.
While foreign sales are considered subject to greater uncertainties-
depending on the location of foreign subsidiaries and/or affiliates, expro-
priation, currency fluctuations, export and import restrictions, exchange
restrictions, and other factors—the percentage of income before taxes
on income from foreign sales revenues has generally been greater than that
realized on consolidated total sales and operating revenues and hence on
domestic operations. When the companies share of dividends and/or equity
in foreign affiliates' earnings is added to earnings from direct foreign
operations, the fraction of foreign after tax earnings to total after tax
earnings rises significantly. A higher return, of course, is consistent
with the notion of higher risk.
7-35
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
F. LONG TERM DEBT AND TREND IN DEBT-TO-EQUITY RATIOS
1. Term Structure of Debt for the Primary Nonferrous Metals Companies
a. Introduction
The debt structure of the primary copper producers was studied along
with that of the primary lead and zinc companies, using data published
in the annual reports of the subject companies.
The long-term obligations of each company and its consolidated
subsidiaries are reviewed below in tables breaking debt down by maturity
and rate of interest. Wherever interest rates were not specified, the
amounts were placed in an interest category labeled "Other," by year of
maturity. Pollution control-related debt was identified. Capitalized
leases are included, as are sinking fund payments.
It should be noted that while reasonable care was taken in compiling
this data and presenting it in as consistent a fashion as possible, we
cannot guarantee absolute comparability from one company to the next,
due to differences in the nature of their debt, differences in their
accounting for certain balance sheet items, etc. To the best of our know-
ledge, the data herein present a meaningful basis for study and comparison.
b. Total Debt of the Primary Copper, Lead and Zinc Companies
Table 12—Total Debt of Primary Copper, Lead and Zinc Producers, shows
the debt and the debt repayment schedule as of December 31, 1974, for each
of the companies and their consolidated subsidiaries.
Table 13—Debt of Primary Copper, Lead and Zinc Producers by Period of
Maturity and Interest Rate (Percent), shows the total debt by period within
certain interest ranges. The "Other" category was used for debt for which
rate of interest was unidentified.
7-36
Arthur D Little Inc.
-------
TABLE 12

(millions
of dollars)

Repayment
Schedule

Sum=Total

Company
1975
1976
1977
1978
1979
1980 &
Beyond
Long-Term
Debt
12/31/74
Long-Term
Debt 7
6/30/75
Asarco
18.2
6.7
4.7
8.4
9.2
237.4
266.4*
285.3
Anaconda
16.8
59.4
8.4
19.6
16.7
301.6
405.73
476.4
Cyprus Mines
1.5
6.7
11.5
10.9
10.7
70.5
110.35
115.0
Copper Range
1.4
1.4
2.7
2.7
2.7
23.2
32.7
32.7
Inspiration
5.9
5.7
5.7
6.2
5.3
23.4
46.3
43.3
Kennecott
8.8
7.2
6.4
4.2
2.4
206.2
226.4
443.6
Phelps Dodge
2.4
2.5
27.5
52.5
13.0
301.6
397.I6
525.4
Newmont
13.0
17.4
20.8
24.8
27.2
119.2
209.4
256.08
AMAX

30.4
13.8
63.7
43.3
249.7
400.9
545.2
Gulf Resources
2.3
2.2
2.1
6.8
5.8
72.2
89.1
72.4
St. Joe
8.4
5.9
4.1
2. 7
1.0
22.0
35.7
35.6
Engelhard
2.9
7.1
4.7
3.4
5.5
93.2
113.9
113.6
Total Long-Term Debt

152.6
112.4
205.9
142.8
1670.2
2333.92
2944.5
Plus 1975 Installment

81.6
2415.5

3
Q2
Si
_ c H
J o J
O ? ®
15 § 3
O CD
~ o 9-
O ° 5
-~» —•
^ M
8 ~ 8
•1 3 §
5 S o
o ? 3
"SO-
— o
?«§
q. ? 3
2 ° 3
p c 2
3 -k
Source: 1974 Annual Reports, SEC Form 10-K reports, and Arthur D. Little, Inc.
^Does not include current installment (i.e., 1975).
3
Capitalized leases account for $131.9 million of LTD.
4Includes notes and debentures issued in January 1975 for $150 million
'includes notes issued in January 1975 for $100 million.
'includes $70 million of indebtedness to finance air quality control facilities, incurred in January 1975.
^Source: Company 19 75 reports and ADL.
Business Week on first quarter since Treasurer would not comment.
Information used to prepare this table was taken from sources believed to be reliable, but its accuracy
and completeness are not guaranteed.
8
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 13
TOTAL DEBT OF PRIMARY COPPER, LEAD AND ZINC PRODUCERS1
BY PERIOD OF MATURITY AND INTEREST RATE (PERCENT)
(millions of dollars)
Matures
1975-1979
1980-1984
1985-1989
1990-1999
2000 and
Beyond
Unknown
4 - 5-7/8 6 - 7-7/8 8 - 9-7/8
$100.2
117.4
86.4
49.6
$ 384.8
320.2
167.5
227.2
55.7
$127.8
260.8
172.5
155.3
16.0
10 and
Over
$ 82.5
19.4
Other
$37.0
23.6
3.5
4.2
3.9
Total
$ 732.3
741.4
429.9
436.3
71.7
3.9
$353.6
$1155.4
$732.4
$101.9 $72.2
$2415.5'
Source: ADL estimates based on company 1974 annual reports and SEC 10-Ks.
2
Other = Interest rate not indicated and, in some cases, final repayment
date not given.
3
Includes debt through January 1975, as given in annual reports.
Information used to prepare this table was taken from sources believed to
be reliable, but its accuracy and completeness are not guaranteed.
7-38
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Table 14—Debt Allocated for Pollution Control Purposes, Including
Certain Capitalized Lease Obligations, shows the debt allocated to pollution
control by the subject companies. About 13.7% of the total debt ($2,315
million) was specifically earmarked for pollution control ($317.9 million).
This amount could be considerably higher, but variability in how companies
report may mask the total debt issues committed to pollution control,
c. Review of Pollution Control Debt Issues
• Inspiration Consolidated Copper Company carried long-term debt
of $33.2 million at December 31, 1974, used to finance construction
of pollution control facilities. Funds were obtained for this
loan from the sale by an Industrial Development Authority of
tax-free Pollution Control Revenue Bonds. The company has guaranteed
the Authority's payment of principal and interest on these bonds.
Interest is at 75% of the prime rate charged by The Chase Manhattan
Bank. As discussed in the separate section on Inspiration and
elsewhere (cf. "Environmental, Health and Safety Matters"),
repayment was scheduled in 36 quarterly installments of $900,000
and a final payment of $800,000 on February 15, 1984.
• St. Joe Minerals Corporation and its consolidated subsidiaries had
a liability of $18,361 million as of December 31, 1974, with respect
to pollution control revenue bonds and entered into agreements
with the State Environmental Improvement Authority (Missouri)
and Beaver County (Pennsylvania) Industrial Development Authority
to make payments to trustees under installment sales agreements
sufficient (together with other available funds) to pay all amounts
due on the bonds. The bonds are subject to optional redemption
7-39
Arthur D Little Inc.
-------
DRAFT REPORT - The .reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
commencing In 1982 and mandatory redemption In 1988. The proceeds
from the sale of the bonds are to provide funds for the construction
of pollution control facilities at St. Joe Minerals' lead and zinc
smelters. The debt at December 31, 1974, represents the amount of
proceeds from the sale of bonds applied to construction payments;
the balance of the proceeds is held and invested by the trustees
pending disbursements and, if not applied toward construction
payments, is available to service the bonds or to repay them in
part.
o Newmont Mining's subsidiary, Magma Copper Company, had $30 million
of air pollution control bonds, payable at 3.67% + 50% of the
difference between prime rate and 5% payable 1975 to 1982, out-
standing as of December 31, 1974.
o Asarco sold $10 million of Gila County, Arizona, pollution control
bonds in 1974, and indicated that it needs to finance additional
pollution control revenue bonds. As of December 31, 1974, there
was $8.4 million of this long-term debt issue, with interest at
75% of prime, due in quarterly installments to August 31, 1982.
The company's prospectus dated May 7, 1975, stated that it
was negotiating additional revenue bond financing for qualified
pollution control facilities. (By mid-1976 the amount so financed
was $50 million.)
o Phelps Dodge had $135,782 million in (tax-exempt) air quality
control obligations (due after one year) as of December 31, 1974.
In January, 1975, the Corporation also incurred $70 million of
indebtedness to finance the air quality control facilities at its
7-40
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 14
DEBT ALLOCATED BY PRIMARY COPPER, LEAD AND ZINC PRODUCERS FOR
POLLUTION CONTROL PURPOSES, INCLUDING CERTAIN LEASE OBLIGATIONS
(millions of dollars)
Period Debt
1975 - 1979 $ 67.8
1980 - 1984 117.9
1985 - 1989 21.0
1990 - 1999 55.5
2000 and Beyond 55.7
$317.9*
The pollution control obligations of the copper, lead and zinc
companies was equal to about 13.7% of total debt at year-end 1974.
Information used to prepare this table was taken from sources believed
to be reliable but its accuracy and completeness are not guaranteed.
7-41
Arthur D Little Inc.
-------
-¦J
I
•p*
>
3
a
r
rt
r>
700
600
500 ~
400 —S
300
200
100 ~
FIGURE 2.
TERM STRUCTURE OF DEBT FOR
PRIMARY NONFERROUS METALS
COMPANIES, INCLUDING ALLOWANCE FOR
SINKING FUND PAYMENTS, CAPITALIZED LEASES
Interest Rate
Other
10 and
over
8-9 7/8
4-5 7/8
(1) Including current
maturities of
>78.3 million.
2 a s
c °
§ 5
Et >
2 rr
X T>
S >
3
tn
S a
3 2
<
E o
O :£
3
O
3 3D
o ffi
^ O
re 7
¦? -t
lii
o zr
CD
S g
° 2
8 C S
» o
5 3
£ a
< ^ — o
3"
re
a.
o
o
c
i. §
r* O
3" a>
S i
—h tO
=; c
)eu>c Matures In
1975-19:
ocal (S mill^pns) $692
'<-,'.3 (S millions) 68
1980-1984
6S1
118
1985-1989
430
•21
1990-1999
436
56
2000 & beyond
72
56
S2,315
289
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 15
Long-Term Debt of Twelve Copper, Lead, Zinc Producers^"

(millions
of dollars)

1970
1971
1972
1973
1974
AMAX, Inc.
261.5
392.0
457.4
440.7
400.9
Asarco
23.7
38.1
51.0
91.7
266.42
Anaconda
366.5
391.5
388.9
379.3
405.9
Copper Range
24.3
36.3
35.0
33.6
32.7
Cyprus Mines
40.4
34.9
22.4
17.1
110.3
Engelhard
80.4
77.2
117.7
115.5
113.9
Gulf Resources
42.0
48.6
53.1
73.6
89.1
Inspiration Consolidated
1.26
1.14
19.1
49.8
46.3
Kennecott
177.9
314.6
269.0
220.8
226.4
Newmont Mining
108.4
201.6
224.0
218.1
209.4
Phelps Dodge
86.1
166.0
181.3
281.9
397.I4
St. Joe Minerals
11.7
10.7
34.7
50.3
35.7
Total
1224.2
1712.6
1853.6
1972.4
2 3 4
2334.1 ''
2014.1 year end
Source: Annual reports, SEC 10-K's, S&P reports, and ADL.
Includes capitalized leases, convertible subordinated debentures, and
sinking fund debentures. Does not include current installment.
2
Includes $150 million notes and sinking fund debentures issued in early 1975.
3
Includes $100 million of notes issued in January 1975.
^Includes $70 million of indebtedness to finance air quality control
facilities incurred in January 1975.
Information used to prepare this table was taken from sources believed to
be reliable, but its accuracy and completeness are not guaranteed.
7-43
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 16
Shareholders' Equity of Twelve Copper,
Lead, Zinc Producers
(millions of dollars)

1970
1971
1972

1973

1974
AMAX, Inc.

609.7
625.2
693.0

840.4

942.2
Asarco

672.8
673.3
682.6

774.0

862.5
Anaconda
1
,202.3
837.4a
966.7
1
,042.0
1
,267.3
Copper Range

108.1
101.7
94.8

105.3

119.8
Cyprus Mines

217.6
235.6
256.6

281.6

313.8
Engelhard

235.7
252.8
279.3

313.9

403.5
Gulf Resources

53.3
¦ 28.4b
31.9

41.7

76.1
Inspiration Consolidated

66.6
70.5
77.9

87.9

91.2
Kennecott
1
,160.5
1,188.5
1,203.8
1
,307.1
1
,442.0
Newmont Mining

446.9
473.4
490.4

564.4

637.4
Phelps Dodge

662.0
710.2
749.3

815.2

892.3
St. Joe Minerals

180.3
191.0
205.1

229.5

298.9
Total
5
,655.1
5,389.0a
'b5,731.4
6
,403.0
7
,347.0
Source: Annual reports, SEC 10-Ks, and ADL.
discontinuity reflects write-offs taken in connection with the expropria-
tion of its Chilean properties. The accounting for the 1971 expropriation
and write-offs had the effect of creating a massive deficit for the year,
establishing a large tax loss carryforward and increasing the debt-to-equity
ratio.
^Discontinuity reflects write-offs associated with the Great Salt Lake
Project.
Information used to prepare this table was taken from sources believed to be
reliable, but its accuracy and completeness are not guaranteed.
7-44
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 17
Debt Ratios (Debt/Debt Plus Equity Capital) of Twelve Copper, Lead, Zinc
Producers on December 31 of Year Shown
(percent)

1970
1971
1972
1973
1974
AMAX, Inc.
30.0
38.5
39.8
34.4
29.8
Asarco
3.4
5.4
7.0
10.6
11.9
Anaconda
23.4
31.9
28.7
26.7
24.3
Copper Range
18.4
26.3
27.0
24.2
21.4
Cyprus Mines
15.7
12.9
8.0
5.7
3.2
Engelhard
25.4
23.4
29.6
26.9
22.0
Gulf Resources
44.1
63.1
62.5
63.8
53.9
Inspiration Consolidated
1.9
1.6
19.7
37.2
33.7
Kennecott
13.3
20.9
18.3
14.5
13.6
Newmont Mining
19.5
29.9
31.4
27.9
24.7
Phelps Dodge
11.5
18.9
19.5
25.7
26.8
St. Joe Minerals
6.1
5.3
14.5
18.0
10.7
Source: Annual reports, SEC 10-Ks, and ADL. Debt refers to noncurrent
long-term debt; i.e., debt does not include current installment, and unless
otherwise indicated, ratio is as of December 31, 1974.
2
This increased sharply to 20.8% because of a §150 million debt issued in
J anuary.
3
This increased to 26% in January, 1975, as a result of a $100 million
note issue.
4
This increased to 30.8% in January when Phelps Dodge issued $70 million of
Pollution Control Revenue Bonds.
Information used to prepare this table was taken from sources believed to be
reliable, but its accuracy and completeness are not guaranteed.
7-45
Arthur D Little Inc
-------
Table 18
NONFERROUS METALS COMPANIES COMPARISONS
Long-Term Debt, Shareholders' Equity, and Indicators of Ability to Attract Additional Capital
i
¦o
Aluminum Co. of America
Amax, Inc.
Anaconda
Asarco
Copper Range
Cyprus Mines
Engelhard
Gulf Resources
Inspiration Consolidated
Kaiser Aluminum
Kennecott Copper
Martin Marietta
Newmont Mining
Phelps Dodge
Reynolds Metals
St. Joe Minerals
12 Cu, Pb, Zn Cos.
4 A1 Cos.
Total
Long-Term
Debt
6/30/75
$ Mill.
1,179.9
545.2
476.4
285.3
32.7
115.0
113.6
72.4
43.4
684.7
443.5
279.4
256.0
525.4*
816.4b
35.6
2,944.5
2,960.4
5,904.9
Long-Term
Debt as %
of Invstd.
Capital
6/30/75
42.7
36.1
27.8
24.8
27.7
26.2
20.0
39.9
26.3
46.1
23.6
32.2
28.7
37.0
50.2
9.7
Share-
holders '
Equity
6/30/75
1,585.2
965.5
1,234.4
863.9
117.9
324.0
454.3
109.0
90.1
799.3
1,436.4
589.3
637.4
893.9.
809.3
332.1
7,458.9
3,783.1
11,242.0
Stock
Price as
% of Book
Value,
Mid-1975
1.0
1.3
0.3
0.4
0.8
1.5
1.8
0.7
0.8
0.7
0.7
0.8
0.8
0.5
1.9
Av. Int.
Covge.
Ratio
Pre-tax
3/31/75
5.4
9.6
4.8
11.3
10. 7C
26.0
7.6
2.7
l.lc
4.4
10.4
6.8
8.0
5.3
3.3,
33.9
Av. Int.
Covge.
Ratio
Pre-tax
1965-74
5.4
9.1
20.5
48.9
28.5
5.4
3.2
75.4
8.3
18.7
2.9
40.9
S&P
Bond
Rating
A
A
A
A
BBB
A
BBB
A+
B6
II
5 a
Si
1 3-
5 ">

m
X -O
£ >
3
M "Q
I 3
3 o
s.
5! O
o u
3
CL 8
c r*
5* £
CO 3
o
3 *
<
5 3"
5 *
Q.
O
o
c
3

3
C °
o 5
Sf >
T1
O* H
3 3)
o in
o
3 3J
¦D -I
§ 3
0)
n Q-
8
5
5
3

Q.
5. 3
r* O
3* ®
8 i.
-h
>
=r
c
-n
D
c:
r>
NOTES:
^Includes $125M of offered notes in 1975.
Reflects restructure of the company's investment in a primary aluminum smelter and rolling
mill in Hamburg.
"December 1974 data.
i
Based on company's fiscal year end.
"Subordinate debt rating.
SOURCE:
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
new Hidalgo smelter. The indebtedness bears interest at a rate
of 7.25% per annum. Principal payments are due in 1979 (15%),
1980 (15%), 1981 (30%), and 1982 (40%).
• Kennecott (See Appendix A).
• Anaconda financed the first stage of the installation of an acid
plant and related equipment at the copper smelter at Anaconda,
Montana, which was completed in 1973 at a cost of approximately
$21.1 million, by a leasing arrangement under which the County
of Deer Lodge, Montana, issued $17 million in bonds and a third
party invested the balance. The second stage, which involves
installation of an electric furnace and related control equipment,
is nearing completion. Use of an electric furnace is expected to
substantially eliminate air pollution. Construction funds for this
stage are being made available, up to an expected total of approxi-
mately $31.5 million, from working capital and bank loans.
Anaconda also installed a major pollution control system in the
course of construction of its aluminum smelter at Sebree, Kentucky.
Funds totaling $10.6 million were made available for this project
through a lease financing with several large institutional investors.
Figure 2—Term Structure of Debt for Primary Nonferrous Metals
Companies, is a bar chart showing the amount of debt by interest rate
and the maturity periods for the companies listed in this section.
2. Trends in Debt Ratio for Leading Nonferrous Metals Companies
a. Introduction
The debt ratios computed for 12 primary copper, lead and zinc companies,
expressed as percent, were computed as follows:
7-47
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
D1 = Debt ratio (percent) = fc^r) x 100, where
D+r*
D = total long-term debt, excluding current installments
E = total shareholder's equity"^
b. Long-Term Debt
Long-term debt for most of the companies whose financial results
were reviewed peaked in 1971 to 1973. By the end of 1974 the long-term
debt of nine of the 12 companies hit a three-year low (see Table 15).
but by mid-1975, several of these companies had large increases in their
long-term debt (Amax, Anaconda, Asarco, Cyprus Mines, Kennecott, Newmont,
and Phelps Dodge). Six of these companies each had long-term debt of
$250 million or more outstanding on June 30, 1975. The seventh, Cyprus
Mines, which in January, 1975, increased its debt by $100 million, had
$115 million (see Figure 3). Engelhard Minerals had $113.6 million,
and the remaining four companies' debt ranged from $33 million to $72
million.
The long-term debt of these 12 companies increased from $1,224 million
at the end of 1970 to $2,014 million by December 31, 1974, and then sharply
rose to $2,944.5 million by June 30, 1975. In January, 1975, three large
debt offerings were made. Asarco issued $150 million in notes and
debentures, Phelps Dodge added $70 million to its long-term debt, and
Cyprus Mines issued $100 million of notes; of these new additions, the
$70 million was for Pollution Control Revenue Bonds. These three January
issues brought long-term debt to $2,334 million by January, 1975.
"'"Note that, if D' = then Debt:Equity = ^ = ^
7-48
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
c. Shareholders' Equity
Shareholders' equity (Table 16) rose from $5,655 million to $7,347
million from December 31, 1970 through December 31, 1974 (30%), and by
June 30, 1975, was $7,458.9, up 1.6% from the December amount.
3. Debt Ratios
The debt ratios of the companies studied appear in Table 17. The
percentage of long-term debt to debt plus shareholders' equity stayed
fairly constant for some companies between 1970-1974. The larger, inte-
grated companies showed more stable ratios than the others. As we have
shown in the footnotes to Table 17, Asarco's, Cyprus Mines', and Phelps
Dodge's ratios for all increased sharply in January, 1975. Figure 1
through 4 show the ratio of long-term debt to long-term debt plus total
shareholders' equity. During the period ending June, 1975, the percentages
for Amax, Anaconda, Asarco, Copper Range, Cyprus Mines, Kennecott Copper,
and Phelps Dodge rose; Engelhard, Gulf Resources, and Inspiration Consoli-
dated fell and Newmont's and St. Joe Minerals' remained fairly constant.
4. Indicators of the Ability to Attract Additional Capital
Table 18 presents long-term debt, long-term debt as percent of invested
capital, and shareholders' equity for the companies as of June 30, 1975.
Also shown are some indicators of ability to attract additional capital.
Only four of the 16 companies had a capital structure that was leveraged
about equal to, or greater than, the overall average for the 550 companies
reported in the Business Week"*" study mentioned earlier.
Several nonferrous metals companies showed a decline in their pre-
tax interest coverage ratios from the average interest coverage ratio
"^Business Week, op. cit.
7-49
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
pretax, 1965-1974. By March 31, 1975, Kennecott, Asarco, Anaconda, and
Phelps Dodge each declined by about 80% of their previous coverage as
expressed by the ten-year average. Business Week reported that the
interest-coverage ratio for the overall average of 550 companies had
slipped to 9.9, and that in the ten years past it was 18.5. Five of
the companies had ratios of ten or more.
7-50
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
G. DESCRIPTION OF THE BUSINESS OF THE MAJOF COPPER PRODUCERS (DETAILS IN
APPENDIX A)
Appendix A was prepared in conjunction with this section to highlight
the nature of each company's business and describe some of the pertinent
features of its operations. Additional information, in the form of
statistical data for the last five (or ten) years, is also presented.
The eleven companies described herein account for typically 95% or
more of U.S. mine output and refinery production.
In general, with respect to primary copper production, Phelps Dodge
and Kennecott are thought to be the lowest cost producers; Copper Range
and Anaconda, the highest cost producers.
These four companies plus Inspiration Consolidated have a heavy
dependence on domestic production of copper in their operations, and in
terms of sales and earnings. On the other hand, Amax, Asarco, Cities Serivce,
Cyprus Mines, Newmont and Pennzoil are more diversified by lines of
business and/or derive significant earnings from investment holdings
in other companies, including foreign mining ventures.
Except for Cities Service and Pennzoil, the major influences on earnings,
from the companies' viewpoints, are nonferrous metals facilities operating
rates and metal prices. These fluctuate much more than annual consumption
or demand. Metal prices reflect the nature of the commodity markets, and
the profitability of all producers is most sensitive to changes in refined
metal prices.
7-51
Arthur D Little. Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX A
DESCRIPTION OF THE BUSINESS
OF THE MAJOR U.S. COPPER PRODUCERS
Arthur D Little. Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
1. Copper Range Company
Copper Range Company, a Michigan corporation, and its subsidiaries,
have since its organization in 1899 been engaged in the business of mining
and refining primary copper in northern Michigan and, since 1931, in
fabricating and distributing copper and brass products. The company is
the seventh largest producer of domestic primary refined copper in the
United States. Sales in 1974 were $97.6 million. Refined copper typically
has accounted for about 61%, fabricated copper products 37%, and other
revenues 2% of sales over the last five years. The company had approxi-
mately 3,600 employees in 1974, but subsequently reduced its work force
substantially due to the recession in 1975.
The company's mine, mill and smelter for producing refined copper
are located in White Pine, Michigan. Its principal fabricating plant is
located in Leetsdale, Pennsylvania, with two smaller plants in Eminence,
Kentucky, and Anderson, Indiana. The mine and mill have a capacity of
25,000 tons of ore per day. The company is a relatively high-cost
producer. The smelter has a capacity of 180 million pounds of copper
per year.
A-l
Arthur D'uttk Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
During the past two years, Copper Range has begun development of a
portion of the White Pine mine known as the Southwest Orebody, in which
ore grades are believed to be higher than those in the area currently
being mined. Achievement of these goals is expected to result in some 70%
of production coming from that area in future years, and in an increase of
approximately 10,000 tons annually int the amount of copper derived from
the White Pine operation because of the higher grade of ore in the South-
west Orebody.
In addition to continued development of the Southwest Orebody, Copper
Range plans to expand its mining operations in future years by mining,
both in the area currently being mined and in other areas, to depths
greater than the 2,200-foot level to which mining is now carried out.
The copper produced at White Pine is Lake Copper whose principal
distinctive characteristic is a natural silver content. It is fire-refined
and cast at White Pine into standard commercial shapes for sale. Copper
Range has fabricating facilities with an annual capacity of 51.5 million
pounds of copper-brass products.
Sales of copper and prices received for the three years fended December
31, 1974 were shown in the following table.
A-2
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
COPPER RANGE COMPANY
1220 1221 1222 1221 197b
Finished Copper Pro-
duction-- tons 67,798 58,63^ 70,^27 78,506 66,896
Average Grade of Ore
Milled--# Copper 1 .077 1.000 1.011 1.002 1 .006
Sales of Copper--tons 64-,255 61,395 68,218 82,103 65,94-7
Average Price Re-
ceived per Pound of
Copper (Net of
Freight) (1) $ .5908 $ .511*+ $ .5050 $ .6106 $ .8183
Cost per Pound of
Refined Copper
Sold (2) $ .4458 $ .5107 $ .5075 $ -52*+7 $ .7000
Sales of Silver--
Ounces(3) 771,123 590,058 699,160 662,837 537,387
Average Price Re-
ceived per Ounce
of Silver Sold(3) $1.7698 $1.5660 $1.5927 $2.34-08 $*f.6937
(1) Includes any premium for silver content.,
(2) Does not include interest expense and certain unallocated
corporate costs not considered material. Includes amounts for
overhead and other indirect costs for the periods indicated as
follows: 1970--$.0515; 1971--$.0616; 1972--$.0^95; 1973--$.0^37;
1974---$.0791,
(3) Average price received is net of tolling and outside pro-
cessing charges. Since this silver is recovered as a by-product,
only negligible costs are allocated to it.
a-3
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
During 1974, approximately 21% of Copper Range's total sales of
refined copper were to Revere Copper & Brass Incorporated and approxi-
mately 16.5% to Anaconda Brass Company ("Anaconda")* During the past
ten years these purchasers have accounted for from 21% to 27% and from
4% to 16.5%, respectively, of Copper Range's total sales of refined
copper. During 1974, 8.7% of Copper Range's total sales of refined
copper were to the Company's Hussey Metals Division ("Hussey") for use
in Hussey1s own fabrication activities. During the past ten years,
between 8.7% and 22.5% of Copper Range's total sales of refined copper
were to Hussey.
Copper Range's copper is sold primarily on a current basis, with
orders generally being accepted only during the month next preceeding
the month of shipment. A contrast with Anaconda American Brass Company
called for the shipment of 2 million and 2.5 million pounds of copper
during each month in 1975, at prices which vary with New York Commodity
Exchange prices. This contract was subject to cancellation or renegotiation
by Anaconda if Copper Range changes its general pricing policy. A second
contract called for the monthly shipment to a foreign customer of between
175,000 and 225,000 pounds of copper through April, 1975, at prices based
upon copper prices on the London Metal Exchange (an eight-month extension
of this agreement was the subject of negotiations).
The silver deposited out during the process of refining the copper
produced at White Pine is sold in the form of concentrate to a refiner of
silver at prices based upon the then current market price for silver,
less a charge to cover the cost of refining the silver concentrate.
A-4
Arthur D Little, Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Pro|ect Officer, since the document
may experience extensive revision during review.
a. Copper Fabrication—Hussey Metals Division
Hussey fabricates a variety of copper and copper-based alloy products
including copper bar and strip sold primarily to the electrical industry,
standard copper sheet for the construction and metal-working industries
and industrial copper strip, plate and sheet 3old principally to the
electrical, industrial equipment, graphic arts and casket manufacturing
industries. It also distributes metal products made by others, including
copper, brass and bronze rods and aluminum sheet and strip.
Hussey purchases refined copper in meltable forms (which must be
cast before being fabricated) and in rolling shapes from copper producers
and from merchants. During the past five years from 1970 through 1974
Hussey purchased from White Pine Copper Comoany approximately 86%, 60%,
62%, 59%, and 26%, respectively, of its total copper requirements (excluding
copper toll-refined for others). The decline in the percentage of Hussey's
requirements purchased from White Pine during 1974 was due, in part, to
Hussey's withdrawal from buying following awards to Hussey of national
stockpile copper from February to May.
During the past five years Hussey's sales to Square D company, a
producer of electrical equipment, have constituted from 6.8% to 11.2% of
Hussey's sales of its fabricated products; during the pafct three years
Hussey's sales to General Electric Company have constituted from 5.5% to
11.9% of sales of its fabricated products. A portion of Hussey's production
represents material toll-refined for others. During the period from 1970
through 1974 toll-refined materials represented approximately 3.1%, 10%,
11.0%, 19.6% and 19.4%, respectively, of Hussey's sales of its fabricated
products.
A-5
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In May 1974, Copper Range adopted a new pricing policy for domestic
sales of primary refined copper, which policy is based on New York
Commodity Exchange prices. Copper Range believed that this departure from
the pricing system used by most other domestic producers offers long-term
advantages to it. For a period of approximately four months after the
adoption by Copper Range of its new pricing policy, that policy resulted
in Copper Range's obtaining significantly higher prices for its copper than
would have been obtained under the system previously used; however, during
the latter part of 1974, the operation of Copper Range's pricing system
resulted in its obtaining prices for its copper significantly below those
which it would have obtained under the method used by most other domestic
producers.
During February, 1976, the Company adopted a new policy for the pricing
of its refined copper under which prices will be determined and published
from time to time based on the Company's evaluation of the market. This
policy replaced the prior system under which Company prices were determined
soley on the basis of New York Commodity Exchange prices.
The natural silver content of the copper derived from the White Pine
mine constitutes a competitive advantage to Copper Range in several markets.
In addition, because of its silver content, such copper is sold at prices
which include a premium of 1/8 cent or 1/4 cent per pound, depending upon
the market on which it is sold. However, the same silver content effectively
precludes the use of such copper in wire mills, the largest single market
for refined copper, because its heat-resistant qualities require the
application of higher temperatures in order to permit such copper to be drawn.
A-6
Arthur D Little, Inc.
-------
COPPER RANGE COMPANY AMD SUBSIDIARIES
HISTORICAL TABLE 1955-1975
>
I
—I
>
3*
C
o
1955

Net Working Capital
Book Value

YEAR
Net
income
Number of
Common
Snares
Income
Per Share—
Adjusted
(0
Funds
Generated
From
Operations
Capital
Expenditures
Cash
Dividends
Paid
Dividends
Per Share-
Adjusted
(')
Total
Per Share-
Adjusted
0)
Total
Per Share-
Adjusted
(1)
Nan Current
Long-Term
Debt
Refined
Copper
Production
(Pounds)
1975
$(13*692,218)
2,543,795
$(S 64)
$(10,927,930)
$10,462,933
$ 878.949
$ 38
$42,965,100
$18 33
$105,184,232
$44 88
$31,269,551
141,551.410
1974
17 947 037
2 343 795
7 66
33 427 160
7 519845
3515729
1 50
70 439 438
30 05
119 755 399
51 09
32 666 703
133 795,919
1973
10 568 656
2 343 795
4 51
25 828 218
5 487 854
-

40919059
20 87
105 324 091
44 94
33 567 779
157 011 226
1972
(6 934 706)
2 343 795
(2 96)
6041,517
4 116 122
-
-
30,280 555
1292
94 755 435
40 43
35 019 677
140,853,407
1971
(5 595 703)
2 343 795
(2 39)
4 895 632
11 929 109
585 870
25
30.267 187
12 92
101 690141
43 39
36 321,457
117 268 854
1970
9 586 M9
2 343 435
4 09
19412680
13 953 454
1 116 426
48
25 680 246
10 97
108 140577
46 18
24 300 000
135 596 115
1969
15 666 075
2 226 065
6 80
24 797 459
12 137 694
1,060 283
45
25 062 978
1074
99 528 970
42 64
27 600 000
156,709 694
1963
9 706 016
2 11 7 804
4 16
17 554 001
14,416 405
1,028 295
44
18018,645
7 73
84 641 250
36 32
33,400 000
147 604 119
1967
614 665
2 054 668
26
7 971 347
18074 371
1 025 393
44
18 664 070
8 03
75 962 056
32 64
35 412 500
101 568 460
1966
8 467 627
2 046 775
3 65
14 503 682
24 611 993
994 231
43
18,111 475
7 80
76 178193
32 82
22 400 000
131 069 202
1965
8 532 708
1 982 169
3 69
13 932 006
5 076,296
236 446
10
29 778 017
12 07
69 351,438
29 96
23 600 000
138 064 322
1964
3 302 035
1 886 625
1 45
8 784 885
3 227 790
-
-
21 525 868
9 48
60 372 823
26 58
24 800 000
118 107,726
1963
3 545 717
1 877 773
1 57
7 229 864
8 721 331
-
-
21 245 272
9 40
57,611 308
25 48
29 642 263
121,996,453
1962
3 299 904
1 877 573
1 46
7 350 579
4 446 070
-
-
25,138 775
11 12
54,906 985
24 28
33 095 731
117 484,025
1961
2 657 639
1 877 473
1 18
6 089 557
3 139 191
-
-
26 470 520
11 71 •
51 605 514
22 83
36,495 731
112 881 034
1960
(1 291 022)
1 877 473
( 57)
2 329 722
2 932 954
938 761
42
26 151,143
11 57
48,947 875
21 65
39 080 731
79.583.493
1959
2 405 095
1 877 473
1 06
6 501 502
1 732 632
938 761
42
31 499 707
13 93
51 177 65B
22 64
42 480 731
74 776,464
1958
2 585 309
1 877 473
1 14
6848 971
883 624
938 749
42
32 852 309
14 53
49 711 324
21 99
46 861,333
86 431,989
1957
2 164 979
1 877 473
96
6 442,864
1,968 d92
1 876 546
83
29,081 421
12 86
48 064 764
21 26
51 448 048
74 938 684
1956
9 155 972
1 875 420
4 05
13 137 932
, 885 351
1,787 984
79
29 110 347
12 89
47 723 992
21 13
51 596 274
80 426 212
9 040 059
1 770 534
4 02
13221.191
3.673 320
621 419
26
26 486 265
11 79
40 361 203
1796
57 850 876
68,137,483
(U Adjusted to rellect 5% stock dividend 12/15/56
3% stock dmdend 12/9/65
3% Slock dividend 12/9/66
3% stock dividend 12/6/66
5% stock dividend 12/S/69
5% stock dividend 12/4/70
"8
5 a
3
1 ^
2 CD
CD
o m
x -o
5? >
3
V) tj
go
3 S
c °
S> >
«¦* 11
O* H
3 3D
5 S
- o
q> 3)
^ H
lil
s 3
2, ®
O u
3 ^
Q_ 8
c r1
5 £
CO 3
O
3 <°
< ^
5 2"
< <0
c/i* s
3 §
5* a.
Q.
o
o
c
3
— n
« §
3- 3
8 i
*+ 3
5"
o
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Copper Range views of the market place is that, with three major
fabricators of copper products in the United States, seven medium-size
fabricators (including Copper Range) and approximately 70 smaller fabri-
cators, competition in this area is principally on the basis of price and
time of delivery; and that Copper Range's facilities are better suited to
the specialized order market for fabricated copper products, which involve
somewhat higher production costs and prices, than to the market for larger,
standard orders. Copper Range believes that Hussey's network of ware-
houses provides it with a competitive advantage of terms of delivery at
Industrial centers.
2. Inspiration Consolidated Copper Company
Inspiration is a domestic mining company and accounts for about 4% of
U.S. refined output. A continusous cast and rolled copper rod-making
facility converts about 65% of Inspiration's copper production into a
fabricated form sold to wire and cable manufacturers.^
As discussed elsewhere, Anaconda has held a significant stock interest
in Inspiration, and supported sale of a larger block to the Anglo
American Group in 1975, the result being that these two groups collectively
hold the majority of Inspiration's stock.
The bulk of Inspiration's mine production comes from relatively low-
cost open-pit operations in Arizona. Revenues were $98 million in 1974,
and included $83 million in deliveries of copper and $15 million in
^Inspiration lists two major customers, Western Electric and Anaconda Wire
and Cable Co., each of whom accounted for more than 24% of total 1972
revenues.
A-8
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
smelting and refining tolls and fabricated product sales.
Total mine production in 1974 was 122 million pounds of copper, of
which some 75% was obtained from open-pit mining. The Inspiration area
mines including heap and dump leaching operations, contributed about 81%,
Christmas Mine 11%, and the Ox Hide Mine's open-pit and heap-leaching
operations, 8%.
Approximately 8% of Inspiration's output is in the form of electrowon
cathode, another 14% from waste dump leaching, and another 18% from pre-
cipitation of cement copper from low grade solutions. These operations
require substantial amounts of sulfuric acid and will be able to utilize
that from the new acid plant which came on stream in 1974, in conjunction
with the new smelter (discussed below).
The average price received for the 112 million pounds of refined
copper delivered in 1974 was 74.5 cents per pound. This was 50% higher
than that received in 1972. Costs before depreciation, depletion, and
taxes were about 44 cents a pound in 1972. The company began depreciating
its new smelter pollution control facilities in 1974, which increased its
average cost by 3 cents/lb. in that year and 4 cents/lb. on the some-
what lower production for 1975; it shows a pre-tax loss in 1975 on
deliveries at 63.3 cents/lb., and lower fabricated product sales.
Reserves at the Inspiration area are estimated to contain nearly 2
billion pounds of recoverable copper; they have been expanded periodically
by inclusion of lower-grade ores as the company becomes able to treat such
ores economically.
A-9
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Inspiration Consolidated
TEN-YEAR REVIEW 1965-1974
(Amounts expressed in thousands, except price and per share figures)

Year
1974**
1973"
1972**
1971
Highlights
Price controls end
April 30. price rises
to 85< by June 5
40-day strike in
3rd quarter,
market weakens
wilh downturn in
U S and foreign
economies Price
drops to 72«
by year end
Rapidly Increasing
demand world-wide
U S prlcfs move
back to 60c celling
In first quarter
U S government
allows Increase lo
68t in December
Pollution
control facilities
ready lor starl-up
at year end
Copper supply
ample, demand
modest until year-
end upturn Smeller
pollution control
facilities and acid
plant under
construction
Strike closes
operations lor
two months
Copper price
(alls to SO 25e
in November
Deliveries of copper

Pounds
111,568
129,732
145,519
108,679
Price per pound"*
74 50$
59 18
50 80
51 98
Proceeds
$83,123
76,774
73,922
56,492
Other operating revenue
14,190
12,605
11,239
9,253
Interest and other income ..
1.134
820
388
441

98,447
90,199
85,549
66,186
Costs, other than those shown
separately below
62,330
58,878
54,564
41,429
Taxes, other than income taxes
6,768
5,793
5,399
4,543
Exploration and metallurgical research
3,697
2,770
2,241
1,679
Selling and general
administrative expense
1,521
1,492
1,227
1,165
Interest expense
3,083
-
-
-
Depreciatio'-
9,836
5,800
5,096
5,036
Depletion
167
221
250
254

87,402
74,954
68,777
54,106
Income before income taxes
11,045
15,245
16,772
12,080
Income taxes
1,576
644
4,592
3,352
Net income
S 9.469
14.601
12,180
8,728
Net income per share
$ 3 92
6 05
5 06
3 63
Average number of shares outstanding
2,416
2,414
2,407
2,407
Dividends
S 6,283
4,829
4,815
4,814
Dividends per share
$2 60
2 00
2 00
2 00
Capital expenditures
$18,751
40,781
27,746
9,809
Stockholders' equity at year end
$91,208
87,948*
77,882*
70,496*
Stockholders' equity per share
$ 37 74
36 42'
32 35*
29 29*
'Restated to reflect adjustment related to settlement ol excavator-collapse litigation
' 'See Management's Discussion and Analysis ol Earnings on page 8
'"1972 and subsequent deliveries are shown at cathode price whereas 1971 and prior deliveries are on a wirebar basis
A-10
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
At the Christmas mine, underground mining was plagued by water inflow
and unstable rock conditions and operations were suspended in 1966; the
open-pit operations have been expanded. The underground operations are
being maintained on a standby basis.
Inspiration's smelter, with a capacity of about 300 million pounds
of copper per year, has typically treated a substantial amount of toll
and custom material from other copper producers' mines, notably those
of Cities Service and Anaconda. This has apparently stood the company
in good stead in regard to financing its new smelter, designed to meet
Arizona emission control standards.
In 1972, Inspiration's plan for meeting Arizona smelter emission control
standards by 1974 called for a new installation costing about $45 million.
Some $13.2 million was to be advanced by a toll customer
to be repaid over the term of a ten-year contract for treating the customer's
concentrates. The balance was being borrowed on bank revolving credit,
to be replaced by long-term debt financing. This smelter complex, involving
a new technology, was a substantial undertaking, relative to the size of
the company: total net plant and equipment was $66 million at the beginning
of 1973 with net working capital of $24 million.
The new smelter came onstream in 1974, at a higher cost than originally
estimated, but having the benefit of favorable external financing. Further
details are presented in the section on Environmental Matters.
3. Newmont Mining
Newmont, a diversified mining investment and operating company, is the
parent of Magma Copper Company. Newmont also owns, importantly, Carlin
A-11
Arthur D Little, I nc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Gold Mining Company, and 91% of Foote Mineral Company, and interests in
petroleum and cement companies. Internationally, it has diverse mineral
interests, notably in Canadian and African mining companies. Total
revenues in 1975 were $516.5 million, and net income $52.9 million, com-
pared to $547.7 million and $113.6 million respectively in 1974. Total
assets are approximately $1.1 billion, of which its investments in companies
owned 50% or less represent nearly $200 million at cost or equity.
Magma Copper Company is the single largest source of Newmont's
income: $189.6 million in sales and $20 million in net income for 1975,
compared to $251 million and $57 million respectively in 1974. Magma is
the fourth largest U.S. copper producer and presently among the more
profitable of the major companies (with estimated average total costs of
between 50c and 60$/lb). Its principal copper properties, smelter, and
refinery are located at San Manuel, Arizona. Another mine-mill complex
is at Superior, Arizona. Magma normally employs about 4,400 persons in
copper mining, smelting, and refining operations.
In Canada, the Granduc copper mine in northern British Columbia is
jointly leased with Asarco. The wholly-owned Similkameen project near
Princeton, B.C., began producing copper concentrates in mid-1972. Newmont
has sold its share of concentrates production at both Canadian properties
for several years to Japanese interests.
O'okiep Copper Company, 57.5% owned, operates several South African
copper mines (Amax has a 17% interest). Dawn Mining Company, 51% owned,
is a medium-size supplier of natural uranium concentrates, from the
Midnite Mine. Resurrection Mining Company, a small wholly-owned subsidiary,
A-12
Arthur DLittleJnc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Newmont Mining Corporation and Subsidiaries
Ten Year Summary

Gross Income:
1975
1974
1973
Sales and other operating revenue
$516,524,000
$547,738,000
$427,780,000
Dividends, Interest and other income
14,367,000
16,043,000
11,894,000
Equity In income ol affiliated companies
12,210,000
40,304,000
38,949,000
Net gain on security transactions (on an Identified cost basis)
13,547,000
740,000
3,400,000

556,648,000
604,825,000
482,023,000
Costs and Expenses.

Operating costs and expenses
414,995,000
366,473,000
276,774,000
Depreciation and depletion
32,342,000
26.098,000
20,056,000
Granduc write-olf
-
12,278,000
—
Exploration and research
11,237,000
15,007,000
15,910,000
Interest expense
20,237,000
17,619,000
18,825,000
Income taxes (current and deferred)
22,197,000
45,227,000
40.072,000
Minority interest
2,752,000
8,517,000
7.010,000

503,760,000
491,219.000
378,647,000
Income before extraordinary items
52,868,000
113,606.000
103,376,000
Extraordinary items
-
-
-
Net Income
52,888,000
113,606,000
103,376,000
Preferred stock dividends
2,578,000
2,833,000
3,181,000
Net Income applicable to common stock
$ 50,310,000
$110,773,000
$100,195,000
Cash Dividends Paid on Cnmmcn Slock
$ 39,358,000
$ 37,858,000
$ 27,289,000
Average Shares of Common Slock Outstanding
24,580,000
24,332,000
24,135.000
Per Shrre of Common Stock Based on the average number of shares
outstanding and after preferred stock dividend requirements

Income before extraordinary items
$2 05
$4 55
$4 15
Extraordinary items
-
-
-
Net Income
$2 05
$4 55
$4 15
Alter full conversion of convertible preferred stock (amount
before extraordinary item in 1972is $1 84)
$2.00
$4 33
$3 92
Cash dividends
SI 60
$1 55
$1 13
Stock dividends
-
-
-
Expenditures for Property, Plant and Mine Development
$ 53,231,000
$ 55,769,000
$ 47,636,000
Stockholders' Equity
$648,331,000
$637,370,000
$564,361,000
A-13
Arthur D Little, Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
has a joint venture with Asarco, which is producing lead and zinc concentrates
from a mine near Leadville, Colorado; production began early in 1971.
Newmont is also engaged in petroleum and natural gas exploration and pro-
duction in the U.S. and Canada.
Newmont now has most of its consolidated assets attributable to
companies in North America. These companies accounted for 97% and 77%
of consolidated net income in 1975 and 1974, respectively.
With respect to financing, Newmont took steps to restructure its
corporate debt in 1972. A loan of $50 million from a leading insurance
company was closed in November 1972, in the form of 12-year notes, with
repayment beginning in December 1978. Simultaneously, the $130 million
revolving credit, placed in 1972 with a group of New York banks, was
restructured. Magma obtained financing for its air pollution control pro-
gram in the form of a $30 million pollution control revenue bond issue,
as discussed in another section.
Newmont1s consolidated long-term debt was 27% of total capitalization
at December 31, 1975, down from a figure near 30% at year-end of 1972.
4. Pennzoil Company (Duval)
Pennzoil engages in oil and gas exploration and production, in pro-
cessing, refining and marketing of oil and gas and refined petroleum
products and in mining and processing copper, molybdenum, potash and
(R)
sulfur. It markets refined products under the name PENNZOIL and
various other trade names. Total revenues were $942 million in 1974 and
$1,082 million in 1975. A five-year financial summary is presented in
the Appendix.
A-14
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
a. Mining
Duval Corporation (Duval), a wholly owned subsidiary of Pennzoil, is
engaged in the mining and processing of ores and minerals, principally
copper, molybdenum, potash and sulfur. It is the fifth largest copper
producer. Mining revenues were approximately $280 million in both 1974
and 1975; mining operations income was approximately $47 million in 1975,
compared to $70 million in 1974, when it represented about one-third of
Pennzoil operating income.
During the past eight years (since the acquisition of Duval by Penn-
zoil through merger with the United Gas Corporation), Duval has spent
more than $419 million for the acquisition and development of new properties
and the installation of new facilities, including more than $49 million
in 1975. The new facilities require Duval to market substantially increased
amounts of its products and to participate in markets, both domestic and
foreign, in which it did not previously participate to a significant
extent.
Metals sales constitute the bulk of Duval's revenues and typically
the major part of gross operating income.
Duval owns and operates three open-pit copper-molybdenum mines in
Arizona and two open-pit copper mines in Nevada, and four concentrating
mills located near its mines. Silver is recovered as a by-product from
all the ore bodies, and gold is recovered as a by-product from the
Nevada ore bodies. Duval's largest mine, the Sierrita Property located
near Tucson, Arizona, is owned by Duval Sierrita Corporation (Duval
Sierrita), a wholly owned subsidiary of Duval. Operations at the Sierrita
Property began in 1971.
A-15
Arthur D Little Inc
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Statistics
PENNZOIL COMPANY AND SUBSIDIARIES
Gross Revenues-In Thousands (A)
Oil and Gas Production (B)
Relining and Marketing
Mining
1975
313,168
518,097
254.308
1974
243,890
441,796
281,425
197L
135,463
282,765
201 723
J_972
103,073
196.603
166.356
1971
94,821
146.931
130,504
Gross Operating Income—In
Thousands(A)(C)
Oil and Gas Production (B)
Retming and Marketing
Mining
164 947
24.310
36,690
121.904
27,202
70,240
45,333
31 617
33,989
38,417
23 356
15 987
33 999
20 272
15 896
Net Crude Oil and Plani Products Produced
(Bbls) (B)
Daily Average
21,143,903 19821 54S 16,983435 15,548 091 14.937 76fi
57,929 54,305 46,530 42,481 40,925
Net Natural Gas Produced (Mcl) (B)
Daily Average
270,315,000 273,360,000 246,435,000 221,396,000 214,800.000
741,000 748,000 675,000 605,000 580 000
Crude Oil and Liquids Processed (Bbls )
Daily Average
18,529 083 17 388,496 13,283.971 12.114,159 11 640078
50,765 47,640 36,394 33 099 31,891
Refined Products Produced (Bbls )
Lubricaling Oils, Waxes and Other
10,993,976
10 492.515
6 356,766
5,307 107
5 135 694
Gasoline and Naphtha
6,885 384
6,361,269
6 257,666
5.981,568
5,884,236
Mined Products Sales—In Thousands

Sulphur—Long Tons
1 787
1,993
1 762
1 400
1 026
Potash—Short Tons
1.043
1,527
1 357
1,109
1 270
Copper-Pounds
313,217
244,689
251,032
282 229
193.215
Molybdenum—Pounds
16,371
20,924
21 965
16 596
10 405
Silver—Ounces
1 805
1.287
1,570
1,621
1 343
Gold—Ounces
19
10
8
13
16
Number of Employees 9,433 9/87 8 872 7,726 7 689
Payroll and Payments for Accounl ol Employees
-in Millions S 146 1 122 8 102 9 84 2 77 2
(A) Without adjustment lor certain intercompany transactions
(B) Includes POGO's entire interest but does not include any amounts attributable to PLATO
(C) Income before interest charges, Federal income tax and outside shareholders' interest
A-16
Arthur DLittk inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Duval's copper concentrates and precipitates are currently sold as
such or are toll smelted and refined by others for redelivery to and
marketing by Duval. Duval has recently completed the physical construction
of and is now in the process of starting up the operation of a CLEAR-
process hydrometallurgical plant near the Sierrita Property for the electro-
lytic production of copper crystals (equivalent to a high-grade blister
copper) from concentrates produced at the Esperanza and Sierrita Properties
and precipitates produced at the Esperanza and Mineral Park Properties.
The patented CLEAR process is designed to create no solid, liquid or
gaseous pollution. The plant is intended to produce 40,000 tons of copper
crystals per year. Design changes and inflation have resulted in higher
costs for the plant and later completion than originally estimated. It is
currently estimated that the plant will cost a total of $43 million,
including capitalized interest and start-up and test costs. The copper
crystals will be marketed as such to refiners and others or will be toll-
refined by others for marketing by Duval.
Most of Duval's molybdenum concentrates are currently treated by
Duval for marketing as molybdenum sulfide or for roasting in Duval's
roasters. The roasted product, molybdenum trioxide, is packaged and
marketed by Duval as technical molybdic oxide. The balance of the moly-
bdenum concentrates is converted into ferro-molybdenum, one of a broad
line of products offered to the steel and foundry industries. In the last
several years, Duval has accounted for about 18% of domestic molybdenum
production (Amax accounts for about 60%, Kennecott and Molycorp most of
the balance).
A-17
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
b. Duval Slerrlta—GSA Contract
In November, 1967, the U.S. General Services Administration (GSA)
and Duval Slerrlta Corporation entered Into a domestic copper production
expansion contract pursuant to the provisions of the Defense Production
Act of 1950 for the development of the low-grade copper-molybdenum
Slerrlta ore body adjacent to Duval's Gsperanza Property. Construction of
facilities were substantially completed In March, 1970. Approximately $181
million was required to develop the original project (not Including the
cost of the expansion project referred to below) of which $83 million was
obtained from the GSA In the form of advances against future deliveries
of copper produced from the property; $48.75 million from commercial bank
loans guaranteed In part by the GSA; $10 million from Pennzoil; and the
remainder from Duval In equity or loans. Duval provides management and
technical guidance to Duval Slerrlta at cost.
The contract with the GSA provided that repayment of advances would
be made by delivery of about 218.4 million pounds of copper to the GSA
prior to June 30, 1975. The advances were credited at the rate of 38
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
agreed to spend not less than $8 million on additional facilities and
guaranteed the GSA an average rate of ore throughput on an annual basis
of not less than 72,000 tons per day. In turn, the GSA and the commercial
banks agreed to permit Duval Sierrita to sell on the open market for its
own account 90% of production attributable to any ore throughput exceeding
72,000 tons per day. The remaining 10% of such production (net of sales
required to meet cash operating expenses attributable thereto) was to be
delivered to the GSA at a fixed price of 38
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
c. Marketing
Duval produced 132,148, 132,594 and 137,956 tons of copper in 1973,
1974, and 1975, respectively. This production accounted for approximately
8% of domestic mine copper production in 1973 and 1974 and approximately
10% of such production in 1975. In 1975 Duval sold 156,604 tons of
acopper by the acceleration of deliveries (65,000 tons) to discharge
Duval Sierrita's obligations under the GSA contract. Substantially all
copper sales during this period were made in the United States.
Asarco currently smelts and refines substantially all Duval's
copper concentrates and precipitates. Under existing arrangements
Asarco purchases a portion of the copper production (in the form of copper
concentrates and precipitates) and smelts and refines the balance on a toll
basis for redelivery to and marketing by Duval. Duval's current sales are
made to a number of wire and brass mills.
Through 1975, Duval's sales of refined copper on the open market were
priced on the basis of the Metals Week wirebar average for U.S. producers,
delivered. Effective January 1, 1976, Duval declared its own pricing basis.
5. Phelps Dodge Corporation
Phelps Dodge (PD) is the second largest domestic copper producer.
Sales and operating revenues in 1974 exceeded $1 billion, of which
approximately 35% was attributable to deliveries from PD's own mine pro-
duction. Net income after taxes was $112.5 million. Both sales and net
income were down substantially in 1975, due to decline in nonferrous metals
demand and prices. The company has approximately 14,000 total employees,
some 50% of whom are associated with primary copper production.
A-20
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Phelps Dodge (PD) is an Integrated producer of copper from mines located
in the United States. It sells part of such copper as refinery shapes or
as rods, and fabricates the remainder of such copper (as well as copper
purchased from others) for sale as wire, cable, and tubular products.
PD also does smelting and refining of copper and rolling of copper rod on
toll for others. Approximately one half of its refinery production in
1974 and 1975 was material under contract for other companies.
PD participates in the uranium market through Western Nuclear, full
ownership of which was acquired in 1971, and is expanding this subsidiary's
uranium mining and milling production capacity.
PD investments include importantly, a 40% equity in Conalco, Inc.,
a large domestic aluminum producer and fabricator; a 16% interest in
Southern Peru Copper; plus various interests in 25 companies in 19 countries
abroad manufacturing wire and cable and related products.
Phelps Dodge fills most of its copper requirements from its own
openpit copper mines at Morenci, Ajo, Metcalf, Arizona; and Tyrone, New
Mexico.
PD produced a record 319.6 thousand tons mine output of copper in
1973; production was lower in 1974 due to strikes and in 1975, due to
reduced demand. Additional capacity has recently been brought in at the
Metcalf mine, at a cost of $194 million to replace the Bisbee operations
and to raise overall capacity to 330,000 tons per year. The Tyrone mine
was expanded in 1972-1973 to 100,000 tons annual production capacity.
In general, Phelps Dodge is thought to be one of the lowest cost
copper producers. The company has reported that production costs per
A-21
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
PpeJPS
aadge
Ten-year Summary of Operations (1966-1975)
(Dollar amounts are In millions except per share figures and copper price)

1975
1974(a)
1973
1972
1971(a)
1970
1969
1968(a)
1967(a)
1966
Phelps Dodge-mined Melalsr

271 7
Copper—thousand tons

249.7
281 3
319.6
305 4
281 2
313.5
284.2
213 2
156 7
Silver—thousand ounces

1,906
2,212
2,564
2,385
2.425
2,647
2,425
1.780
1,203
2,126
Gold—thousand ounces

41
52
68
70
70
82
84
71
48
87
Copper sales—thousand tons

276.6
231 7
324.7
327 7
288.8
270 9
283 5
212.4
157.2
272 3
Copper price—cents per pound(b)

64.2
77 3
59 5
51.2
52 0
58 2
47.9
42 3
38.6
36 6
Revenues and Expenses:

Operating revenues
$
780.8
1,026 1
962 0
765 8
703 6
716 2
628 9
531.7
509.8
554 0
Non-operating revenues

27.4
143
21 2
147
153
17.9
21 1
16 7
17.5
15.5
Costs and expenses exclusive of

464 3
412.5
415 3
395.9
items shown below

636.5
789 0
705 3
554 1
5241
495 7
Exploration and research

23.0
180
149
. 11 9
11 2
82
55
4.3
3.6
3.1
Selling and general

27.7
24.3
19.1
19.4
18.3
administrative expenses

31.9
34 1
32.6
31.0
27 8
Depreciation, depletion and

21 9
195
150
119
135
amortization

35.1
36 6
35 9
34 2
29 1
Interest expense

37.4
24 4
15.8
14 1
87
66
46
25
06
—
Income taxes

(13.2)
36 7
66 7
44 8
39 9
65.1
43 3
31 3
25 6
56.5
Equity earnings (losses) less

(8 2)
(4 3)
(09)
1 0
09

income tax

(11.1)
109
(3 0)

Extraordinary items less

20
48

income tax

—
92
—
—
—

Net Income
$
46.4
121 7
109 0
82 2
75.8
112.8
89 5
64 6
50.9
82.2
Dividends
$
45.2
45 2
44 6
43 1
42 9
42.3
39 3
35 3
34 4
43 1(c)
Capital Outlays:

30 9
Capital expenditures
(
203.2
274 7
178 0
94 2
75 5
89 2
84.7
73 9
55 0
Pre-operating mine development

19.6
14 4
103
11 4
81
46
94
83
3 2
04
Investments

2.8
7.3
5.9
1 6
6.6
03
7 7
5.7
5.1

Per Share

Net income(d)
$
2.26
5 92
5 31
4 01
3 72
5 60
4 43
3.20
2.52
4 05
Dividends

2.20
2 20
2 175
2 10
2 10
2 10
1 95
1 75
1.70
2125(c)
Stock prices (NYSE)—high

40.25
49 88
50 25
44 50
48 00
56 50
52.50
55 75
40 00
41.50
—low

29.00
25 50
38 75
34.38
28 00
34 00
39 13
29 75
31.25
27.13
Average number of shares out-

20,178
20,222
20,285
standing (in thousands)

20,563
20,557
20,526
20,514
20,379
20,153
20,179
At December 31

Net current assets
$
146.5
92 7
2170
213 7
208 5
141.8
137 3
126.6
173 6
215.2
Total assets
1,652.1
1,492.9
1,268 9
1,043 1
988 7
878 5
792 3
652 B
610.1
581.7
Long-term debt

522.5
327 1
281 9
181 3
166 0
86 1
77 2
28 5
27
—
Shareholders' equity

893.3
892.3
815 2
749 3
710 2
662 0
593 9
543 8
509 5
500 1
Per share

43.44
43 38
39 67
36 53
34 62
32.90
29.43
26.95
25.25
24 65
(a) Primary metat production curtailed by strikes
(b) Metals Week average domestic delivered price—wirebars
(c) Includes extra of 42V2? per share
(d) Based on average number of shares outstanding for year
A-22
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Phelps
dodge
Supplemental Schedules (Continued)
SCHEDULE C-PROPERTY, PLANT AND EQUIPMENT
Buildings, machinery and equipment, at cost
Mining properties
Pre-operating mine development
Land and water rights, at cost or less
Less accumulated depreciation, depletion, amortization
Net asset value ...
December 31,
1975
$1,359,110,000
141,671,000
97,679,000
30,522,000
1,628,982,000
446,610,000
$1,182,372,000
1974
$1,187,102,000
231,098,000
78,616,000
28,665,000
1,525,481,000
529,382,000
$ 996,099,000
The reduction in "Mining properties" and related "accumulated depletion" above retlects the closing of the fully depleted
mines at Bisbee, Arizona
December 31,
SCHEDULE D-LONG-TERM DEBT (due after one year)
6% Notes due 1977-1984 ....
71/2% Eurodollar Notes due 1977
7%% Notes due 1978(a)
8V2% Notes due 1985
8 10% Sinking Fund Debentures due 1982-1996(b)
Air Quality Control Obligations
4%% Bond due 1980 (Ajo)
7% Loan due 1977-1987 (Douglas)
5 60% to 6'/«% Series A and B Notes due 1983-2004 (Morenci) (c)
71/.% Installment Sale Obligations due 1979-1982 (Hidalgo)
Other
1975
1974
(a) Subject to optional redemption at par beginning in 1977
(b) Subject to optional redemption at par beginning in 1991 Annual sinking fund
payments of $6,650,000 are required from 1982 through 1995.
(c) Maturities falling due in 1993 and 2003 involve required sinking fund payments
beginning in 1987 and 1994, respectively Maturities falling due in 1994 and 2004
involve required sinking fund payments beginning in 1990 and 1995, respectively
Annual maturities 1976-1980 of long-term debt outstanding December 31, 1975
1978—$54,532,000. 1979—$13,814,000, 1980—$40,891,000
$ 8,000,000
25,000,000
50,000,000
125,000,000
100,000,000
28,000,000
8,574,000
98,700,000
70,000,000
9,235,000
$ 522,509,000
$ 9,000,000
25,000,000
50,000,000
100,000,000
28,000,000
9,082,000
98,700,000
7,300,000
$ 327,082,000
1976-$3,367,000, 1977-$28,407,000,
A-23
Arthur DLttklnc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
pound of copper are lowest at Morenci, which nines the largest quantity
of ore.
All the ore at Phelps Dodge's mines is now sulfide ore. As of
early 1973, Phelps Dodge estimated the copper ore reserves at its properties
at approximately 1.580 billion tons of ore, containing 9.4 million tons
(18.8 billion pounds) of recoverable copper. The Morenci property, the
largest of PD's mines, also holds about 60% of PD's reserves. Additional
properties are undergoing exploration and development,
a. Copper Smelting
Phelps Dodge's copper smelters are located at Morenci, Ajo, and
Douglas, Arizona; and (the new Hidalgo smelter) in New Mexico. Production
of the Morenci mine and most of that from Tyrone is treated at the Morenci
smelter, which has the capacity to treat nearly 1 million tons annually
of copper-bearing materials such as concentrates, ore and scrap. Production
of the Ajo mine, and a portion of the Tyrone production, is treated at
the Ajo smelter, which has the capacity to treat approximately 300,000
tons of new metal-bearing material annually. Production from a portion of
Tyrone, as well as custom material and scrap, is treated at the Douglas
smelter, which has the current capcity to treat approximately 860,000
tons of new metal-bearing material annually. The smelters produce anode
copper—copper which is then shipped to Phelps Dodge refineries for
refining. Metcalf concentrates will be smelted at Morenci. The latter
plant is a custom operation, processing copper for other producers and
treating scrap. The new Hidalgo smelter, completed at a cost of about
$226 million, is expected to begin treating concentrates from Tyrone in
A-24
Arthur D Little; Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
the second quarter of 1976. The smelter is the first in the U.S. to use
the flash process developed in Finland.
Refinery capacity is located at El Paso (electrolytic and fire-
refined) and Laurel Hill, New York (80,000 tons electrolytic and 20,000
tons fire-refined). Wire mills are located in New York (4), New Jersey,
(2), Indiana (2), Kentucky and Arkansas. Tube mills are in California
and New Jersey. A brass foundry is operated in Alabama and interests
are held in 13 foreign fabricating operations.
In 1975 capital expenditures and pre-operating developments at mines,
concentrators, and smelters totaled about $200 million, compared with
about $260 million in 1974. Of the 1975 expenditures, $39.0 million was
spent at Morenci ($56.3 million in 1974), $13.0 million at Metcalf
($64.0 in 1974), $3.4 million at Ajo ($5.9 million in 1974), $2.4 million
at Tyrone ($2.6 million in 1974), $6.1 million at the Douglas smelter
($13.7 million in 1974), and $93 million at the Hidalgo smelter.
This accounts for the bulk of all Phelps Dodge expenditures, the
balance of the order of $20 million per year or so going into the manu-
facturing (fabricating) plants and affiliates.
In 1975, a total of $15.3 million was expended for air quality control
facilities at the Morenci, Ajo, and Douglas smelters ($45.2 million in
1974), and $21.5 million for the related tailings leach programs at
Morenci ($21.6 million in 1974).
Additional information on Phelps Dodge's pollution control programs
is presented in the separate "Environmental" section.
Capital investment in the Hidalgo smelter project was $226.6 million
by the end of 1975, of which $92.9 million was spent during the year.
A-25
Arthur D Little Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Total investment, including the new town of Playas and the 36-mile in-
dustrial railroad linking the smelter with the Southern Pacific system,
is expected to amount to about $240 million.
Phelps Dodge has agreed with Cyprus Mines Corporation to treat at
Hidalgo, beginning in 1978, concentrates from Cyprus' expanded Bagdad,
Arizona, mine. Additional facilities to make this possible, including a
second sulfuric acid plant, are being designed and construction is expected
to begin in the second quarter of 1976. Under this agreement, Cyprus will
lend PD $35 million toward to cost, estimated at $40 million, of the
additional facilities.
Phelps Dodge had $166 million in long-term debt outstanding at
December 31, 1971. Reports to the Securities and Exchange Commission showed
that, as of September 30, 1973, long-term debt had increased to $288
million primarily as a result of the Issuance of nearly $100 million in
Pollution Control obligations. Additional long-term debt and pollution
control financing were obtained subsequently; by year-end of 1975, long
term debt was 31% of total capitalization, the highest among the tra-
ditional copper companies (i.e., excluding the oil companies from the
comparison).
6. Cities Service Company
Cities Service is engaged in finding, producing, manufacturing and
distributing oil, gas, and chemical products. The company's annual
revenues are in the $3 billion category. Employment totals 17,000-18,000.
Its North American Chemicals and Metals group produced the following
tonnages for sale in the last three years:
A-2 6
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CITIES SERVICE
1975 1974 1973
(thousand tons)
Sulfuric Acid
865
850
910
Copper
47
31
40
Iron Products
284
124
217
Zinc Concentrates
9
6
206
Other Industrial
Chemicals
156
161
206
Total sales from North American Chemicals and Metals operations are
now in the range of $140-150 million per year, but representing only about
5% of the company total, and a somewhat higher percentage contribution to
profits. Detailed financial statistics are presented in the Appendix,
a. Copper
The Company conducts extensive operations in the "Copper Basin"
region of Copperhill, Tennessee. Cities Service commenced its activity
there with the purchase of Tennessee Copper Company in 1963. The ore is
mined from five underground mines, and contains 35% iron, 24% sulfur,
1% copper and 1% zinc. Operations are integnated for production of
industrial chemicals and iron products. The values of iron and sulfur
recovered at Copperhill are considerably greater than the copper values
per se. In 1970, a very large expansion and modernization program was
begun, including a new copper smelter, iron ox ide pellet plant and an
additional sulfuric acid plant. Construction of yet another acid plant
was completed in 1975, and completion of two water treatmetn plants to
remove both chemicals and suspended solids from process water is scheduled
for 1976.
A-2 7
Arthur DLittk Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Cities Service thinks of itself as one of the top ten copper producers
in the United States. (It is either 10th or 11th, depending upon how
one views the Cyprus Mines group). In addition to operations at Copper-
hill, a much more extensive copper mining operation is conducted in
Arizona as will be discussed below.
After many years of production, the in-place reserves of the Copper
Cities and Diamond H openpit mines at Miami, Arizona, were exhausted
early in 1975, but leaching operations will continue at declining rates
for several years.
The mine and mill facilities of the Pinto Valley openpit mine near
Miami, Arizona, were completed in 1974 ahead of schedule and at capital
costs slightly below estimates. This represented the largest construction
project in the Company's history. The first division began production in
June of 1974 and the second division in October of 1974. The design
capacity of 40,000 tons of ore per day was reached early in 1974. This
production rate will recover in excess of 60,000 tons of copper annually.
Copper produced in concentrate form will be controlled by the through-
put of new smelter operations of another company (believed to be Inspiration
Consolidated).
Start-up of the Miami East underground mine was expected to begin
in the early part of 1976, but was postponed due to escalated costs and
depressed market conditions. It is believed the production could amount
to 2,000 tons of high grade ore per day in 1978.
A solvent extraction-electrowinning plant to produce cathode copper
at the Miami leaching operation is under construction and should be
A-28
Arthur D Little; Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
completed by mid-1976. This will eliminate the toll smelting-refining
on the major part of copper recovered by leaching.
An active mineral exploration program is being conducted in the
Rocky Mountain area, in Alaska, and in Canada. The objective is to find
deposits of copper and copper-associated minerals.
Sales of fabricated copper products in the form of sheet, strip, and
insulated wire were at record levels in 1974. (Volumes have declined in
the early months of 1975, reflecting the trend of economic conditions).
At the Chester, New York, plant which manufactures insulated wire and
cable for the electric and electronic industries, in 1974, a 50% expansion
was completed.
b. Financing
The Company has used various sources of funds to supply its capital
needs. Earnings and other funds from operations were the major source
providing approximately 60 percent of the funds expended on its diverse
operations recently. Additional funds were obtained from the sale of
$150 million 9-3/4 percent sinking fund debentures and the receipt of
$37 million in interest-free advances from natural gas pipeline companies
to be repaid from future natural gas production. The Company also raised
$48 million by guaranteeing environmental control and industrial development
revenue bonds issued by municipal agencies at favorable interest rates for
construction of facilities leased to the Company. (The obligations under
these leases are recorded as long-term debt in conformity with accepted
accounting practices).
A-29
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CITIES SERVICE COMPANY
LINE OF BUSINESS - SALES AND CONTRIBUTIONS TO CONSOLIDATED PROFITS

1975

1974

1973

1972

1971

SALES
$ Millions
%
$ Millions
%
$ Millions
%
$ Millions
%
$ Millions
%
North American petroleum
2,407 8
75
2,102 5
75
1,382 3
68
1,177 1
63
1,1675
64
Natural gas transmission
226 1
7
203 4
7
174 1
9
170 2
9
157 4
9
North American petrochemicals
273 2
9
272 6
10
2152
11
200 2
11
173 5
10
North American chemicals

& metals
143 4
4
136 6
5
151 5
7
223 6
12
217.6
12
International
137 1
4
74 8
2
59 3
3
45 8
3
42.7
2
Other (a)
13 1
1
164
1
52 2
2
45 2
2
51 2
3

3,200 7
100
2,806 3
100
2,034 6
100
1,862 1
100
1,809 9
100
CONTRIBUTION TO PROFIT
North American petroleum
279 9
97
3122
90
162 2
69
109 7
67
101 6
62
Natural gas transmission
58 8
20
33 3
10
35 0
15
37 2
23
31.8
20
North American petrochemicals
100
3
196
6
20.3
8
186
11
62
4
North American chemicals

& metals
(24 0)
(8)
(21 6)
(6)
6 1
3
103
6
178
11
International
(42 2)
(15)
(193)
(6)
(3 3)
(1)
(1 9)
(1)
—
—
Other (a)
75
3
20 0
6
15 2
6
(10 5)
(6)
56
3

290 0
100
344 2
100
235 5
100
163.4
100
163 0
100
Interest expense
(52 9)

(51 3)

(44 7)

(42.7)

(41 0)

Federal and foreign

income taxes
(99 4)

(89 1)

(55 2)

(21.6)

(175)

Income before extraordinary

credits
137 7

203 8

135 6

99 1

104 5

(a) Includes sundry operations and general corporate income and expenses
Source: 1975 Annual Report
A-30
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CITIES SERVICE COMPANY (Continued)
Summary of Consolidated Financial Data
Staled in millions of dollars except per share data
CAPITAL EXPENDITURES
North American petroleum
Production
Natural gas liquids
Refined products
Alternate fuels
Natural gas transmission
North American petrochemicals
North American chemicals & metals
International
Other operations
Total plant additions
Investments
Total
1975
1974
1973
151 0
182,4
1785
105
69
4 1
38 4
49 7
33 2
92 5
46 4
49
292 4
285 4
220 7
192
166
136
21 3
19.0
125
50 0
90 5
75 1
47 8
28 0
196
52
54
54 9
435 9
444 9
396 4
35
20
58
439 4
446 9
402 2
PROPERTY, PLANT AND EQUIPMENT
North American petroleum
Production
1,354 2
1,253.1
1,1246
Natural gas liquids
229 5
220.7
215 2
Refined products
697 7
696 5
691 2
Alternate fuels
120 9
52 6
55

2,402.3
2,222 9
2,036 5
Natural gas transmission
394 6
379 5
365 4
North American petrochemicals
325 4
309 2
3133
North American chemicals 8c metals
408 2
365 2
281 7
International
68 0
50 8
39 0
Other operations
85 6
84 2
255 5
Total gross investment
3,684 1
3,411 8
3,291 4
Accumulated depreciation and depletion
1,597 4
1,481 0
1,437 6
Total net investment
2,086 7
1,930 8
1,853 8
CAPITALIZATION
Long-term debt
780 1
581 2
6138
Stockholders' equity
1,631 8
1,673 7
1,530 1
Total capitalization
2,411 9
2,254 9
2,143 9
Ratio of long-term debt to capitalization
32 3%
25 8%
28 6%
Stockholders' equity at year end, per share*
60 46
62 25
56 95
Return on stockholders' average equity —

income before extraordinary credits
8 6%
12 7%
9 2%
'Adjusted for 3% stocfc dividend paid in 1974
A-3I
Arthur D Little: Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In 1975, Cities Service substantially completed negotiations for an
agreement to borrow $100 million from the Province of Alberta, Canada, to
help finance development of the Syncrude Canada Ltd. project. The company
renegotiated an expanded $200 million line of credit from a consortium
of banks. The company issued commercial paper during the year; none was
outstanding at year end.
There is a production payment liability on the Pinto Valley orebody
which totaled $107.9 million at December 31, 1975. This was a net reduction
of $300,000 during 1975 as repayment began from a percentage of the
revenues on sale of related copper production.
7. Cyprus Mines Corporation
Cyprus Mines Corporation was incorporated in 1916 in New York. It
operated the Old Dick Mine near Bagdad, Arizona. Cyprus is now engaged
directly and through its subsidiaries and affiliated companies in the
production and marketing of a diverse group of metallic minerals including
copper, lead, zinc, iron ore, silver, and molybdenum; ocean transportation
of iron ore and other basic commodities; the production, processing and
marketing on nonmetalllc minerals, including premium grade talc, kaolin
clays, and cement; and in the manufacture and marketing of wire cable,
tubing and related products for the electrical industry.
Cyprus, through Prima Mining and Bagdad Copper, is a source of over
200 million pounds per year of domestically mined copper.
The company operates principally through wholly-owned divisions and
corporations in which it has a majority interest and management control.
(The two major exceptions are: (1) Marcona Corporation, which is engaged
A-32
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
in iron ore mining [principally associated with Peru] and shipping, is
owned 50% by Cyprus and 50% by Utah International as to voting stock
and 46% each as to equity; (2) Mount Goldsworthy Mining Associates, in
which the company owns and undivided one-third interest in the iron ore
reserves in Western Australia and participates equally with Consolidated
Gold Fields Australia and Utah Development Company in the ownership and
management of Goldsworthy Mining Limited, the contract mining company).
The consolidated financial statements include all of the wholly owned
and majority-owned subsidiaries of Cyprus Mines Corporation (Cyprus).
The majority-owned subsidiaries are the following: Cyprus Anvil Mining
Corporation (Cyprus Anvil, 63%-owned), Cyprus Pima Mining Company (Cyprus
Pima) (50.01%-owned), Cyprus Hawaiian Cement Corporation (Cyprus Hawaiian)
(92.98%-owned), and Cyprus Metallurgical Process Corporation (Cymet)
(90%-owned).
Affiliated corporations which are owned from 25% to 50% are accounted
for by the equity method (wherein Cyprus includes in its investment
account for each affiliate the cost of the capital stock acquired, its
equity in their retained earnings, and advances made). The products,
and profits of Cyprus for the last five years are listed on the next page,
a. Nonferrous Minerals Group
The company's nonferrous minerals group includes the Pima, Bagdad,
and Bruce mines in Arizona; and the Anvil mine in the Yukon Territory
of Canada.
A-33
Arthur D Little; Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CYPRUS MINES CORP.
1971-1975 REVENUES AND PROFITS BY LINES OF BUSINESS
(Dollars in millions)
REVENUES
Nonferrous Minerals
Industrial Minerals
Iron Ore
Shipping
Manufacturing
Other
Subtotal (a)
Add minority interests
Total (b)
1975
1974
1973
1972
1971
$114 1
28%
$132 8
289r
$126 5
32%
$ 96 9
32%
$ 82 9
28%.
38 5
9
34 6
7
25 4
7
20 0
6
18 0
6
1129
28
137 2
39
108 3
28
89 6
30
89 3
31
157
4
18 3
4
20 3
5
153
5
28.3
10
114 6
29
148 7
31
105 3
27
77 6
26
70 5
24
89
2
66
1
50
1
33
1
4.2
1
404 7
100%
478 2
100%
390 8
100%
302 7
100%
293 2
100%
74 8

86 6

69 7

48 8

420

$479 5

$565 0

$460 5

$351 5

$335 2

CROSS PROFIT (c)
AND OTHER INCOME
Nonferrous Minerals
$
30 0
56%
$ 54 7
59%
$ 44 5
64%
$ 27 3
58%
$
27 4
54%
Industrial Minerals

4 6
9
50
5
38
5
35
7

24
5
Iron Ore

2 1
4
(16)
(2)
6,6
9
9 8
21

9 2
18
Shipping

1 6
3
11 0
12
8 1
12
54
12

104
20
Manufacturing

13 2
25
29 1
31
12 0
17
4 9
11

4 4
8
Other

1 9
3
(4 4)
(5)
(4 7)
(7)
(4 0)
(9)

(2 5)
(S)
Subtotal (a)

53 4
100%
93 8
100%
70 3
100%
46 9
100%

51 3
100%
Add minority interests

14 6

41 6

29 7

157

16.9

Total (b)
$
68 0

$135 4

$100 0

$ 62 6

$
68 2

(a) "Revenues" and "Gross profit and other income" are primarily the aggregate of Cyprus' ownership percentage of the revenues
or gross profit of each of the various operations or companies in which Cyprus has an interest of 20% or more
(b) "Total revenues" and "Total gross profit and other income" are the amounts shown in Cyprus' Consolidated Statement of
Income, and represent the amounts defined in (a), above, plus the minority shareholders' interests in the revenues
or gross profit of Cyprus' consolidated subsidiaries (owned 50% or more by Cyprus) consisting of Cyprus Anvil, Cyprus Pima,
Cyprus Hawaiian Cement, and Cymet
(c) "Cross profit" represents sales less all costs oF production, including depreciation and depletion but before charges for general
and administrative costs, interest expense, and income taxes
A-34
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
b. Pima Mining Company
Pima Mining Company, which has been managed by Cyprus Mines Corpora-
tion since its initial development in the mid-1950's, is a California
corporation 50.01% owned by Cyprus. It has accounted for most of Cyprus'
copper production in recent years. The balance of Pima stock is owned
by Union Oil and Utah International, Inc. While essentially a producer
of copper in the form of copper concentrates, Pima also recovers minor
amounts of molybdenity (a molybdenum sulfide) concentrates and silver.
In 1974, the open pit copper mine and the concentrator near Tucson,
Arizona, produced in concentrates approximately 160 million marketable
pounds of copper, approximately one million ounces of silver, plus moly-
bdenite concentrates.
Ore reserves are estimated at approximately one million tons of
contained copper.
Copper concentrates are shipped to two Arizona smelters for smelting
and refining under long-term contracts. (Cf. comments elsewhere re:
Phelps Dodge). About half of the refined copper and the silver are returned
to Pima for sale through normal channels while the balance of the copper Is
sold to one of the smelters and the balance of the silver to the other
smelter. Molybdenite concentrates are sold in the open market.
c. Cyprus Island Division
The old Cyprus Island Division is not considered a material asset of
the company or a foreseeable material contributor to the total revenues
of the compnay, and has essentially been written off.
A-35
Arthur D Little Inc.
-------
DRAFT REPORT — Tho reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
d. Bruce Mine PlviBion
The Bruce Mine Division is not considered a material asset of the
company or a foreseeable material contributor to the total revenues
of the company.
e. Bagdad Copper Corporation
- New Developments
Cyprus Mines Corporation acquired Bagdad Copper Corporation in June
of 1973 In an exchange of stock. Bagdad has sales revenues of about
$33 million and earnings of $3.7 million in 1972. Cyprus' financial
results are restated to account for Bagdad on a pooling-of-interests
basis.
Bagdad had production of 18,000 tons of copper in 1974, and about
14,000 tons in 1975. A major expansion of Bagdad is underway, and
Cyprus states that its proven ore reserves with nearly 1.5 million tons
of contained copper will assure operation at the accelerated rate beginning
in 1977, for about 20 years.
f. Financing Operations
Cyprus' principal expansion effort is the major program of the Cyprus
Bagdad copper operation in Arizona, budgeted at an estimated cost of
$240 million. Completion of the program is scheduled for the end of 1977.
At the close of 1975, $55 million had been spent. To finance the first
stages of the expansion and other smaller projects, in January 1975 Cyprus
sold $100 million of ten-year notes to the public through a group of
underwriters. This was the first public borrowing in the Company's history.
In May, 1975, a $100 million bank credit agreement was made with a group
of seven banks to assure availability of funds in 1976 and 1977 while
A-36
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
the Cyprus Bagdad expansion is being completed. No borrowings under the
agreement have yet been made. The Company is considering alternative
financing which would reduce or eliminate the need for bank borrowings,
g. Foreign Investment
"Extraordinary Losses" as discussed in financial reports of Cyprus
and other mining companies with significant foreign interests, illustrate
the risk of such holdings today. Indeed, the last several years would
suggest the related write-offs are ordinary and not extraordinary.
On July 25, 1975, the Peruvian Government expropriated the iron ore
mining properties and facilities of Marcona Mining Company in Peru. Marcona
Mining Company is a wholly owned subsidiary of Marcona Corporation (Marcona).
Cyprus' underlying share of the book value of Marcona's investment in the
Peruvian properties was approximately $12.9 million which is net of approxi-
mately $10.2 million of income taxes previously provided by Cyprus on
the undistributed earnings of Marcona. Subsequent to the expropriation,
Marcona sustained additional losses which are deemed to be directly associated
with the takeover by the Peruvian Government. These losses relate to
Marcona-owned and chartered vessels which were involved in transporting ore
from the Peruvian mine. Such losses, totaling $5.8 million (Cyprus' share),
have been combined with Cyprus' share of the book value of Marcona's invest-
ment in the Peruvian properties as losses resulting from the expropriations.
Accordingly, Cyprus has written off such losses, totaling approximately
$18.7 million as an extraordinary item during 1975.
U.S. Government officials working together with Marcona management
have held discussions with the Peruvian Government in an attempt to receive
just compensation for the expropriated Peruvian assets and to resolve
A-37
Arthur DLittk Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
proposed additional tax assessments which have been asserted for prior
years. While it is still premature to predict the outcome of these negoti-
ations, any recovery will be recorded as an extraordinary gain when received.
During 1974 hostilities arose on the Island of Cyprus, resulting in
the Company's operations being forcibly halted. The Board of Directors
on December 11, 1974, therefore directed the write-off of the Cyprus
Island Division by the taking of an extraordinary loss in 1974 of the
amount of $4.0 million, consisting of net assets of $10.1 million less income
tax of $6.1 million.
8. American Metal Climax, Inc. (Amax)
Amax is one of the largest diversified, multinational, nonferrous
metals and mineral resources companies. Principal products are molybdenum,
aluminum, iron ore, coal, copper, lead, zinc and potash. It also produces
nickel, plus zirconium and other specialty metals.
In addition to being one of the principal suppliers of refined copper,
lead, and zinc, Amax is the leading producer of molybdenum in the United
States (through its Climax Molybdenum Company), and one of the largest
producers of coal. It has been investing substantial sums in recent years,
particularly in the expansion of its cbal, copper, and aluminum businesses
in the U.S.
In July, 1972, Amax said it would enter the copper mining business in
the U.S. in a two-step transaction in which it would acquire Banner Mining
Company, which owned the Twin Buttes/Pima County, Arizona property then
leased to and mined by Anaconda; and then enter into a partnership arrange-
ment with Anaconda to develop and expand operations at Twin Buttes and
A-38
Arthur D Little, Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
Financial Review quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
AMAX Ten-Year Financial Summary
For the Year*1'
(dollars in millions except per share
amounts)
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
Sales
$1,163
$ 964
$ 566
$ 480
$ 582
$ 474
$ 342
$ 273
$ 356
$ 305
Earnings (rem operations
$145.5
$1158
$ 71 3
$ 48 9
$ 69 3
$ 48 0
$ 38 8
$ 27 4
$ 50 5
$ 46 7
Equity in earnings of Alumax Inc
18.9
173
10 5
7 2
89
120
11 0
93
80
2 1
Interest expense"1
(22.0)
(269)
(210)
(25 8)
(197)
(108)
(85)
(68)
(61)
(43)
Interest and other income, net
41.2
168
159
26 1
22 0
128
10 1
92
80
12 1
Dividend income
19.4
142
80
11 2
142
32 8
28 0
21 9
23 9
22 3
Federal and foreign income taxes
(54.8)
(32 1)
(185)
(125)
(22 1)
(128)
(107)
(44)
(152)
(164)
Earnings before extraordinary
items
148.4
105 1
66 2
55 1
72 6
82 0
68 7
56 6
69 1
62 5
Extraordinary items
—
—
—
(38)
—
-
76
3 5
-
-
Net earnings
$148.4
$105 1
$ 66 2
$ 51 3
$ 72 6
$ 82 0
$ 76 3
$ 60 1
$ 69 1
$ 62 5
Dividends declared on

Preferred stock
$ 9.3
$ 10 1
$ 4 1
$ 34
$ 32
$ 1 2
$ 4
$ 9
$ 1 4
$ 1 8
Common stock
39.0
35 0
33 2
33 1
33 1
31 3
29 4
28 6
28 1
24 3
Total
$ 48.3
$ 45 1
$ 37 3
$ 36 5
$ 36 3
$ 32 5
$ 29 8
$ 29 5
$ 29 5
$ 26 1
Per share of common stock

Primary earnings'"
$ 5.82
$ 4 03
$ 2 62
$ 2 03
$ 2 93
$ 3 47
$ 3 28
$ 2 62
$ 3 06
$ 2 78
Fully diluted earnings'"
5.26
3 74
2 59
2 00
2 83
3 40
3 20
2 55
2 94
2 67
Dividends declared
1.64
1 48
1 40
1 40
1 40
1 33
1 27
1 27
1 27
1 12
Dividends as a per cent of
primary earnings
28%
37%
53%
69%
48%
38%
39%
48%
42%
40%
Book value
$31.72
$27 50
$25 75
$24 54
$23 91
$21 14
$19 97
$1785
$16 13
$14 13
Price range [^h
$ 52%
$ 30 Vi
$ 51 Vi
$29
$ 33 Vs
$27
$37%
$ 25Vi
$ 40
$ 28%
$ 37
$ 29 '/a
$35%
$ 28
$ 38%
$ 28 Ye
$43%
$22%
$ 36 Vs
$ 26%
Price earnings ratio
9-5
13-7
13-10
18-12
14-10
11-8
11-9
15-11
14-7
13-10
Return on January 1, shareholders'
equity
17.7%
15 2%
10 0%
7 9%
12 5%
17 3%
17 9%
15 0%
19 6%
19 8%
At Year-End<1>

(in millions)

Working capital
$ 197
$ 327
$ 339
$ 299
$ 217
$ 191
$ 197
$ 194
$ 172
$ 167
Investments (at book amounts) in

Alumax Inc
130
206
203
218
207
201
185
145
128
98
Africa
90
61
85
79
83
62
52
42
40
38
Other
52
42
50
38
38
35
26
28
21
20
Property, plant and equipment
(net)
1,069
771
574
485
397
332
213
182
173
147
Long-term debt
(401)
(441)
(457)
(391)
(260)
(201)
(190)
(157)
(126)
(108)
Deferred income taxes
(109)
(77)
(64)
(42)
(30)
(27)
(15)
(14)
(14)
(11)
Other
(88)
(49)
(37)
(22)
(3)
(10)
7
7
0
1
Shareholders' equity
$ 942
$ 840
$ 693
$ 664
$ 649
$ 583
$ 475
$ 427
$ 394
$ 352
(1) Previously reported amounts have been restated to include Alumax Inc on an equity basis
(2) Effective October 1,1971, the capitalization ol interest applicable to major construction
projects was extended to include interest on general corporate borrowings, as well as
specific project borrowings Interest capitalized totaled 1974, $17 0 million, 1973, $14 0
million, 1972, $11 6 million and 1971, $3 8 million No interest was capitalized in 1970
and interest capitalized in prior years was not material
(3) Includes extraordinary gains and charges 1971, charge of 16# per share, 1968,
net gain of 33# per share, 1967, gain of 15c per share Arthur D Little InC
A-39
-------
DRAFT REPORT —The reader is cautioned concerning use,
Financial Review, continued quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
AMAX Ten-Year Financial Summary—By Lines of Business
For the Year
(dollars in millions) 1974 1973
Sales-
Molybdenum apd Specialty Metals . $ 240 $179
Base Metals"' .... 607 534
Fuels and Chemicals 206 154
Iron Ore 78 60
RST'" ... 32 37
Total sales'" $1,163 $964
Earnings from operations before income taxes, ex-
ploration and unallocated corporate expenses
Molybdenum and Specialty Metals . $ 41 $ 46
1 Metals ..... 76 47
Fuels and Chemicals . 45 22
Iron Ore 37 32
RST 20 26
219 173
Exploration expenses (37) (33)
Unallocated corporate expenses (36) (24)
Earnings from operations . $ 146 $116
Capital expenditures and Investments
Molybdenum and Specialty Metals $ 140 $ 51
Base Metals 76 110
Fuels and Chemicals 89 64
Iron Ore 33 10
RST ... - 1
Corporate 68 17
Total capital expenditures and investments $ 406 $253
Depreciation and depletion $ 46 $ 37
1972
1971
1970
1969
1968
1967
1966
1965
$114
$108
$145
$155
$123
$106
$123
$111
256
205
276
275
197
141
200
161
137
118
118
36
22
26
33
33
45
39
25
8
-
-
-
-
14
10
18
-

-
—
-
$566
$480
isli
$474
$342
$273
$356
$305
$ 28
$ 28
$ 51
$ 55
$ 37
$ 32
$ 40
$ 39
16
8
11
9
14
9
20
15
23
15
13
0
1
0
4
8
25
23
13
4
-
—
—
—
5
1
8
-
-
—
-
—
97
75
~~96
68
52
41
64
62
(12)
(16)
(14)
(9)
(7)
(7)
(5)
(7)
(14)
(10)
(13)
(11)
(6)
(7)
(8)
(8)
$ 71
$ 49
$ 69
$ 48
$ 39
$ 27
$ 51
$ 47
$ 39
$ 49
$ 29
$ 11
$ 17
$ 25
$ 24
$ 25
10
8
8
15
15
13
9
6
52
36
19
83
4
5
12
7
8
30
24
18
29
14
1
2
8
-
84
-
-
-
-
-
28
6
4
10
11
-
2
5
$145
$129
$168
$137
$ 76
$ 57
$ 48
$ 45
$ 32
$ 28
$ 26
$ 18
$ 18
$ 13
$ 16
$ 14
(1) includes the sale of metals processed from concentrates and scrap materials, tolling
services, sales of copper from AMAX's 50% share of the operations of the Twin Buttes
Mine f'om January 1,1973 and sales of copper and silver arising out of purchase and
sale transactions of these metals on commodity exchanges
(2) Consists of fees, commissions and net trading revenue.
(3) Sales of molybdenum, copper and coal to total Company sales for the last five years were
as follows

1974
1973
1972
1971
1970
Molybdenum
20%
17%
18%
20%
23%
Copper*
17
17
19
16
21
Coal
12
10
16
13
10
' Exclusive of charges for toll refining of copper for others and transactions on commodity
exchanges.
A-40
Arthur DLittk Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
in Pima County, with an expected expenditure exceeding $200 million over
the period 1973-1976. Banner Mining was acquired in 1973, by merger into
Amax Copper Mines, Inc., a wholly-owned Amax subsidiary, in accordance with
the plan of merger and partnership.
The Twin Buttes Mine is now owned and operated by Anamax Mining
Company, the 50-50 partnership between Amax and Anaconda. The $275 million
expansion program is expected to raise capacity from about 75,000 tons/year
to 90,000 tons/year (from sulfide ores) plus 36,000 tons/year from Anaconda's
hydrometallurgical process for producing cathodes from oxide ores.
Amax's subsidiary, United States Metal Refining Company, has operated
(for many years) a copper smelter and refinery at Carteret, New Jersey,
producing refined copper from domestic and foreign ores, concentrates,
blister copper, and copper scrap. The total annual refining capacity of
275,000 short tons consists of 150,000 tons of electrolytic capacity and
125,000 tons of fire-refined capacity.
The Carteret smelter treats blister copper originating largely from
foreign sources, purchased for Amax's own account and on toll for others.
It processes a large volume of scarp, and also treats precious metal-
bearing secondary material and precious metal from primary sources both
for its own account and for others; large quantities of silver and gold
are typically handled.
An environmental control program for the Carteret plant has been
under review by the New Jersey Department of Environmental Protection and
EPA, involving the design and construction of additional control facilities.
A-41
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
This program is likely to involve cumulative expenditures of $12 to $15
million, most of which has occurred.
Amax has substantial U.S. lead and zinc operations, carried out through
wholly-owned subsidiaries. It has a participation in a joint venture for
the operation of a lead, zinc, and copper mine and mill in New Brunswick,
Canada, through Heath Steele Mines, Ltd., of Canada, also a subsidiary.
In October 1969, Amax became a coal producer through the acquisition
of Ayrshire Collieries Corporation. In 1974, Amax ranked as the fourth
largest coal producer in the United States, up from eleventh position at
the time of its entry into the business.
The Appendix presents details on the breakdown of Amax's sales
revenues and consolidated income, by lines of business, for the past ten
years, as reported by the company. Base metals per se, including tolling
services and trading revenues, were $607 million in 1974; they typically
have accounted for somewhat over 50% of total sales, but less than 25%
of operating earnings ($76 million in 1974, out of $146 million total).
Copper sales have accounted for about 17% of total sales in recent years,
and roughly 75% of this derived from scrap and/or foreign blister. Amax
additionally derives revenues from its International Group, including
fees and commissions through RST International, Inc. ($32 million) and
dividends from investments principally in African copper mining companies
($18 million).
In May, 1972, Amax announced its intention to shut down its custom
zinc smelter and refinery at Blackwell, Oklahoma, late in 1973 due to
the inability of the plant economically to meet Oklahoma's air quality
standards.
A-42
Arthur D Little, Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In July, 1972, (two months after this announcement), Amax purchased for
$3 million dollars the electrolytic zinc refinery of American Zinc Company near
St. Louis. Rehabilitation and reactivation of this plant, which was estimated
to cost $20 million, will provide Amax with annual designed capacity of 84,000
tons of special high-grade zinc by 1976. The plant produced 57,600 tons of
zinc in 1974. (Note that in comparison, the Blackwell plant produced 77,000
tons of slab zinc in 1972, such production representing 67% of its rated smelting
capacity).
Amax and Homestake Mining Company are equal partners in the mine-mill-smelter
complex associated with mining of their lead deposits with zinc content, in
Southeastern Missouri. The mine participants sell a portion of their lead
concentrates under long-term and spot contracts. Amax share of refined lead
output was 33,600 tons in 1974; total smelter production, including toll material,
was 134,300 tons.
Zinc concentrates produced by the mine and mill are sold to Amax for treatment
at the zinc smelter, in Sauget, Illinois.
Ore reserves of the project at December 31, 1972, were estimated to be 60
million tons of ore with an average grade of 4.7% lead and 1.7% zinc. The
principal areas to be mined are held under long-term Federal Mineral leases
which call for royalty payments to the United States Government of 4% to 5%
of the actual sales of concentrates and 4% to 5% of the quoted refined metal
price, less smelting, refining, shipping, and selling costs. The profitability
of this mine has been high due to the mining of ore with lead and zinc grades
substantially above the average.
A-43
Arthur D Little Inc
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
a. Amax - Copper Range
As mentioned elsewhere, Amax has held approximately 20% of Copper Range's
common stock, and reached agreement in 1975 for Copper Range to merge with a
wholly-owned Amax subsidiary. The merger was opposed by the Justice Department.
The U.S. District Court for the District of Connecticut upheld major portions
of the Government's position and enjoined any merger or consolidation of the
two companies. In February, 1976, Copper Range and Amax filed Notices of
Appeal to the U.S. Court of Appeals for the Second Circuit from the trial
court's order.
b. Amax - Aluminum Interests
Amax Inc. holds a 50% Interest in Alumax Inc., formerly Amax Aluminum
Company, Inc. Since January 30, 1974, Alumax's outstanding capital stock has
been owned equally by Amax Inc. and Mitsui & Co., Ltd., Tokyo. Mitsui paid
$135 million cash for its 50% interest. In January, 1975, the corporate name
was changed to Alumax Inc.
Alumax produces primary aluminum, semi-fabricated and fabricated aluminum
products, architectural products, secondary aluminum and zinc alloys. It operates
49 domestic plants and warehouses located in 24 states, and 14 foreign plants
and warehouses located in Canada, Mexico, England, Holland, Germany, France and
Sweden.
Sales in 1974 were $464 million compared to $365 million in 1973 and
earnings increased to $35.8 million from $16.3 million in 1973.
Subsequent to the sale of 50% of the aluminum business, Amax has followed
the equity method of accounting for its 100% Interest to January 30, 1974 and
its 50% interest thereafter in the financial statements. Accordingly, its current
financial statements have restated the results for 1973 to include the Company's
equity in Alumax as a separate item and to eliminate sales of $373 million, costs
A-44
Arthur D Little Inc
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
and expenses of $343 million and the provision for income taxes of $12
million. (This restatement had no effect on net earnings).
During 1974, production at the Intalco primary aluminum reduction
facility at Ferndale, Washington (operated jointly with Howmet Corporation,
now a Pechiney Ugine Kuhlman subsidiary), was 252,400 short tons, compared
with 228,000 tons in 1973. Increased prices resulted in record primary
earnings. In 1974, Alumax capital expenditures were $78.7 million. $58.8
million was spent on the construction of an aluminum potline, commenced in
1973, at Howmet*s Eastalco aluminum reduction plant in Frederick, Maryland.
About $50 million was to be spent in 1975 to complete the project. When
completed, the new potline will approximately double the capacity at Eastalco
and Alumax will receive half of the expanded annual production of 176,700
tons per year. The combined facilities will be jointly owned and operated
with Howmet Corporation. Alumax also plans construction in Oregon of an
aluminum reduction plant with an annual capacity of 187,300 short tons.
This new facility will be jointly owned by Alumax and Mitsui.
Supplies of alumina from Alcoa of Australia (WA) purchased under a long-
term contract are believed to be sufficient to meet anticipated requirements
for the Intalco, Eastalco and Oregon aluminum reduction plants.
Long-term rights have been granted to the company by the Government of
Western Australia on bauxite deposits, and Amax has been studying develop-
ment on a joint venture basis.
9. American Smelting and Refining Company (ASARCO)
Asarco's business has, for many years, been in the mining, smelting, and
refining of nonferrous ores and concentrates, producing therefrom principally
copper, lead, zinc, silver, and gold, and recovering related by-products from
such operations. The business also includes buying and processing nonferrous
scrap, and selling the alloys produced; producing and selling coal and asbestos;
a-45 Arthur D Little Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
and producing chemical materials and manufacturing machinery for the metalplating
and finishing industry. Asarco's operations are carried on principally in the
United States with additional operations in Canada, Mexico, and Peru. Asarco
has substantial investments in other mining companies, principally in Australia
(Mount Isa Mines holdings - 49%), Peru (Southern Peru Copper Corporation - 51.5%),
Mexico (Industrial Minera Mexico - 34%), and holds a substantial interest in
Revere Copper and Brass Incorporated (33.4% stock plus convertible debentures).
Sales in 1974 totalled $1,344 million, an all-time high. Earnings before
taxes and extraordinary items were a record $165.8 million, including $109
million ($43 million in dividends) in equity earnings of nonconsolidated
associated companies. A five-year financial summary may be found in the
Appendix.
In 1974, Asarco had approximately 15,300 employees. Employment dropped
to 13,500 in 1975.
Asarco accounts for between 10 and 20% of domestic sales of refined copper,
lead, and zinc, and somewhat more than 1/3 of the sales of refined silver.
Through its ownership of Lake Asbestos of Quebec, Ltd. in Canada, Asarco has
about 6% of the domestic market for asbestos. Coal is its other principal
non-metallic product, and Asarco accounts for about 1% of the domestic market,
through its Midland Coal Company Division, acquired in late 1970.
In March, 1973, Asarco announced plans to phase out production at its
Baltimore copper refinery after 1975. Asarco is constructing a new copper
refinery, with a designed capacity of 420,000 tons of refined copper per
year, in Amarillo, Texas. The estimated cost of the new facility is
approximately $100,000,000. Construction began in mid-1973 and start-up
operations were planned for late 1975 or early 1976. The addition of this
A-46
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
new refinery apparently will also curtail operations at the Company's Perth
Amboy copper refinery.
The associated companies—principally those in Australia, Peru and Mexico—
also have major capital expansion programs under way. Capital expenditures
by the three companies in 1972 aggregated $127 million and exploration
expenditures exceeded $5 million.
In the U.S., Asarco plays a special role as the largest custom smelter
as well as one handling considerable "dirty" concentrates and recovering
special materials (especially arsenic). Asarco has incurred substantial
expenditures for environmental controls associated with its smelters and
refineries, as discussed more fully in the separate section on "Environmental,
Safety, and Health Matters."
The Table on the next page, reproduced from Asarco's Annual Report,
succinctly illustrates Asarco's participation in the nonferrous metals.
Smelters
Refineries
*
Hayden, Arizona (a)
Baltimore, Maryland (a)
*
El Paso, Texas (a) (b)
Perth Amboy, New Jersey (a)
Tacoma, Washington (a)
Tacoma, Washington (a)
East Helena, Montana (b)
Glover, Missouri (b)
Omaha, Nebraska (b)
Amarillo, Texas (c) (a)
Amarillo, Texas (c)
Corpus Christi, Texas (c)
Corpus Christi, Texas (c)
Denver, Colorado (d)
(a) copper, (b) lead, (c) zinc, (d) cadmium, high purity metals.
*
* "k
Closing down, New, expanded
A-47
Arthur D Little, Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
ASARCO & ASSOCIATED COMPANIES' METALS PRODUCTION
COPPER(tu-
LEAD (tons)
ZINC(tons)
SILVER(ounces)

1975
1974
1973
Mint*
Mission
Sacaton
Silver Bell
San Xavier
Granduc*
Quiruvllca
Others
26,900
21,900
18,300
9,700
9,300
6,200
3,600
40.300 .
' 9,500'
' 23,500 '
5.900 ,
, 15,900
7.400
' 4,000
46,600
. 23,800
"V 2,700
16,800
8,400
3,100

Total
95,900
106,500
101,403
Refineries
Tecoma
Perth Amboy
Baltimore
Amarillo
118,700
117,100
41,800
30,600
>117,410 ''
i 127.600
,111,000
020,100
154,600,
• 138,100

Total
309,200
356,003
412,800
Associated
Companies
Mount lsa°
Southern Peru*
Industrial Minera Mexico'
175,800
119,600
35,100'
167,000 v
, 1 '134,400
-.'37,900
• 129,300
133,500'
37,100
MlflM r"
Buchans "
Leadvllle
Others
11,900 ~
7,500
6,000
"i 3,900 7'
I 6.400 -
' 4.400 '
' ""*6.800
f, ".200
' 4,500

Total
25,400
24,700
18,500-
Raflnarlas
Omaha
Glover
118,200
81,900
125,800
<¦72,900 -
. 136,300
82,300

Total
200,100
198,700 .*
218,600
Associated
Companies
Mount l8a°
Industrial Minera Mexico*
Neptune'
146,700
85,600
1,400
<¦139,200- ''
108,200 1 ?'
'i: 3.500 *'
125,100
•\ 56.60Q
'•w 3,000
Mines r
Tennessee
Buchans
Leadville
Ground Hog
Ouiruvilca
Park City
47,900""
19,500
14,100
10,900
4.400
2,700
r""Ts6.40o'"'"
, 23.40C
12,800
12,400
4.700 .
Tr' 29,600
11,500
15.100
13.500
4.900

Total
99,500
109.700
74.600
Zinc Fuming
Plants"

41,800
39,600
46.700'
Zinc Oxlda1
Columbus
Htllsboro
14,000
7,200
20,700
15,400
- 19.200
13.800

Total
21,200
36,100
33,000
Ralinarlea
Corpus Christ)
Amarillo
81,900
20,400
81,100 ,
46,700 '
80,600
46,800

Total
102,300
127,BOO
13= 100
Associated
Companlaa
Industrial Minera Mexico*
Mount lsac
Neptune'
132,700
126,600
11,700 ¦
135,700
113,400
15,700
136.400
112,200
20,600
Mlnea
Galena
Quiruviica
Buchans
Mission
Leadville
Others
3,350,000
1,134.000
611,000
292,000 -
352.000
711,000
3,486.000
1,388.000
741.000
511,000
330,000 '
644,000
4,192,000
1,262.000
" 376,OOC
571.000
457,000
589,000

Total
6,450.000
7,100,000
7,447,0001
Refineries
Perth Amboy
Baltimore
44,576,000
10,679,000
37,835,000
16.947,000
45,255,000
16,130,000

Total
55,255,000
54.782,000 '
61,385,000
Associated
Companlaa
Industrial Minera Mexico*
Mount lsac
Neptune'
17,303,000
11,045,000
98,000
20,770,000
9,690,000 '
72,000
17,225.000
8,803,000
59,000
SOURCE: ASARCO
• Asarco's 50% share ol copper In
concentrates
o Blister output plus copper exported in
concentrates
c Metal content of products (or fiscal yser
ended June 30
d Blister output
• Refined output
A-48
' Motil content ol producu
e Aaarco'a <0% share ol zinc In concentrates
1 Metal content ol zinc fume recovered Iron
lead smelter slag at El Paso and
East Helena
I Metal content ol zinc oxide
k Refined output plus metal content ol
concenuatae and fume sold
Arthur D Little, Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
a. New Foreign Developments^
(1) Southern Peru Copper Corporation (51.5% owned)
SPCC produced 134,000 tons of copper. In 1975, the depressed world market
for copper was reflected in a drop in the average price for copper realized by
Southern Peru Copper Corporation (SPCC) to 54.8c per pound in 1975, from 80.4c
in 1974. Operating expenses increased as a result of the general inflation and
production was plagued by strikes. Mine output of copper was also adversely
affected by a decline in the average grade mined to 1.057% copper in 1975 from
1.243% in 1974.
As a consequence of these factors, SPCC reported a net loss of $9.6
million in 1975 compared with net earnings of $40.5 million in 1974. No
dividends were paid in 1975 or 1974.
A contract was entered into with an agency of the Peruvian government for
the toll refining of the Toquepala blister copper production. At the same
time, a "commercialization" contract was made with Minero Peru Commercial
(MinPeco) where by that government agency markets the total Toquepala copper
production, whether in the form of cathodes or blister copper. Under the
contract, MinPeco takes title to the products .upon delivery on board vessel
for ocean shipment, and guarantees final payment to SPCC in Peru in foreign
exchange coefficients for such export sales.
SPCC is developing the Cuajone ore body and constructing ancillary
facilities under a bilateral agreement with the Peruvian Government dated
December 19, 1969. The 170,000-ton-per-year Cuajone copper project is expected
to start up in 1976 with a production rate in excess of 50% of capacity. Ap-
proximately 7,300 workers were actively employed in construction in 1975.
"^Source: 1975 Annual Report
A-49
ArthurDLittlelnc
-------
ASARCO
>
i
Ul
o
=r
c
The following tables set forth, for the five years ended
December 31,1975, the approximate amounts of
Asarco's (i) consolidated sales and earnings, before
taxes on income and extraordinary items, attributable
to its principal lines of business and (ii) consolidated
sales of principal products and services Sales figures
do not include sales by nonconsolidated associated
companies
Lines of Business
1975
1974
1973
1972
1971
(dollars in thousands)
Sales
Earnings
(Loss)
Sales
Earnings
(Loss)*
Sales
Earnings
(Loss)*
Earnings
Sales (Loss)*
Earnings
Sales (Loss)*
Primary metals (a) S 697,000 S 27,493 $1,067,658 $ 78,927
Secondary metals
Other products (b)
Equity in earnings
of nonconsoli-
dated associated
companies (c)
Non-operating (d)
Unusual items (e)
Total . . .
121,698
185,940
3,340
(4,489)
27,829
(18,309)
(20.500)
192,395 10,706
83,997
824
109123
(3 921)
(29,838)
820,692
137,162
110,585
$ 60,911
1,467
(5,257)
81,184
(7,108)
2 237
S653.706
107,754
52,885
527,754
1,032
(157)
31,382
(3.277)
5512,184
103,587
40,986
$ 8,677
818
800
36 826
2,'"68
SI ¦004,638 S15,364 Si .344 050 S 165.821 51.068.439 S133.434 $814.345 S56 734 $656 757 $49 389
"Restated, see note 2 of notes to financial statements
Sales
1975
1974
1973
1972
1971
(dollars in thousands)
Copper
Silver
Lead . . .
Zinc
Secondary metals
Other products (f)
Total .
S 157,676
17%
$ 290,316
22%
$ 324,671
31%
S263.942
32%
S211,290
32%
252,634
25
285,176
21
174,083
16
110,534
14
96,798
15
81,712
8
143 125
11
110,547
10
67,438
8
60,619
9
85,893
9
120.866
9
75,697
7
56,232
7
57,623
9
121.698
12
192.395
14
137,162
13
107,754
13
103,587
16
295,025
29
312 172
23
246 279
23
208 445
26
126 840
19
SI.004,638 100%
S1 344 050 100u
SI 068 439 100°
S814 345 J0J"o
S656 757 100%
(a) Includes mining, smelting and refining of copper, silver, lead,
zinc and by-products as well as toll treatment charges for
smelting and refining
(b) Primarily coal, asbestos and ilmenite
(c) See note 4 of notes to linancial statements
(d) Primarily dividends and interest on investments (other than those
accounted for by the equity method), patent royalties and interest
expense
(c) See note 11 ol notes to (mondial statements
(f) Includes by-pioducls coal, asbestos, ilmcmlc. etc and toll treat-
ment charges
£ °
< 2.
® o
x J4
T3 =
m 2
CD*
3 =r
s *
(d m
x -o
CD >
3
(/)
So.
3 o
< **
S2. O
O 3
3
Q. 8
c r1
5* 52
(O 3
3 8
< r*
» 2*
s *
Q.
o
o
c
c °
§ 5
M
o
3 3D
$ ™
- O
a* a
H
o
Q.
c
a
§ 3
Q>
o §-
I
(D
2
3 §.
»i
-t (0
5* Q.
— o
§. §
*+ n
3" »
8 i.
*+ 3
-K
^ c
s se
{L
3
o
-------
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
For the Years Ended December 31
ASARCO

1975
1974
1973
1972

(dollars
in thousands)

Cash and Marketable Securities, beginning of year
$ 20,239
$ 19,618
$ 15,097
$ 10,379
Source of Funds:

Net earnings before extraordinary items
25,438
130,365
110,849
47,681
Add expenses not requiring outlay of funds:

Depreciation and depletion
36,484
38,877
26,801
23,928
Deferred income taxes
(2,884)
6,009
(983)
1,138
Estimated loss on plant closings and partial

mine write-off
20,500
29,838
19,700
-
Equity in earnings of nonconsolidated associated

companies
(5,847)
(65,770)
(65,880)
(12,483)
Funds provided from operations
73,691
135,319
90,487
60,264
Investments, net
325
17,806
9,472
232
Current liabilities, other than reserves for

plant closings
(80,842)
38,382
(3,616)
47,794
Long-term debt incurred
232,180
38,370
50,750
16,500
Funds committed to construction
19
2,544
11,873
(14.436)

225,373
232,421
158,966
110,354
Use of Funds:

Inventories
20,243
33,032
(15,450)
(8,527)
Property
167,495
137,666
96,679
66,732
Accounts receivable
(6,691)
(11,112)
37,773
9,456
Long-term debt reductions
6,687
13,580
10,083
3,600
Dividends
28,148
38,103
32,040
32,097
Treasury stock, net
(1,106)
(494)
(318)
2,301
Other, net (including materials & supplies)
(3,763)
21,025
(6,362)
(23)

211,013
231,800
154,445
105,636
Cash and Marketable Securities, end of year
^J34j599
$ 20,239
$ 19,618
$ 15,097
3 8 ¦§ O
3 § I 3>
» S § £
x 3 - 2
S 2
(D O 2
3 3" 2
2 ® -i O
n a a
ct> m "o ^
X "O 2 .
(?>§.'
3 C H
2^0 3-
< o - ^
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
SPCC announced in January 1975 that it had obtained financing for the
Cuajone project of $404 million through 54 lending institutions in Europe,
North America and Japan. The balance of the funds were provided by equity
capital of $216 million from SPCC (88.5%) and Billiton B.V. (11.5%) a
Netherlands company. In November SPCC announced a new capital cost estimate
for the Cuajone project of $656 million and working capital requirements of
$70 million. At year-end $557 million had been invested, and discussions
were under way to arrange for the required additional financing.
A Peruvian joint venture was established to operate the Cuajone project.
SPCC will manage the project. Asarco is committed to invest additional
equity of $10.3 million in SPCC under the terms of an agreement signed in
December, 1974. The investment will be made in early 1976. In addition,
Asarco has agreed to idemnify SPCC against certain losses and expenses up
to a limit of certain future cash dividends received from SPCC.
The bilateral agreement provides that failure to maintain the investment
program or complete the project as scheduled, in the absence of force majeure,
will result in termination of the concession for the Cuajone mine. Reserves
there are estimated at 468 million tons of sulfide ore averaging slightly
over 1% copper.
A Peruvian mining law provides, among other things, that workers of
the mining companies, through "Mining Communities," will acquire increasing
participation in profits and ownership (eventually to 50%) of mining
enterprises. At December 31, 1975 and 1974, such ownership participation
in the Peru Branch of SPCC was approximately 9.0%. Asarco's equity
investment in SPCC and the subsidiary, Northern Peru Mining Corporation
amounted to $154.2 million and $5.7 million, respectively, at December 31,
1975.
A-52
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review
(2) Industrial Mlnera Mexico, S.A. (34% owned)
The investment program in new mines and expansion of the existing
units, and the rehabilitation and modernization of the plants continued at
an accelerated rate and capital expenditures in 1975 were the highest of
any year in the history of the company. The expansion of the Taxco silver-
lead zinc mine was completed in December.
To help finance its expansion and modernization program, Industrial
Mlnera Mexico negotiated $150 million of long term loans with a consortium
of U.S. banks in December. The largest project in this program is the new
electrolytic zinc refinery at San Luis Potosi. Detailed engineering of
the plant, which will have an annual capacity of 125,000 tons of zinc is
*
under way.
Since the 1965 Mexicanization of the company, Asarco has handled the
sales of Industrial Minera Mexico's metals in world markets. These arrange-
ments terminated in 1975.
Asarco received $2.3 million in dividends from Industrial Minera Mexico
ii^ 1975, compared with $2.0 million in 1974.
(3) Revere Copper and Brass Incorporated
Revere reported a net loss of £31.3 million in 1975 compared with net
earnings of $17.2 million in 1974. By far the largest portion of Revere's
loss in 1975 resulted from a writedown of its investment in Revere Jamaica
Alumina, Ltd., a wholly owned subsidiary which mines bauxite and converts
it into alumina in Jamaica. (A decline in shipments of aluminum and copper
and brass mill products in the United States due to the weak economy also
*
As we went to press, Industrial Minera said it plans to invest $286 million
during the next two years in construction, modernization and expansion.
A-53
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
contributed to the poor outcome.) Asarco received $469,000 in dividends from
Revere in 1975 compared with $235,000 in 1974; however, Revere did not pay
any dividends during the last two quarters of 1975.^
In January, 1976, Revere instituted suit in the Supreme Court of Jamaica
challenging the constitutionality of the retroactive bauxite production levy
(equal to about $33.00 per ton of alumina), introduced by the Government of
Jamaica.
10. The Anaconda Company
The Anaconda Company was incorporated in the State of Montana in 1895.
Anaconda is the third largest producer of primary copper, the largest producer
of brass mill products in the United States, and is a significant producer
2
of wire mill products. In addition to mining and processing copper, it has
a significant position in the production of aluminum and the mining and
milling of uranium.
Anaconda conducts its mining, processing and manufacturing operations at
over 50 locations throughout 22 states of the United States, and has 120
sales offices throughout the country. It also has investments in mining,
processing and manufacturing operations in Australia, Brazil, Canada,
Jamaica, Mexico, Puerto Rico and the Netherlands.
The company's 33.4% investment in Revere Copper & Brass Incorporated is
accounted for by the equity method. Under a consent decree with the U.S.
Department of Justice entered into in March 1967, among other things, the
company and Revere were prohibited from having a director or officer who
was at the same time a director, officer or employee of the other, and the
company was, in effect, prohibited from voting its stock except in very
limited circumstances, and from participating in the determination of the
business policies or practices of Revere. In March 1972, in accordance with
the terms of the decree and on application of the company, the decree was
terminated and the action dismissed without prejudice.
Since the termination of the consent decree, Asarco has been studying its
future course of action with respect to its investment in Revere, which
action might include taking an active role in the policies of Revere and/
or increasing, decreasing or eliminating its present holdings.
2
In 1975, Anaconda acquired the WALWORTH CO., one of the leading valve manufacturers.
A-54
Arthur D Little; Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Anaconda employed approximately 21,934 persons at June 30, 1975, compared
to 27,840 persons employed by it at June 30, 1974. (This substantial reduction
in employees resulted from layoffs which were compelled by reduced demand for
Anaconda's products in the recent recessionary economy, together with company-
wide efforts to reduce costs and increase productivity.
a. Sales and Operating Income by Division
The following table sets forth the approximate relative contributions to
consolidated sales and operating income by Anaconda's organizational profit
centers for the six months ended June 30, 1974 and 1975 and the three years
1972-1974. Comparable information for prior periods is not available, primarily
because of the Chilean expropriation and subsequent corporate reorganization
in 1971 (see "Chilean Expropriation.")
b. Copper Production
Anaconda's domestic production of primary copper was 190,059 tons in 1974.
Over the last five years, production ranged from a low of 149,600 tons in 1975
to a high of over 200,000 tons in 1970. Approximately 60% of such production
comes from the Butte Mines in Montana; certain of these operations are being
phased out. The Twin Buttes Mine in Arizona, on the other hand, has been the
subject of new development investments, through Anamax Mining Company, a 50-50
partnership between Anaconda and Amax (see also Amax).
Approximately 49% of Anaconda's mined copper was sold to its manufacturing
divisions in 1973, compared to 58% in 1974 and 72% for the six months ended
June 30, 1975, and the balance was sold to others. Approximately 37%, 41%
and 63% of the copper required for Anaconda's domestic manufacturing operations
was purchased from Anaconda during 1973, 1974 and the six months ended June 30,
1975, respectively, and the balance was purchased from other primary copper
producers, scrap dealers, customers and other sources.
A-55
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The Anaconda Company and Subsidiary Companies
Sales and Operating Income by Division (millions of dollars)
The following table sets forth the contributions to con-
solidated sales and operating income by Anaconda's
organizational profit centers for the four years
1972-1975. Comparable information for 1971 is not
available, primarily because of the Chilean expropri-
ation and subsequent corporate reorganization in 1971.
1975
1974
1973
1972
Sales and other operating revenue:
Montana Mining and General Mining Divisions . ..
$ 278.1
378 5

341.3
341.8
Uranium Division .
24.0
28 6

29 5
18.2
Natural Resource Divisions . . ...
302.1
407.1

370 8
360.0
Aluminum Division
311.2
384.0

276 2
198.4
Brass Division
347.2
616.4

497.3
346.5
Wire and Cable Division
294.1
502 0

390.5
286.1
Walworth Division (Acquired October 1975) .
11.6

Forest Products Division (Sold June 1972) . ...

9.7
24.6
Less sales between divisions
(178.4)
(236 8)

(201.4)
(204.0)
Net sales and other operating revenue
$1,087.8
1,672 7

1,343.1
1,011.6
Operating income (loss):

Montana Mining and General Mining Divisions
$ (.40.7)
41.1

49.9
27.2
Uranium Division
.5
4.5

10.1
5.8
Natural Resource Divisions
(40.2)
45.6

60.0
33.0
Aluminum Division
17.4
48.9

(2.9)
3.9
Brass Division -
(1.8)
30 1

24 9
10.3
Wire and Cable Division
9.2
61 3

23 9
13.8
Walworth Division (Acquired October 1975) . .
.8

Forest Products Division (Sold June 1972) ...

3.6
Unallocated corporate expenses ...
(13.2)
(11 0)

(9-1)
(8-4)
Consolidating adjustments
(.9)
(1 3)

Operating income (loss) ....
$ (28.7)
•
173.6

96 8
56.2
Five-Year Sales by Class of Products (minions of dollars)

1975
1974
1973
1972
1971
Copper and copper products
$ 625.1
1,163.1
960.9
701.3
662.5
Aluminum and aluminum products
335.8
403.8
299.7
220.2
177.0
Uranium oxide ...
24.0
28.6
29.5
18.2
20.4
Other metals, forest products, etc. ..
102.9
77.2
53.0
71.9
86.6
Total
$1,087.8
1,672 7
1,343.1
1,011.6
946.5
Primary Production

1975
1974
1973
1972
1971
Copper (short tons)
149,622
197,543
208,110
242,955
227,415
Aluminum (short tons)
243,591
298,737
217,950
177,618
171,677
Uranium oxide (short tons)
1,736
2,025
2,069
2,022
1,763
Silver (thousands ol ounces)
2,352
3,571
4,256
3,979
3,869
A-56
Arthur D Little; Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review. Th0 Anaconda Company and Subsidiary companies
I Five-Year Summary of Operations
f /LJIIIlAnn a4 nn» pknrA ImnfA*!
(Millions of dollars, except per share figures)

1975
1974
1973
1972
1971
Sales and Other Operating Revenue
$1,087.8
1,672 7
1,343.1
1,011.6
946.5
Operating Costs and Expenses

Cost of sales and expenses
1,065.2
1,448.4
1,200.6
911.3
882.3
Provision for depreciation and depletion ....
51.3
50.7
45.7
44.1
46.9

1,116.5
1,499.1
1,246.3
955.4
929.2
Operating Income (loss)
(28.7)
173.6
96.8
56.2
17.3
Equity in net income of affiliated companies
5.8
16.7
153
100
4.2
Income from Chilean investments ...
9.4
5.4

Interest and miscellaneous income
6.1
5.6
4.8
4.3
1.6
Interest expense .
(32.0)
(29.7)
(23.2)
(21.7)
(25.2)
Gains (losses) on foreign exchange . .
.8
(10.4)

Income (loss) before Taxes and Extraordinary Income
(38.6)
161.2
93.7
48.8
(2.1)
Provision for income taxes
1.2
54.5
24.6
5.4
3.9
Income (loss) before Extraordinary Income (loss)
(39.8)
106.7
69.1
43.4
(6 0)
Extraordinary income (loss)

140.4
17.7
88.3
(347.9)
Net Income (loss) ...
$ (39.8)
247.1
86.8
131 7
(353.9)
Per share of common stock-

Income (loss) before extraordinary income (loss)
$ (1.80)
4 83
3.13
1.97
(.28)
Extraordinary income (loss) . ....

6.36
.80
4.00
(15.89)
Net income (loss) .
$ (1.80)
11 19
3.93
5.97
(16.17)
Dividends paid:

Amount ...
$ 16.6
22.1
11.0
2.7
10.9
Per share of common stock .
$ .75
1.00
.50
.125
.50
Notes.
(a) Reference should be made to the company's previous annual
reports to shareholders for more complete explanations of the
extraordinary income (loss) shown above The extraordinary items
Included' 1971— losses due to the expropriation of Chilean in-
vestments and corporate reorganization costs; 1972—gain on sale
of Forest Products Division's principal assets and Income tax
benefits from utilization of loss carryforwards; 1973—utilization of
tax loss carryforwards, and 1974—settlement of 1971 expropria-
tion loss with the Government of Chile and utilization of tax loss
carryforwards (as more fully explained on page 29 of this report)
(b) Certain changes in accounting practice were adopted during
the five-year period The only changes significantly affecting re-
ported annual earnings occurred in 1972 in the method of trans-
lating foreign currency debt, which resulted in an extraordinary
charge of $5 2 million (24 cents per share), and in 1974 in the
extension of the use of the Lifo method, which had the effect of
reducing income before extraordinary income and net income for
that year by $8 9 million (40 cents per share) and $17.2 million
(78 cents per share), respectively.
A-57
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
c. Copper Processing (U.S.)
- Smelting
Substantially all copper concentrates from Anaconda's mines and
precipitates from leaching operations are shipped to its reverberatory
furnace smelter in Anaconda, Montana for smelting. The Anaconda smelter
operated at approximately 100% of capacity in 1973, 94% in 1974, and at
approximately 96% for the six months eneded June 30, 1975. The current
capacity of the smelter is approximately 33 million pounds per month.
- Refining
All anode copper produced at the smelter in Anaconda, Montana is
shipped to Anaconda's electrolytic refinery at Great Falls, Montana for
refining and casting into commercially marketable forms of refined copper,
and slimes are set apart for recovery of precious metals.
In October, 1974, production commenced at Anaconda's new Arbiter
plant near Anaconda, Montana. The Arbiter plant represents the first
commercial application of a hydrometallurgical refining process in the
copper industry, instead of the traditional combination of pyrometallur-
gical and electrolytic refining processes. A principal advantage of the
new Arbiter process is the elimination of sulfur oxide and other air
pollutants produced by the conventional pyrometallurgical smelting of
sulfur ores. The Arbiter process was developed by Anaconda's metallurgical
research department as a part of a major research effort to reduce pollution.
Anaconda has stated that the Arbiter plant is capable of treating a
wide range of concentrate types and grades with a recovery capability
approximately equal to the most efficient smelters. Capital costs of a
plant using the Arbiter process are estimated to be lower than those of a
conventional smelter and refinery, and it is anticipated that the operating
costs of the Arbiter plant will be competitive with costs incurred in the
A~58 Arthur D Little: Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
conventional method. Anaconda has invested approximately $47 million in the
construction and development of the Arbiter plant as of June 30, 1975.
In July, 1975 the Arbiter plant was temporarily shut down, primarily
because the smelter at Anaconda, Montana has sufficient capacity to meet the
reduced demand for copper. It is expected that the Arbiter plant will be
reopened in mid-1976, after required adjustments relating primarily to materials
handling and mechanical problems. (It is expected that an additional investment
of approximately $8 million will be required for these adjustments). The arbiter
plant is expected to have a capacity of approximately 36,000 tons of cathode
copper production per year.
The Arbiter process yields solid waste in the form of calcium sulfate
(gypsum). Although gypsum is used in the manufacture of building materials,
gypsum waste from the Arbiter process cannot be commercially disposed of at
this time and therefore is being stockpiled.
Anaconda believes that its smelter, refinery and Arbiter plant provide
it with sufficient capacity to produce cathode copper for the foreseeable future,
d. By-Products
Significant sales are produced in the course of Anaconda's copper processing
operations, since the huge tonnages of ore handled by Anaconda mean that signi-
ficant amounts of precious metals are recovered. Molybdenum, an important
ingredient in making ferroalloys, is recovered in molybdenite at the Twin
Buttes Mine. Silver, gold, selenium and tellurium are recovered by other
refineries from the slimes left in the refining plant after the production of
electrolytic copper. As a result, Anaconda's by-product production of silver
makes it one of the largest producers of silver in the United States. Anaconda
received approximately $30.3 million from the sale of precious metals in 1974,
compared with $15.2 million in 1973.
A-59
Arthur D Little: Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
e. Foreign Operations
Among Anaconda's foreign manufacturing interests as a wholly-owned sub-
sidiary, Anaconda Canada Limited, which operates a large brass mill in Toronto,
Ontario. Anaconda Canada Limited had sales of $115,169,000 in 1974, compared
with sales of $98,472,000 in 1973.
Anaconda owns 49% of Compania Minera de Cananea, S.A., which has an
open-pit mine at Cananea in the State of Sonora, Mexico. The Cananea Mine
produced 44,373 metric tons of blister copper during 1974, compared with 41,999
metric tons during 1973. In 1973, an expansion program commenced which is
expected to increase production to approximately 70,000 metric tons of copper
per year by the end of 1976.
Cananea Mine production is concentrated and smelted at Cananea facilities,
and the resulting blister copper is shipped for refining to Cobre de Mexico S.A.
in Mexico City, in which Compania Minera de Cananea has a small ownership
interest.
Anaconda also owns a 40% in National de Cobre, S.A., which operates casting
and brass mill manufacturing facilities in Mexico City, a 49% interest in S.A.
Marvin, which operates a brass mill in Brazil.
f. Aluminum Division
- Bauxite Mining and Alumina Production
- Aluminum
Anaconda produces aluminum in primary forms from alumina at its reduction
plant located at Columbia Falls, Montana, which has an annual capacity of 180,000
tons of aluminum, and its reduction plant in Sebree, Kentucky, which has an
annual capacity of 120,000 tons of aluminum. The Sebree facility was phased
into operation in mid-1973. These plants produced a total of approximately 597
million pounds of aluminum in 1974 and 1973, respectively, and 262 million
A-60
Arthur D Little; Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
pounds for the six months ended June 30, 1975. Approximately 13% of Anaconda's
aluminum production was sold to others in 1974.
Anaconda normally receives 59% of its alumina (the raw material for
producing primary aluminum) from Alumina Partners of Jamaica ("Alpart"), a
joint manufacturing venture in which Anaconda has a 27% interest. Alpart owns
and operates bauxite mines and an alumina production plant in Jamaica, West
Indes. At present rates of production, it is believed that Alpart has
adequate bauxite reserves to meet its anticipated needs for a minimum period
of 20 years. The Alpart plant has a designated annual capacity of 1.3 million
tons of alumina. Anaconda's equity and debt commitments in Alpart, aggregating
$70 million as of June 30, 1975, are almost entirely insured against expropria-
tion and certain other risks by Overseas Private Investment Corporation, a
U.S. Government agency. Of Anaconda's remaining alumina requirements, sub-
stantially all is provided by a contract under which Anaconda has agreed to
purchase 20,000 metric tons of alumina per year through 1986 at competitive
prices.
g. Uranium Division
Anaconda has one of the larger uranium mining and milling complexes extant
in the U.S.
Uranium ore produced from the Jackpile and Paquate mines is processed into
uranium oxide at Anaconda's Bluewater plant near Grants, New Mexico. The plant's
current milling capacity is approximately 2,500 tons of ore per day. Production
of uranium oxide during the five years ended December 31, 1974 and the six
months ended June 30, 1975 was about 23 million pounds U^Og. Delivery
commitments 1976-1980 are expected to approximately equal this amount.
h. Chilean Expropriation
Anaconda suffered from the expropriation of its Chilean properties in
July, 1971. The Chilean copper mines provided, it is believed, over 40% of
A-61 Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Anaconda's 1970 earnings and an even greater proportion in prior years. In
connection with the expropriation, which has been well publicized, Anaconda's
financial statements showed large write-offs, (accounted for as an extraordinary
loss) tax credits, and tax-loss carry forward efforts, offset in subsequent
years by insurance and Chilean settlement adjustments and their corresponding
tax effects. Because of their magnitude, one has to proceed carefully in
examining Anaconda's financial results and restatements in order to properly
view the company's financial picture.
Because of their importance, we reproduce below the company's comments on
its Chilean notes and 0P1C insurance claims.
On July 17, 1975, a panel of three independent arbitrators held the
Overseas Private Investment Corporation (OPIC, a U.S. Government Agency) liable
to Anaconda under two contracts insuring against the expropriation of Anaconda's
investments in the Chuquicamata and El Salvador Chilean mining properties. The
arbitrators' award did not specify the amount OPIC must pay Anaconda, but left
this matter to be determined by further proceedings. OPIC has since moved in
federal court to have the award set aside, on the basis of an alleged appearance
of partiality in the arbitration panel. (In September 1975 one member of the
three-man panel became associated with a law firm that in the previous winter
had assisted Anaconda's trial lawyers with respect to the preparation of an
affidavit about foreign law—an affidavit that ultimately was not used in pre-
senting its case. While the arbitrator in question has stated that he had no
knowledge of these circumstances until after he became associated with the firm,
OPIC nevertheless argues that the impartiality of the panel has been placed in
question). In the company's view, OPIC's contentions are without merit, and
the company has moved to have the award confirmed.
The July 17, 1975, award was the outgrowth of the binding arbitration
of Anaconda's 1972 claims against OPIC for $159 million. In connection with
A—62
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
the ultimate recovery by Anaconda against OPIC, OPIC will have the right to
succeed under the insurance contracts to a percentage of the proceeds of the
1974 settlement with the Government of Chile of approximately $253 million,
of which $65 million was received in cash and $188 million in U.S. dollar
promissory notes of Corporation del Cobre (Codelco), a Chilean public corporation.
The notes, which after Chilean income tax yield six percent, are payable in
equal semi-annual payments from February 1975 through 1985, and are guaranteed
by the Central Bank of Chile. The precise nature and amount of OPIC's interest,
the dollar value of which would be less than the dollar value of Anaconda's
recovery from OPIC, is not now determinable, since it is included among the
issues to be determined by further proceedings. Accordingly, at December 31,
1975 and 1974, Anaconda valued its Chilean investment at no less than the amount
of the currently outstanding Codelco notes together with accrued interest less
Chilean income taxes.
In 1974 extraordinary income included $93.6 million (before $44.9 million
of related tax effects), representing the excess of the 1974 settlement with the
Chilean government over the aggregate amount of insurance claims pending against
OPIC.
11. Kennecott Copper Corporation
Kennecott together with its subsidiaries is an integrated producer of metals,
minerals and metal products, principally copper and copper products. It is the
largest domestic producer of copper and an important source of molybdenum, gold,
silver, lead, zinc, titanium slag, high purity iron and iron powders. Peabody
Coal Company ("Peabody"), a wholly-owned subsidiary of Kennecott, is the largest
domestic producer of coal and also the largest supplier of steam coal to the
electric utility industry in the United States. Kennecott is required by an
A-63
Arthur D Little: Inc
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
order of the Federal Trade Commission to divest itself of its interest in
Peabody.
Kennecott's sales of metals and metal products were $1,160 million in
1974 and primarily as a result of a depressed copper market, declined to
$769 million in 1975. The average price received in 1975 was 61.2 cents/
pound, compared to 76.7 cents/pound on much larger tonnage in 1974.
Tables K-l and K-2 show a breakdown of Kennecott's sales and income
by principal category. Income is before income taxes, minority interests
and extraordinary items. Kennecott's pre-tax operating income from its metals
mining and metals products sales (excluding dividends and Interest items) was
about $233 million in 1974; such operations produced only a few million dollars
operating profit (before write off of a Chase Brass and Copper fabrication
plant) in 1975, when Kennecott's copper mining and fabrication businesses were
at essentially a break-even level (Kennecott's copper mine production was
at about 70% of economic capacity).
Additional statistics and financial information may be found in the
Appendix.
Kennecott's net earnings before taxes and before equity in net income of
Peabody Coal Company, and before minority interests and extraordinary items,
was $229 million in 1974 (and a loss of $52 million in 1975); Kennecott made
provision for $17 million current and $28 million deferred U.S. income tax,
and $11 million current and $1 million deferred foreign income taxes, for a
total of $56 million before extraordinary items.
It is instructive and relevant for purposes of cost and rate of return
analysis to note that the total tax credit in 1975 is more and the total tax
expense in 1974 is less than the amount which would be provided by applying the
A-64
Arthur DLittlei Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
the U.S. income tax rate of 48% to (loss) income before tax. The reasons for
the differences, expressed as a percentage of pretax (loss) income, are as
follows:
1975 1974
Computed "expected" tax (benefit)
expense ............ (48.0%) 48.0%
Minimum tax 6.6 2.9
Percentage depletion (13.7) (16.9)
Investment credit (9.5) (2.1)
Peabody tax benefits, principally
attributable to percentage
depletion and investment
credit (11.8) (8.7)
Other (.8) 1.4
(77.2%) 24.6%
Kennecott's subsidiaries include Chase Brass Copper Co., and Ozark
Lead Company. Chase is a leading fabricator of copper and brass mill products;
it buys a large portion of its copper from Kennecott, accounting for about 10%
of Kennecott's copper sales. Profit margins are typically low in this part of
the industry; in fact, Chase showed a loss in 1971 and 1972, and 1975.
Kennecott also holds two-thirds of Quebec Iron and Titanium Corporation.
(Gulf & Western/New Jersey Zinc have minority interests).
Kennecott opearates four copper properties in the United States. Kennecott's
Utah Copper Division mine in Bingham, Utah, is the second largest copper producer
in the world, ranking next to Chile's Chuquicamata mine. (The El Teniente mine
in Chile is the world's largest underground copper mine). Most of the blister
copper from the Utah smelter is refined at the company's electrolytic refinery
at Garfield, with an annual capacity of about 200,000 tons (somewhat less than
Utah's production capability). Construction continued during 1975 on smelting
facilities required to meet sulfur dioxide emission standards. The new
Arthur D Little: Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
facilities are expected to be operational in 1977, and (as discussed elsewhere)
when completed the Magna smelter complex, together with Kennecott's other
capacity, is thought to provide the company sufficient smelter capacity for
at least the next several years.
The Chino mines Division comprises the Chino mine at Santa Rita, New
Mexico, and a concentrator and smelter at Hurley, New Mexico, nine miles away.
The Chino mine is an open-pit operation. The Ray Mines Division operates an
open-pit mine at Ray, Arizona. The ore is concentrated and smelted in company
facilities at Hayden, Arizona.
The Nevada Mines Division has the smallest copper production (less than
10% of the total). It was shutdown due to a smelter furnace accident in the
third quarter of 1975. Then, the mining and milling operations were curtailed
indefinitely in early 1976, because of market conditions.
a. New Mines Development
Development work on a potential copper ore deposit beneath the perimeter
of the Utah Copper Division's Bingham Canyon open pit mine continued during
1975, and development work in this area is scheduled for completion by 1981.
Design engineering continued in connection with future operations of a
small copper mine near Ladysmith, Wisconsin. The mine could be in operation
by 1978 with estimated annual production of copper in concentrates of 11,000
tons.
b. Exploration
Among other prospects, development of the San Foil, Washington, prospect
yielded data indicating that copper and molybdenum concentrates of satisfactory
grades can be produced; studies indicate potential for substantially increasing
the current 140 million tons of reserves with little or no increase in stripping
ratio.
A-66
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE K-l
KENNECOTT REVENUE ANALYSIS
(in millions of dollars)
Kennecott Revenues 1975 1974
Copper and Copper Products $506.9 $ 876.3
Molybdenum 20.0 30.1
Gold 40.4 45.8
Silver 14.3 10.0
Lead and Zinc Concentrates 30.7 41.2
Titanium Slag 54.5 50.1
Sorelmetal 78.3 68.8
Iron Powders 10.1 11.4
Other Products 13.4 26.2
Dividends, Interest and Miscellaneous
Revenue 15.2 15.5
Sale of 925,000 shares of Kaiser Aluminum
& Chemical Corporation common stock 19.4
Total $803.1 $1,175.7
Peabody Coal Company Revenues
Coal $705.9 $ 504.1
Dividends, Interest and Miscellaneous
Revenue 17.5 10.8
Total $723.4 $ 514.9
SOURCE: Kennecott's 1975 Annual Report.
A-67
Arthur D Little, Inc.
-------
TABLE K-2
SALES AND INCOME BY LINE OF BUSINESS, 1972-1974
(In millions of dollars)
Twelve Months Ended December 31
1974
1973
1972
Kennecott Copper Corporation Business Category
Metals and metal products
Non-operating income3
Non-operating deductions
Coalb
Non-operating income
Non-operating deductions
Shutdown expenses during strikes
Other non-operating income
Other non-operating deductions
Sales
Income
Sales
Income
Sales
Income
$1,160.1 $
504.1
248.7 $1,013.8
7.3
(1.4)
23.5
12.3
< 6.5j
(12.8)
7.9
(28.7)
381.3
236.2 $
5.6
(1.6)
(3.6)
18.2
(7.5)
(.4)
6.6
(29.1)
800.9 $
344.4
117.7
9.6
(1.6)
10.2
8.3
(2.8)
(4.0)
2.3
(32.6)
TOTALS $1,664.2 $ 250.4 $1.395.1 $ 224.5 $1.145.3 $ 107.1
NOTES: aIn 1970 a substantial portion of non-operating income resulted from dividends and interest received
from Sociedad Minera El Teniente S. A. in which the Company held a 49% equity interest. The
Company's interest in El Teniente was expropriated by the Government of Chile during 1971
^(see "El Teniente" infra).
Sales and income exclude revenues applied against a reserved production payment.
3 O
< I
X I
¦g
3
A CO
3 3-
(D m
X -D
$ >
3
c/» TJ
S 3
c °
° 2
n
o' H
3 30
_ o
3 3)
"5 H
8.
c
o
CD
3
<

O
Q.
CD
(/)
o

o
3

2".

Q.
8
«/»"
s
C

3
s
3
Vt
O)
o
(O
3
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
KENNECOTT COPPER CORP.
Copper Statistics
Metal Mining Division Production—1966-1975 (U. S. and Canada)
Year
Copper
Ore Mined.
Milled and
Treated
(000 Net
Tons)
Material
Removed
to Dumps
(000 Net
Tons)
Copper
Produced
(Net Tons)
Grade
ol Ore
Mined
(Per-
cent
Copper)
Molybdenum
Produced
(000
Pounds)
Gold
(Ounces)
Silver
(Ounces)
1975
44,158
170,280
288,104
.716
8,833
256,049*
4,852,418
1974
62,093
194,676
402,213
.714
10,316
280,561
3,619,922
1973
66,542
179,590
471,721
.766
14,288
342,284
4,246,543
1972
58,493
163,978
460,576
787
15,041
350,080
4,335,074
1971
59,332
157,689
456,142
796
18,460
340,636
3,711,141
1970
68,555
179,759
518,888
.773
23,123
404,141
4,338,730
1969
66,698
164,648
495,968
.749
21,471
442,339
3,863,239
1968
47,249
120,154
378,215
747
17,023
290,594
3,229,258
1967
33,829
69,923
289,016
.778
9,853
214,689
2,769,292
1966
57,921
132,606
454,044
792
15,577
387,727
4,763,348
The method ol reporting production lor gold and silver was changed in 1975 trom a smelter to a refinery basis in connection with the implementation ol a
LIFO method ol accounting In the above table rehned output o( gold and silver is shown tor 1975 in conlrnst to previous years where smelter produclion ol
gold and silver is shown Because of this change in reporting and the lag between the smelting and refining processes. 1975 production of gold and silver
was 28,163 ounces and 1,002,912 ounces respectively
Copper Production (by Operating Division) 1975-1974
Total Copper Produced from All Sources Ore Mined Milled and Treated Grade of Ore Mined
Divisions (Net Tons) (Net Tons) (Percent Copper)
1975 1974 1975 1974 1975 1974
Chino Mines
53,193
60,557
5,297,820
7,638,638
.855
.861
Nevada Mines
21,393
37,562
4,849,672
7,455,476
.721
775
Ray Mines
42,036
74,764
6,692,267
11,721,547
1.023
1.043
Utah Copper
171,482
229,330
27,318,000
35,277,300
.613
652
Total
288,104
402,213
44,157,759
62,092,961
.716
766
A-69
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
KENNECOTT COPPER CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December31,1975 and 1974
1975 1974
Assets: (Note 1)
Current assets:
Cash $ 41,449,214 $ 36,168,834
U S. Government and other short-term securities, at cost (approximates market) 4,800,565 47,863,636
Accounts receivable 124,718,366 133,381,135
Inventories
Ores, concentrates, metals and metal products 189,059,357 147,786,624
Materials and supplies 86,142,416 87,550,235
446,169,940 452,773,454
Investment in Peabody Coal Company and Subsidiaries 905,033,449 835,252,344
Investments 96,232,559 97.041.680
Deferred charges, prepayments, etc 20,934,133 8,057,685
Deferred mine development at cost, less accumulated amortization 13,754,545 13,216,440
Mining land, plants, equipment and other properties, at cost, less accumulated de-
preciation. depletion and amortization 741,572,515 659,739,943
$2,223,697,141 $2,066,081,556
Liabilities:
Current liabilities
Notes payable $ 23,645,021 $ —
Current portion of long-term debt 23,739,792 4,315,400
Accounts payable and accrued expenses 114,767,040 111,251.776
Taxes accrued 21,773,955 100 325,249
183,925,808 215.892,425
Long-term debt 406,387,048 206,049,585
Deferred U. S and foreign taxes 132,000,000 140,900,000
Sundry reserves and deferred credits 50,328,459 26,615.399
Minority interests in consolidated subsidiaries 40,633,485 33,340,651
Capital:
Capital stock, $5 par value, authorized 50,000,000, outstanding 33,159,153 shares 165,795,765 165,795,765
Capilal surplus 102,280,751 102,273,395
Earned surplus 1,142,345,825 1,175,214,336
$2,223,697,141 $2,066,081,556
A-70
Arthur DLittletlnc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Outside the United STates, Kennecott is conducting exploration Eor
porphyry and massive sulfide copper deposits notably in Canada, Indonesia,
Australia and the Philippines. Exploration work at the Ok Tedi copper
deposit in Papua New Guinea, necessary to determine whether the ore body
justifies a major investment, was discontinued because certain terms and
conditions required by the Papua New Guinea government were judged to be
too severe for a high-risk project.
c. Divestiture of Peabody Coal Company
Kennecott, by order of the Federal Trade Commission, is required to divest
itself of Peabody, which it acquired in 1968. In 1974, the Supreme Court
declined to accept the company's petition for review of the case.
In 1975, the $300 million reserved production payment subject to which
Kennecott acquired Peabody, was finally liquidated. In an effort to retain
Peabody, in July Kennecott petitioned the FTC to reopen the proceedings and
modify its divestiture order "in view of the realities of the state of
competition in the coal industry compared to the conditions forecasted by
the FTC." The Commission denied the petition by a 3-2 vote. In October
Kennecott filed a motion in the U.S. Court of Appeals for the Tenth Circuit
requesting reconsideration and elimination of the divestiture requirement.
(The brief filed by Kennecott attempts to demonstrate that competition in
the coal industry has been substantially enhanced since the original decision
in the matter and that the Commission's predictions of increasing concentration
in the coal industry have not materialized). The Court has not yet acted on
the motion.
Kennecott has been considering several offers from prospective purchasers
of Peabody (all at a price in excess of its investment).
A-71
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Interestingly, two other natural resources firms with copper interests
submitted bids for Peabody: Cities Service and Newmont Mining. Cities
Service has withdrawn its conditional bid, and Newmont's offer is in the
form of a bid on behalf of a group of various companies including Newmont.
Kennecott recently indicated it was considering selling only a portion of
Peabody, and spinning off the rest to Kennecott shareholders. According to
its Annual Report, Kennecott's Board has not made a final determination as to
the preferred means of divestiture. When such determination has been made,
FTC review and approval of any such plan will be required. Kennecott's
intention in connection with certain possible forms of divestiture of Peabody
such as spin-off is that "a substantial portion of the $532 million capital
contributed by Kennecott to Peabody will be repaid to Kennecott."
In 1975 and in prior years, deductions for tax purposes of mining costs
attributable to the production of coal dedicated under the reserved production
payment agreement entered into in connection with the acquisition of Peabody,
in excess of deductions that Peabody could have used on a separate company
basis, have been utilized by Kennecott in its consolidated federal income
tax return. Deferred income taxes relating to those deductions have been
provided in Kennecott's financial statements. In addition, Kennecott has
utilized, in the year they arose, percentage depletion deductions and
investment tax credits generated by Peabody of which Peabody would not have
been able to avail itself on a separate company basis. In the event of the dis-
position of Peabody, deferred taxes provided by Kennecott with respect to
the utilization of certain tax deductions generated by Peabody would no
longer be required and would have the effect at the time of disposition of
reducing Kennecott's investment in Peabody. (At December 31, 1975, the
amount provided and included in deferred U.S. and foreign taxes was $71.3
million).
A-72
Arthur D Little, Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
d. Capital Expenditures and Financing
Capital expenditures for property, plant and equipment by Kennecott
(excluding Peabody) increased 39% in 1975 to $133.4 million from $95.7 million
in 1974. More than half of this amount related to pollution control facilities.
Sharply lower internal funds generation resulted in the need for substantial
outside financing during the last year. (In a "normal" year, Kennecott could
look forward to a cash flow from its copper business equal to roughly its record
capital spending in 1975).
As far as its financial capability to have funds available for expansion
and improvement of its basic copper business, including necessary pollution
control expenditures, it is obvious that in the short-run this can be very
significiantly altered by the disposition of its ownership and equity in Peabody
Coal operations. The indications are that, in terms of a flow of funds, Kennecott
could be much more liquid in the near future, either from receipt of cash from
Peabody's sale, or from retention of Peabody, now that the reserved production
payment no longer has a claim on its revenues.
By entering into a $200 million term loan agreement with banks, and incurring
a $20 million liability for pollution control revenue bonds issued (at 7-3/8%
interest rate) by the Town of Hurley, New Mexico, for facilities at Chino Mines,
Kennecott increased its long term debt by $220 million in 1975. It ended the
year with $406 million in debt, out of total capitalization of $1,857 million;
it reported $262 million in net working capital, up about 10% from the previous
year. Debt repayment 1976-1980 averages about $41 million per year.
e. Chilean Expropriation Effects
As in the case of Anaconda, Kennecott's financial picture is complicated
(further) by its Chilean holdings and claims: Kennecott1s 49% interest in
A-73
Arthur D Little Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Sociedad Mlnera El Teniente, S. A., a Chilean corporation which owns and
operates the El Teniente copper mine in Chile, was expropriated by the
Chilean Constitutional Reform Bill, which became effective in July, 1971.
In prior years, Kennecott received over $20 million per year in dividends
from El Teniente. Kennecott's investment in Chile was carried at $143.3
million at December 31, 1971. $84.6 million of El Teniente Mining
Company notes was the subject of a Contract of Guaranty with the U.S.
Overseas Private Investment Corporation. In 1972, Kennecott received a
$64.9 million settlement of its expropriation insurance claim, and wrote
off (as extraordinary loss) its $50 million ($26 million after tax effects)
equity in El Teniente stock.
In 1974, Kennecott and the Chilean Government reached an agreement
pertaining to the 1971 expropriation. The aggregate compensation agreed
upon, consisting of equity, dividends and interest was $81.4 million less
Chilean taxes of $13.4 million. The net amount of $68.0 million consisted
of $61.5 million in Chilean notes and the balance, cash.
U.S. taxes, net of foreign tax credits, amount to $25.7 million,
leaving a net recovery of $42.3 million reported as an "extraordinary credit" in 1974.
All principal and interest payments due in 1975 were received. Cash flow
(amortization) should equal about $6.2 million per year for 10 years, plus
interest at 6%.
Subordination agreements existing between Kennecott and other lenders,
if enforceable, may affect retention by Kennecott of amounts previously
received on other notes Issued by El Teniente. At December 31, 1975, the
amount subject to subordination was approximately $20 million.
A-74
Arthur D Little Inc.
-------
APPENDIX
KENNECOTT COPPER CORPORATION and SUBSIDIARIES
PROPERTY, PLANT & EQUIPMENT
for the year ended December 31, 1974
-J
Classification
Nonferrous metals (excluding titanium)
Coal
Iron and titanium
Metal fabricating
Other
Balance at
Beginning of
Period
$ 857.3
879.4
119.8
72.1
23.4
$1,951.9
Additions
at Cost
Retirements
and
Other Changes
Balance at
End of
Period
- Millions of Dollars
$ 81.2
122.2
10.4
3.2
._S
$217.8
(B)
Notes:
(A) Sub-totals may not add to exact total due to rounding.
(B) Includes $61,897,300 of capitalized mining costs.
Source: Kennecott Form 10-K Annual Report for 1974 filed with the SEC.
$10.5
11.4
.4
2.2
4.6
$29.1
$ 928.
990.2
129.8
73.0
19.6
$2.140.6
s 5
"D 5
m J
2 40
I ^
Q cv
CD

3
v* TJ
I O
3 O
< **
££ O
o rS
3 ^
3
CO
c °
§ 5
St >
O H
3 3D
5 3
o
rc 39
"5 H
lil
0 3"
e* (0
1 3
0)
O ®

3
§

3
ro
o
3
O

<&
CD
2
a

—
o
(P
I
0
3

ft
Q.
3"
ft
O
o

O
c
c
3
B
3

(O
CD

c
3
«/>
8
>
—t
r—*
=r
c
—t
O
r~
W
ET
o
-------
APPENDIX
KENNECOTT COPPER CORPORATION and SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION and
AMORTIZATION of PROPERTY, PLANT and EQUIPMENT
for the year ended December 31, 1974
>
i
Balance at
Beginning of
Description Period
Reserves for depletion:
Nonferrous metals (excluding titanium) $ 16.5
Coal 11.1
Iron and titanium .1
Reserves for depreciation and amortization:
Nonferrous metals (excluding titanium) 333.
Coal 187.1
Iron and titanium 54.1
Metal fabricating 46.6
Other 8.9
$657.2
Additions
Charged to Retirements Balance at
Costs and and End of
Expenses Other Changes Period
Millions of Dollars-
$ 2.1
2.4
35.4
40.9
5.
2.3
1.2
$89.1
9.7
7.7
1.9
2.
$21.3
$ 18.6
13.5
.1
358.7
228.5
59.1
47.
8.1
$733.2
3 1
X I
* £
S"
= Sr
3 ®
® m
X "D
£ >
3
(A TJ
I 3
_ CD
3 o
<
o
O 3;
3 =?;
Q. 8
c r1
5*
CO 3
3 ®
s ®
Q.
O
O
c
3

— o
§. §
«-» o
3* ©
2 i.
>¦» 3
-h <°
C
"> 52
>
=r
c
-t
c~
fD
o
Note: Sub-totals may not add to exact total due to rounding.
Source: Kennecott Form 10-K Annual Report for 1974 filed with the SEC.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CHAPTER 8
ENVIRONMENTAL REGULATIONS
A. INTRODUCTION AND SUMMARY
In this chapter, we discuss environmental regulations affecting the
copper industry. In Section B, we present a general legislative back-
ground for readers unfamiliar with the evolution of environmental
legislation in the U.S. In Section C, we present a detailed discussion of
how the specific environmental regulations for the copper industry have
effectively constrained capacity growth in the copper industry and have
caused a capacity bottleneck at the smelting level which will last at least
until 1983. Finally, Section D presents estimates of pollution control
costs which the industry is expected to face over the impact analysis
period (1976-1985).
It should be noted that this chapter (and also this report) concen-
trates on the impact of Federal environmental regulations alone. While
the capacity bottleneck in copper smelting is essentially the result of
various specific environmental regulations, the industry also faces other
regulations that affect its production costs and potentially interrupt
its planning process. Examples are proposed OSHA regulations on handling
of explosives in open pit mines and on the use of engineering controls for
abating noise and inorganic arsenic emissions in the work-place environment.
It is important to remember that the planning process can be disrupted just
as effectively by uncertainty about future regulations, the lack of co-
ordination among different regulatory agencies and the desire of each
8-1
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
regulating agency to pursue Its own objectives and mandate with little
or no regard for the potential Impact on the Industry of the regulatory
actions of other agencies or units of government.
B. LEGISLATIVE AND INSTITUTIONAL BACKGROUND1
The historical development and current status of the Federal, state,
and local statutory base for the environmental regulation of the copper
Industry Is a complicated area for discussion, given the complexity,
ambiguity, and often overlapping nature of the relevant statutes and the
designated authority for their Implementation.
Although the Federal Government through the Congress and the EPA retains
ultimate authority for overseeing regulation of environmental pollution,
The discussion presented here relies upon the following principal sources:
Allen V. Kneese and Charles L. Schultze, Pollution. Prices, and Public
Policy (Washington, D. C.: The Brookings Institution, 1975), Chapters 3-5;
Council on Environmental Quality, Environmental Quality, Fourth, Fifth and
Sixth Annual Additions (Washington, D. C.: Superintendent of Documents,
U.S. Government Printing Office, 1973, 1974, 1975), Chapter 2; U.S. Depart-
ment of Commerce, The Effects of Pollution Abatement on International
Trade—III (Washington, D. C., April 1975), Chapters 2, 3, and Appendix B;
Constance Holden, "Clean Air Act: Congress Deliberates on Amendments" in
Science, Volume 192, May 7, 1976, pp. 533-35; "Significant Deterioration
Conflicts Approach Crunch Point" in Chemical Technology, February 1976,
pp. 76-77, article extracted with permission from Weekly Energy Report,
L. King, editor and publisher; United States Senate, Committee on Public
Works, Clean Air Amendments of 1976: Report (Washington, D. C.: U.S.
Government Printing Office, 1976); United States Environmental Protection
Agency, The Environmental Protection Agency: Legislation, Programs, and
Organization, reprint (Washington, D. C.; The Library Systems and Branch,
1976); United States Environmental Protection Agency, Progress in the
Prevention and Control of Air Pollution in 1974: Report to Congress
(Washington, D. C.; E.P.A., 1974) Chapter 3-5; Environmental Protection
Agency, "Standards of Performance for New Stationary Sources: Primary
Copper, Zinc and Lead Smelters" in Federal Register, 41 (10), January 15,
1976, pp. 2332-2337.
8-2
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Proiect Officer, since the document
may experience extensive revision during review.
a good deal of the actual enforcement as well as interpretation of the
laws is undertaken at the state and local levels. The regulatory framework
in which individual copper mining, smelting, and refining operations
function is frequently conditioned significantly by state and local
authorities' interpretation and implementation of Federal statutues.
This process of interpretation and enforcement is in turn often conditioned
by a host of unique functional, structural, and attitudlnal characteristics
of local and regional bureaucracies which may not be generally applicable
on a nationwide basis.
Ue have outlined in this section the principal Federal statutes under-
lying the current national regulatory framework for control of air and
water pollution and have discussed briefly some of the major relevant
issues which have arisen in their interpretation and implementation.
1. Air Pollution
a. Background
Prior to 1970, the most important pieces of Federal legislation to
deal with stationary source air pollution were:
• the 1955 Air Pollution Control Act;
• the Clean Air Act of 1963; and
• the Air Quality Act of 1967.
The 1955 Air Pollution Control Act authorized, for the first time,
a Federal program of research, training, and demonstrations relating to air
pollution control. However, primary responsibility for controlling air
pollution remained with state and local governments. The 1963 Clean Air
Act gave the Federal Government enforcement powers for the first time
8-3
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
against both inter- and intra-state polluters; however, enforcement pro-
cedures against intra-state dischargers were cumbersome, involving conferences
and hearings prior to court action.
The 1967 Air Quality Act embodied the concept that air cleanup re-
quired a national effort, but it specified that the states should retain
primary authority and responsibility for doing so. The Act authorized
the Department of Health, Education and Welfare (HEW) to oversee the
establishment of state standards for ambient air quality and state implemen-
tation plans for achieving those standards. Following the development by
HEW of criteria which set forth the relationships of concentrations of
specific pollutants in the atmosphere to damages to "health and welfare,"
states were required within 90 days to file a letter of intent that within
six months they would establish standards for ambient air quality. Moreover,
within six more months, states had to develop implementation plans for
each of the pollutants in the "airsheds" over which they had jurisdiction.
However, HEW was delayed in providing the criteria for pollutants, and
states were slow to act once criteria were issued. By 1970, no state had
a comprehensive plan of both standards and implementation in effect for
any of the pollutants identified by HEW.
b. The 1970 Clean Air Act Amendments
The major problems experienced with air-pollution control legislation
until 1970 were related to inadequate regulatory procedures and the lack
of specific standards. The Clean Air Act Amendments of 1970 sought to
8-4
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
deal with these Inadequacies. The existing law was amended to provide for
Federal direction In setting standards and established Implementation
schedules and enforcement mechanisms.
(1) Establishment of National Ambient Air Quality Standards
The principal objective of the 1970 amendments was to establish and
enforce national air quality standards for designated pollutants. The
1970 amendments provided for development and enforcement of two kinds of
standards for ambient air quality—"primary" standards necessary to protect
health, and "secondary" standards desirable to protect welfare, including
property and aesthetics. The amendments' stated goal was achievement of
primary standards throughout the nation between 1975 and 1977.
The amendments also set forth a strategy for attaining this goal. EPA
was to establish air quality standards for major classes of pollutants.
So far, such standards have been established for particulates, sulfur di-
oxides (S02), hydrocarbons (HC), carbon monoxide (CO), nitrogen dioxide
(NO2), and photochemical oxidants. These standards were to be set on the
basis of "threshold values" for the designated pollutants representing levels
of ambient concentration below which scientific evidence indicated that no
damage occurs to human health. Congress directed the EPA to determine these
values and then set "primary" standards based on these values minus "an
adequate margin of safety." More rigorous "secondary" standards were also
to be designated which would be sufficient to protect public welfare, broadly
defined to include "economic values. . . personal comfort and well being. . .
effects on soils, water, crops, vegetation, man-made materials, animals,
wildlife, weather, visibility, and climate, damage to and deterioration of
property, and hazards to pollution," (Section 302h).
8-5
Arthur D Little Inc
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
(2) Implementation of National Ambient Air Quality Standards
According to the amendments, states were to develop state implementation
plans (SIP) indicating how they intended to achieve the EPA standards by
mid-1975. The Clean Air Act provided for extensions of up to 2 years beyond
the 1975 goal in those regions where needed technology or other alternatives
either was not available or would not be available soon enough to attain
the primary standards. Each implementation plan, typically, was a
compilation of state air pollution statutes and regulations and of pollution
control strategies—including emission limitations, land use controls,
and transportation controls. EPA was required either to approve the
state implementation plans, thus making them part of Federal law, or to
amend them in conformance with EPA criteria for attaining ambient air
standards.
Because different geographical, climatic, and other conditions intro-
duce necessary variations in the state plans and because each plan contains
several often complex programs, EPA developed a policy of approving them
on a program-by-program basis. In most SIP's, considerable emphasis has been
placed upon the development of source control plans for the achievement
of primary standards, to which the Act's 1975 compliance deadlines applied.
(3) Establishment of National Emission Standards for Hazardous
Air Pollutants
The Congress did not rely solely upon the establishment of standards
for ambient air quality to control pollution. It also gave the EPA power
8-6
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
to set specific limits on the emission of certain kinds of "hazardous
pollutants", considered to have especially serious health implications
and attributable to relatively few source categories (some of the heavy
metals are examples).
These hazardous pollutants are exclusive of the criteria pollutants
for which national ambient air quality standards exist. The EPA was directed
to prepare a list of such substances and to issue regulations limiting
their emissions by both new and existing sources, which were to be enforced
at the Federal level.
Standards have been set or are in the process of being set for
asbestos, beryllium, mercury, vanadium, lead, and cadmium. The amendments
allow for two years' (discretionary) lead time for compliance with emissions
standards for hazardous air pollutants.
(4) Establishment of National Emission Standards for New Sources
The objective of minimizing emissions of pollutants from new sources
was also written into the Clean Air Act Amendments of 1970. The amendments
thus directed the EPA Administrator to set "new source performance
standards" which limit the emission of pollutants from new or modified
plants to an amount no greater than that attainable with "the best system
of emission reduction which (taking into account the cost of achieving
such reduction) the Administrator determines has been adequately demon-
strated." Initially, cost considerations were less formally considered
than today under the original stringent deadline (7 months) for promul-
gation mandated by the Act. Subsequent promulgations have been reflected
in more formal and rigorously research technical and cost considerations.
8-7
Arthur D Little Inc
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Of'icer, since the document
may experience extensive revision during review.
The Act specifically provides the EPA Administrator with the option of
distinguishing among "classes, types, and sizes" within source categories.
In many cases, process units rather than entire plants have thereby been
assigned emissions limitations.
New Source Performance Standards for copper smelters were proposed by
EPA in January, 1976.
(5) Assessment of Control Costs
The Act requires the EPA to conduct annual studies of the economic
impact of air quality control upon the industry sector. With the
exception of the development of New Source Performance Standards, economic
considerations are otherwise absent from the Clean Air Act as amended in
1970.
(6) Citizen Participation
Allowance for major public participation in the law's execution, in
both standard setting and enforcement, was an additional key feature of
the 1970 amendments. Suits brought by various groups have already had
a significant impact on the law's interpretation and implementation. Thus,
the Natural Resources Defense Council has successfully challenged portions
of the state implementation plans which permitted the issuing of temporary
operating certificates or variances, while the Sierra Club and other
organizations succeeded in requiring EPA to adopt regulations concern-
ing significant deterioration of existing air quality.
8-8
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
c. Issues Arising from the 1970 Clean Air Act Amendments
(1) Validity of Ambient Air Quality Standards
The validity of the six ambient air quality standards established by
EPA in 1971 continues to be supported by technical studies. A seventh
potential pollutant, fine particulate sulfates (e.g., sulfuric acid)
has been extensively studied by EPA.
(2) Intermittent Versus Permanent Control Systems
A major controversy evolved after passage of the 1970 amendments
over the advantages of permanent control devices (scrubbers) versus the
advantages and legality of intermittent control systems for controlling
SO2 emissions. Scrubbers remove sulfur from stack gases after combustion
but before emission to the atmosphere. Intermittent control systems seek
to disperse stack gas and dilute SO^ emissions by use of tall stacks and
various operating practices, including curtailing operations or switching
to low sulfur fuels during times of adverse air quality of other unusual
meteorological conditions.
In 1974, the U.S. Court of Appeals for the Fifth Circuit, in Natural
Resources Defense Council vs. EPA, held that intermittent control systems
are acceptable only when emission reduction equipment has been used to
the maximum extent achievable. All the other courts to address the subject
have since followed the Fifth Circuit. In September 1973, EPA proposed
that "supplementary control system" (SCS) be permitted as a temporary measure
8-9
Arthur D Little; Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
applicable only to sulfur oxide emissions from isolated nonferrous smelters
and coal-fired power plants, where the sole alternatives were permanent
curtailment of production, closing of the plants, or delays in attainment
of the standards. However, constant emission limitation remained the pre-
ferred strategy for attaining and maintaining the standards in the long
term. Tall stacks would also have been allowed under the proposal as a
part of an approved supplementary control system. This aspect of the 1973
proposal was cited by the Fifth Circuit as an example of EPA1 a Improper
reliance on stack height as a means of achieving NAAQS. Since 1973, EPA
has proposed regulations allowing the interim use of SCS at several
smelters located in the Western U.S. in such states as Arizona, Montana,
New Mexico, and Utah. These regulations require the installation of
reasonably available emission control equipment and further state the SCS
may be employed only if certain conditions outlined in the regulations are
met, and its use is needed to achieve national standards. Thus far, this
regulatory approach has been upheld in the Court.
(3) State Implementation Plants (SIP)
The 1970 amendments required the states to submit SIPs for existing
stationary sources of "criteria" pollutants that would assure that national
primary ambient air standards would not be exceeded in any part of a state
after mid-1975 (or after 1977 when a two-year extension is granted). With
a few notable exceptions (e.g., sulfur oxide emission limitiations in the
State of Ohio), all states had fully enforceable emission limitations affecting
stationary sources, by 1974, although in portions of 16 states an extension
had been granted for one or more pollutants.
State and Federal programs faced an immense task in achieving com-
pliance since there are estimated to be over 200,000 stationary sources
8-10
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
subject to SIP emission standards. Of this number, however, approximately
20,000 are major emitters (i.e., facilities individually capable of
emitting over 100 tons of a pollutant per year), which, as a class,
produce about 85% of all air pollution emitted by stationary sources.
Accordingly, EPA and state enforcement programs focused on ensuring
compliance by this class of emitters in order to have the greatest impact
on pollution abatement.
In May, 1972, the SIPs for the States of Arizona, Idaho, Montana, Nevada,
New Mexico, and Utah were disapproved insofar as they applied to the
copper smelters. Promulgation of Federal replacement regulations were
delayed due to controversies over air quality data, the availability of
controls and the possible use of intermittent control systems and tall stacks.
Resolutions to these problems were approached in late 1973, and EPA
had finalized Federal regulations for the control of SO^ for some primary
nonferrous smelters by early 1975. Regulations proposed required the
application of the reasonably available retrofit control technology, and,
if necessary, allowed the interim use of supplementary control systems (SCS)
and tall stacks until adequate constant control techniques became available.
Each smelter using SCS is further required to conduct a research and develop-
ment program to hasten the development of such technology.
The SIPs in some states failed to fully meet EPA requirements, in
others, states and local agencies adopted technically impractical
standards for existing sources or chose to supersede technically-based
EPA standards for new sources in order to control the use of land, for example.
8-11
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
When a non-technology-based standard Is described in aesthetic terms
(e.g., "no visible emissions") it is often referred to as a "cosmetic"
standard. Such standards have varying degrees of practicability in any
specific situation.
Three separate court cases, involving challenges on the reasonable-
ness of regulations contained in SIPs approved by EPA, resulted in a
recent Supreme Court ruling that the EPA need not consider technical
feasibility and economic practicality in approving state-submitted SIP
regulations. EPA can deny a SIP only if it will not result in the
attainment of air quality standards. Under these conditions, EPA must con-
sider availability of technology, economic practicality, etc., in proposing
alternative SIPs.
(4) State Variances
Most state implementation plans were drafted so that all emission
limitations were effective immediately. Because most sources were not in
compliance with emission limitations of implementation plans, there was a
transition period (still continuing for some) between the time a plan
became effective and the time that ambient air standards had to be attained.
The most common way of dealing with source noncompliance was for a state
pollution control authority to issue a variance from the requirements,
provided that the source and the state reached an acceptable
compliance schedule and that the national ambient air quality standards
8-12
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
were met by the statutory deadlines. EPA took the position that such
variances would be treated as revisions of the state implementation plans,
requiring only approval by EPA.
This variance procedure was challenged throughout the country and much
litigation ensued. In April 1975, the Supreme Court held that the purposes
and philosophy of the Clean Air Act of 1967 were not changed by the 1970
amendments. Accordingly, the chief responsibility for attainment of
ambient air standards rests with the states. So long as a state's control
strategy achieves and maintains ambient air standards through emissions
reduction, the Court ruled that EPA cannot interfere with the state's timing
or its enforcement techniques unless there are significant delays.
(5) "Significant Deterioration" Controversy
Although the original Clean Air Act of 1970 contained no mention of
"significant deterioration" (the words used in the act are "protect and
enhance" air quality) in a 1972 suit brought by the Sierra Club against the
EPA, the District of Columbia District Court ruled that according to the
provisions of the Clean Air Act, no state could permit "significant
deterioration" of air quality in areas where it was already cleaner than
required by ambient standards. This ruling was upheld by the Supreme
Court, and on August 16, 1974, EPA proposed regulations to incorporate
the District Court opinion into state implementation plans.
The EPA regulations, covering particulates and SO^, were published
after long public debate about the nature and severity of the controls.
Those seeking strong controls had argued that the court ruling required
state implementation plans that would fully protect clean air areas from
8-13
Arthur D Little; Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
pollution by new Industrial facilities. Those favoring less control argued
that there must be some provision for growth and industrialization even
in clean air areas and that a strict interpretation of "significant deter-
ioration" by EPA would in effect amount to land use controls prohibiting
new industrial development.
The proposed final regulations separate areas into three classifications—
Class I, where air quality would be protected at existing levels; Class II,
where moderate changes would be permitted; and Class III, where major
industrialization and growth would be allowed to a point at which air
pollution reaches national standards. All areas were to be established
as Class II areas at first, with authority given state governors to change
any to Class I or III. In this way, the Federal Government would not be
forced to determine industrial siting policies for regions based on air
quality alone but would allow wide discretion to the states. The
regulations were adopted in final form by EPA on November 27, 1974.
The regulations have been challenged from both sides. Industrial
groups have sought to have the regulations set aside as an arbitrary and
capricious exercise of authority. At the same time, the Sierra Club
(the successful plaintiff in the original district court suit that forced
promulgation of the regulations) and other environmental groups brought
legal challenges on two grounds—that the regulations allowing growth and
i
siting of facilities in Class III areas violate the court order and that the
Act does not allow limiting the regulation to particulates and SO^
emissions, but requires that all criteria pollutants be included.
8-14
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
2. Water Pollution
a. Background
Until 1972, the Federal approach to water pollution was embodied in two
pieces of legislation:
• the Refuse Act of 1899; and
• the 1948 Federal Water Pollution Control Act (including amendments
passed in 1956, 1965, 1966, and 1970).
The Federal Water Pollution Control Act (FWPCA) was essentially the
Federal Government's first venture into what was previously almost
exclusively a state and local matter. It asserted that the primary re-
sponsibility for pollution control remained with the states and gave the
Federal Government authority principally for investigations, research, and
surveys.
Amendments to the Act in 1956 and thereafter increased the scope of
Federal activity in two key ways: first, authorization was made for
Federal financial support of municipal water treatment plants; second, a
complex procedure was established for Federal regulation of waste discharge
through enforcement actions against individual polluters. Interstate
polluters were the initial targets of these actions, but eventually
authorization was broadened to include both inter- and intrastate pollution.
The FWPCA originally focused on the maintenance of ambient water
quality standards; allowable discharges were related to the estimated
assimilative capacity of a receiving stream or lake. Enforcement was slow
and cumbersome, involving conferences and long waiting periods. As a
result, the Act's provisions were the basis of only three civil court
actions brought against polluters before 1972.
8-15
Arthur D Little; Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The Refuse Act of 1899 was an obscure law passed as part of an
appropriation act for construction and repair work on rivers. It forbade
discharge of any refuse matter (excluding that from municipal sources) into
the nation's navigable waters without a permit Issued by the Chief of
the U.S. Army Corps of Engineers. The Act was generally unenforced until
1970; thereafter, as concern with pollution increased, the Government began
bringing both criminal and civil lawsuits against individual polluters,
basing its authority on a 1960 Supreme Court decision which held that,
under the Refuse Act, the U.S. could sue industries to stop them from
discharging pollutants into navigable waters without a discharge permit.
The Act became unimportant following passage of the FWPCA amendments of
1972, which included provisions which required permits for all Industrial
and municipal dischargers.
b. Federal Water Pollution Control Act Amendments of 1972
The Federal Water Pollution Control Act Amendments of 1972 represented
a significant policy departure from prior Federal Government approaches to
correction of the national water pollution problem. The amended law
embodied several significant alterations in the specific objectives, imple-
mentation, and enforcement procedures of the Federal Government's anti-
pollution program for the nation's waterways.
As amended, the law aims "to restore and maintain the chemical,
physical, and biological integrity of the Nation's water." As national
goals to achieve this objective, it calls for eliminating pollutant discharges
8-16
Arthur DLittleJnc
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
altogether by 1985, and, whenever attainable In the interim, achieving water
quality providing for protection and propagation of fish, shellfish, and
wildlife and for recreation in and on the water by 1983 (Section 101a).
The law does not, however, actually mandate attainment of these objectives
and goals. The no-discharge goal is mandated by 1983 only for categories
and classes of nonmunicipal dischargers for which it is "technologically
and economically achievable."
Prior law rested on a de facto goal of making individual waters clean
enough to support one or more beneficial uses—such as fishing, swimming,
boating and water supply for homes, farms, and industries—in each case
determined by the states to be desirable and feasible. This approach
recognized that different waters would, as a practical matter, support
different combinations of uses which in turn would require different
ambient water quality conditions.
By contrast, the amended law rejects, for the purpose of policy objec-
tives, distinctions among water bodies in terms of use as well as the
concept that contaminants can be rendered harmless and thus tolerated below
certain concentrations.
In several respects (e.g., citizen suits, monitoring, retention of
local authority) the provisions of the FWPCA roughly parallel those of the
Clean Air Act. The Water Act's special provisions are discussed below.
8-17
Arthur D Little; Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
(1) Establishment of Water Quality Standards
The 1972 Amendments provided that EPA and the states establish
water quality standards for the nation's navigable waters. These, however,
are secondary, rather than principal criteria for regulating pollution in
the nation's waterways. The amended Act no longer focused principally on
ambient quality and assimilative capacity of receiving waters, but instead
directed EPA and the states to establish minimum discharge requirements
for individual industrial and municipal polluters.
By June,1974 the initial process of reviewing and revising interim
standards was completed. In October, 1974, EPA proposed water quality
criteria defining maximum limits of acceptability for chemical and physical
constituents in U.S. waters. These criteria are intended to form the
scientific basis for any future revision of water quality standards, and
in particular the establishment of the 1983 interim goal of providing
for the protection and propagation of fish, shellfish, and wildlife and
for recreation in and on the water. EPA emphasized, however, that
decisions on standards and control measures must also consider the economic
and social Impact of controlling water pollutants and the practicality and
enforceability of the standards and control measures.
(2) Establishment of Effluent Limitations
As mentioned above, the amended Act directed the EPA and the states
to establish discharge requirements for industrial and municipal plants
as the principal means for regulating water quality. The predominant
Influence behind this approach was the universal recognition that basing
compliance and enforcement efforts on a case-by-case judgment of a
8-18
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
particular facility's Impacts on ambient water quality is both
scientifically and administratively difficult. To minimize the diffi-
culties in relating discharges to ambient water quality, the law requires
minimum effluent limitations for each category of discharger,based on
technological and economic feasibility, regardless of receiving water
requirements.
Three critical provisions of the 1972 amendments govern the estab-
lishment of effluent standards for water quality control.
First, a 1977 deadline is set for achieving "effluent limitations
for point sources, other than publicly owned treatment works, ... which
shall require the application of the best practicable control technology
currently available. . ." (Section 301b). This has been called the best-
practicable-technology (BPT) standard.
Second, a 1983 deadline is set for achieving "effluent limitations
for categories and classes of point sources, other than publicly owned
treatment works, which ... shall require application of the best available
technology economically achievable for such category or class, which will
result in reasonable further progress toward the national goal of eliminating
the discharge of all pollutants ... such effluent limitations shall require
the elimination of discharges of all pollutants if the Administrator finds ...
that such elimination is technologically and economically achievable for
a category or class of point sources ..." (Section 301b). This has been
called the best-available-technology (BAT) standard.
Third, in establishing guidelines for BPT and BAT, EPA is charged to
take into account "the age of equipment and facilities involved, the process
8-19
Arthur D Little; Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
employed, the engineering aspects of the application of various types of
control techniques, process changes, non-water quality environmental
impact (including energy requirements), and such other factors as the
Administrator deems appropriate. . (Section 301b). In addition, in
determining BPT, but not BAT, the Administrator is to consider "the total
cost of application of technology in relation to the effluent reduction
benefits. . The use of the term "economically achievable" in the BAT
definition, however, does introduce similar economic considerations.
Thus, technology and cost considerations are mandatory in the
establishment of BPT and BAT limitations. In addition to these considera-
tions, formal public hearings must, by law, be held in conjunction with the
establishment of water-quality-related limitations more restrictive than
BPT requirements (i.e., limitations imposed where water quality standards
are not satisfied by generally applicable minimum effluent standards).
These hearings are to focus upon the "reasonable relationship of the
economic and social costs and the benefits to be obtained (by the proposed
effluent limitation)" (Section 302b).
The Act does not specify that effluent limitations should consist of
single numbers (vs. a range) for each industry category, though in practice
state authorities have generally preferred to use single numbers in estab-
lishing effluent guidelines.
(3) Establishment of New Source Performance Standards
In addition to issuing effluent guidelines for existing point sources,
under the amended Act, EPA must set special effluent standards for new
industrial point sources.
8-20
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The Act implies that process units, as well as entire plants, are
subject to new source effluent standards. Distinctions in the setting
of new source standards among classes, types, and sizes of facilities are
allowed by the terms of the Act.
Be9t available technology, along with considerations of cost, non-
water-quality environmental impact, and energy requirements form the basis
for the new source performance standards. Permits granted on this basis
exempt permittees from compliance with any more stringent standards for
up to 10 years.
Whether a facility is deemed an existing source or a new source is
important for two reasons. First, new source performance standards are
for the most part stricter than 1977 standards for existing sources because
it is assumed that the latest technology is more easily built into a
new facility. Second, the new source permit is issued for a longer period
than other permits, thus reducing the potential for periodic tightening
of permitted effluent levels. EPA has to prepare and circulate environ-
mental Impact statements on major new source permit actions and in the
process should review all aspects of the siting decision for the source.
(4) Establishment of Toxic and Pretreatment Effluent Standards
The EPA Administrator must publish a list of toxic pollutants and
effluent limitations or prohibitions for them. Toxic pollutants are
defined as those which, when assimilated either directly from the environ-
ment or indirectly by ingestion through food chains, will cause death,
disease, behavioral abnormalities, cancer, genetic mutations, physiological
malfunctions, or physical deformities in any organism or its offspring.
8-21
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Spills of toxic or other hazardous materials are now subject to the same
regulatory framework—for prevention and Federal cleanup costs—that pre-
viously existed only for oil spills.
The criteria for these standards are to be developed so as to protect
any potentially affected organisms In any receiving waters. Economic
considerations are absent from this statutory standard-setting procedure.
In July, 1973, EPA designated 12 chemicals used In manufacturing as
toxic water pollutants, Including the pesticides aldrln, dleldrln, endrin,
DDT and Its derivatives DDE and DDD; the pesticide compound toxaphene;
cadmium, mercury and cyanide; and the Industrial chemclals benzidine and
PCB (polychlorinated biphenyls). These pollutants are toxic In very low
concentrations, with the exception of benzidine, which was included because
of its ubiquity and known carcinogenic properties. EPA is currently
developing effluent standards governing the discharge of these toxic
pollutants. EPA has been studying additional chemicals such as arsenic,
selenium, chromium, lead and asbestos for possible Inclusion on the list.
The Administrator must also issue pretreatment standards requiring
an industrial facility discharging into a municipal sewage treatment plant
to pretreat its effluent so that it does not interfere with the operation
of or pass through the plant without adequate treatment. Because roughly
one-half of all Industrial facilities discharge their wastes into municipal
systems, pretreatment standards are considered essential to achieving
control over Industrial effluents.
8-22
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
C. RECENT EPA REGULATIONS AND THEIR IMPLICATIONS FOR THE GROWTH OF THE
DOMESTIC COPPER INDUSTRY
1. Recent Regulations
Of all the environmental regulations affecting the four segments of
the domestic copper industry, the air pollution regulations affecting the
smelters are the most important in terms of cost and potential impact.
With Clean Air Act requirements as interpreted in EPA regulations
effectively constraining smelter capacity growth, the available smelter
capacity has become a bottleneck to overall industry expansion in the near
term (i.e., at least until 1983).
The regulations which cover permissible modes for expanding existing
smelters or for building new smelters are the New Source Performance
Standards including the Modification and Reconstruction Provisions (41 FR
2332 and 40 FR 58416) and that aspect of the Tall Stack Guidelines (41 FR
7450) which prohibits the permanent use of SCS at a smelter (whether or
not it uses Best Available Control Technology) as a means of meeting NAAQS.
In the remainder of this section, we will show how these regulations
allow only certain modes for smelter expansion, effectively constraining
smelter capacity growth. Since a part of the problem may be due to fugitive
emissions, this problem will also be addressed. This will be followed by a
smelter-by-smelter analysis of the expansion potential at existing smelter
locations. This analysis shows that even if energy costs were not a con-
straint on methods for expanding capacity, such traditional methods can no
longer be used as a result of these regulations. Finally the results of this
analysis will be used to define two scenarios for the economic impact analysis
which cover the time span until 1985.
8-23
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Incremental smelting capacity can be achieved In two ways:
• Construction of new grass roots or greenfleld smelters (I.e., a
smelter In a new location which was previously undeveloped); and
• modification of existing smelters to achieve expanded throughput
(This can be coupled with the replacement of obsolete capacity
In some Instances).
As discussed In detail in Chapter 4, the copper Industry has tra-
ditionally preferred the latter approach. The effect of regulations
on these two approaches will be discussed separately.
a. Grass Roots Smelters
Figure 1 shows a logic diagram for grass roots smelters. For
Impure concentrates (see Figure 1 for the definition of such concentrates),
New Source Performance Standards (NSPS) allow reverbs to be used without
SO^ control. All other units (roasters and converters) require a DA
(dual absorption) acid plant. However, the Tall Stack Guidelines do not
allow the use of SCS (I.e., production curtailment) for meeting ambient
air quality standards. A reverb-based smelter would require SCS to meet
NAAQS. Since SCS cannot be used we conclude that new reverb-based smelters
for impure concentrates cannot be built in most locations. Electric
furnace smelters for impure concentrates are functionally similar to clean
concentrate smelters discussed in the next paragraph.
For clean concentrates, NSPS require that all units (smelting units,
roasters and converters) be controlled with DA acid plants. Since the
control of the dilute reverb gases is prohibitively expensive, reverbs
would not be used as smelting units. This is not a constraint since
8-24
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
FIGURE 1: LOGIC DIAGRAM FOR GRASS ROOTS SMELTERS
Yes
No
Will the plant process impure
.concentrates?
Start
k New reverb smelters cannot
be built because SCS cannot
be used.
New reverbs can be built.
Reverbs need not be controlled;
all other units require DA
acid plants.
SCS cannot be used.
• New smelting units (except reverb),
roasters and converters can be used.
They require a DA acid plant.
• Unlimited stack height can be used
to meet NAAQS.
• SCS cannot be used.
If fugitives are a problem, new
smelters cannot be built without
acquiring large tracts of land.
Land acquisition for this purpose
is perhaps illegal.
Footnotes:
Impure concentrates - These are defined to contain more than 0.2% As, 0.1% Sb,
4.5% Pb and 5.5% Zn.
NAAQS - National Ambient Air Quality Standards.
SCS - Supplementary Control System, the use of production curtailment to
meet NAAQS.
* - Asterisks denote inferences or conclusions by ADL.
ft-?S
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
alternate technology Is well established and will generally also result
In fuel savings.
Preliminary diffusion modeling shows that new flash or electric smelters
using DA acid plants, state-of-the-art tall stacks (800-1200 ft) and using
some secondary hooding for capturing fugitive emissions, might violate NAAQS
for several kilometers around a smelter. This problem is caused by fugitives
rather than stack emissions. Fugitives are essentially converter aisle
emissions and result from smelting furnace tapping and converter operations.
Thus, the fugitives problem is common to existing smelter?, new reverb
smelters and new smelters using new technology since they all contain a
converter aisle. The use of SCS might alleviate this problem if converter
aisle operations are stopped under adverse weather conditions (i.e., each
night), and a matte reserve built up in the smelting unit during this period.
SCS strategy for controlling fugitives would be different from SCS strategy
for controlling stack emissions. It would succeed only if the periods of
adverse meteorology are short. Also, the use of SCS for fugitives control
would result in large fluctuations in the volume of gases to the acid plant,
perhaps causing operating problems. Thus, it is not clear whether new grass
roots smelters have a fugitives problem and whether SCS can be used for
fugitives control. In any case, this discussion is academic at the present
time since the Tall Stack Guidelines prohibit the use of SCS.
In summary, it appears that the grass roots smelters of minimum
economic size (100,000 tons/year of copper) might not be built since they
would violate existing regulations. At first glance, it appears that the
inability to use SCS is a major constraint. Without SCS, reverb-based
smelters would violate NAAQS because of stack emissions. In addition, all
smelters might violate NAAQS because of fugitive emissions and it is not
8-26
Arthur D Little Inc
-------
DRAFT REPORT - The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
clear whether all constrains disappear when SCS is permitted. A preliminary
survey of land values in Arizona suggests that land acquisition (as a means
of removing the influence of fugitive emissions from the reach of NAAQS)
in remote rural areas is not economically prohibitive. However, since
the major portion of Arizona land is under Federal control, such a move
might not be feasible and might even be illegal. In spite of these un-
knowns, we assume that grassroot smelters will be built in the future.
However, because of the lead time requirements, such smelters could not
be in operation before 1984.
b. Expansion/Modifications at Existing Smelters
Figure 2 shows the logic diagram for determining the potential for
expansion at existing smelters. Initially, plants using Best Available
Control Technology (BACT) are considered. BACT is the same as NSPS and
refers to non-reverb smelters where all units are controlled by DA acid
plants. The Inspiration smelter is an example of such a smelter where an
electric furnace, Hoboken converters and DA acid plant were built at the
site of an existing reverb smelter.
For existing smelters, two types of emission limitations have been
proposed (see 40 FR 49362 for details on Arizona smelters). The first
is based on available air quality data and diffusion modelling and sets
an emission limit to be achieved by constant emission control. The second
is a less stringent temporary limitation based on Reasonably Available
Technology (RACT) discussed in the next paragraph. The constant emission
control limitation is based on diffusion modeling which assumes that fugi-
tives will be captured and vented through the tallest available stack.
It is doubtful whether all fugitives can be captured and vented in this
8-27
Arthur D Little Inc
-------
FIGURE 2; LOGIC DIAGRAM FOR CAPACITY INCREASE AT EXISTING SHELTERS
s the plant at BACT?
RACT?
clean
New units can be added; they
have to meet NSPS.
Stack height can be increased to
meet NAAQS.
Host BACT smelters are already
close to allowable limits for
constant emission control.
Expansion
top - No expansion^
ossible
nsio^

Yes
• Emissions from existing plus new
facilities cannot increase above RACT
limit ("bubble concept")
• Existing plant can use stack height Increase
and SCS as temporary measures to meet NAAQS

New reverbs can be built.
• RACT would have to be redefined
for the plant.
• Plant can use stack height
Increase and SCS as temporary
measures to meet NAAQS.
• Analysis assumes that new
reverbs for impure concentrates
will not be built between 1976-85.
achieved
equipment?
(Existing
equipment)
(New
equipment)
While "bubble concept" applies, emissions
decreased at one existing facility can be
used to offset emissions increased at
another existing facility.
Capacity increase without significant
capital expenditure is acceptable.
Approximately 7% capacity increase
possible by converting SA acid plant
to DA.
If cost of repair or modification exceeds
50% of replacement cost of the equipment,
the existing equipment Is defined as new
equipment
Conversion of green charge reverbs to cal-
cine feeding might be prohibited. Even If
this were permitted, Industry-wide cap-
acity expansion is limited.
• All new equipment must meet NSPS.
• Emission reduction achieved with new
equipment cannot be used as an offset
to Increase emissions from existing
equipment, i.e., the "bubble" shrinks
when new equipment is used.
The "shrinking" bubble Implies that
reverb emissions have to stay constant.
Even if the "bubble" remains constant,
the reconstruction & modification pro-
visions of NSPS imply that reverb
emissions stay constant.
New smelting units and converters can
be added. Expansion potential is very
large if RACT applies. However, New
Sourre Review could define such a
smelter to be at BACT and prohibit SCS.
Footnotes;
BACT - Best Available Control Technology - roasters, new smelting furnaces and converters controlled
with Dual Absorption (DA) acid plants - same as NSPS.
NSPS - New Source Performance Standards.
RACT - Reasonably Available Control Technology - control of strong (converter and fluid bed roaster)
streams using SA or DA acid plants. No control of reverb or multiple hearth roaster streams.
Use SCS as necessary. R6D program required.
SCS - Supplementary Control System - the use of production curtailment to meet NAAQS.
NAAQS - National Ambient Air Quality Standards.
* - Asterisks denote inferences or conclusions by ADL. » ¦ ^, , .
Arthur D Little Inc
8-28
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
fashion. Even smelters meeting the constant emission limitations might
exceed NAAQS because of low level fugitive emissions. Thus, the un-
certainties facing existing BACT smelters are essentially the same as
discussed earlier for grass roots smelters based on clean concentrates
(i.e., they may exceed NAAQS because of fugitives). While it appears
at first glance that the inability to use SCS is a malor constraint,
additional analysis is necessary to determine whether all constraints
disappear when SCS is permitted. It should be noted that Figure 2 shows
that stack height increase might be permitted. The regulations are some-
what ambiguous on this point. The Tall Stack Guidelines (41 FR 7451,
2nd column, second full paragraph) state "... stack height increases
and/or SCS are acceptable control strategy measures only after the appli-
cation of available control measure and are never permitted as a means
of allowing the increase of emissions at any source (emphasis added)."
Either way, the NAAQS violations might result from uncaptured fugitives.
The remainder of this section assumes that this potential fugitives problem
will be resolved without major cost consequences to the industry. In
any case, the potential for capacity increase at BACT smelters is small
since they are already close to the allowable limits for constant emission
control.
Reasonably Available Control Technology (RACT) is defined as control
of strong streams (new multiple hearth roasters, new or old fluid bed
roasters and converters) and no control of weak streams (reverbs and
old multiple hearth roasters). A SA acid plant (96.1% efficiency) is
sufficient for controlling strong streams at locations that already have
such a plant. For locations without an acid plant, a new DA acid plant
8-29
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
(99.5% efficiency) is necessary. Thus, using maximum production rates
in 1973-1974, and observed or calculated sulfur distributions at each
smelter, a RACT emission limitation can be calculated as follows:
Emission Limit (Tons Sf^/Day) =2x1 (R+F+S (I-E))
Where
Mission limit in tons SC^/day is multiplied by (2000/24) to
convert it to lb SO^/hour.
I = Total sulfur input into the plant at maximum design rate
in tons of S/day.
R = Fraction of total sulfur in weak streams (reverb and others).
F = Fraction of total sulfur emitted as fugitive emissions.
S = Fraction of total sulfur in strong streams, i.e., sulfur in
acid plant feed.
G = Fractional efficiency of the acid plant, i.e., 0.961 for SA
and 0.995 for DA.
The factor 2 converts tons of S to tons of SO2.
The emission limit calculated by the above procedure defines a "bubble"
or "umbrella," i.e., it is an upper bound for emissions from that source.
Any changes that increase emissions above this limit are prohibited. On
the other hand, a smelter at RACT can use unlimited stack height Increase
and SCS as temporary measures until economic BACT calibre technology
becomes available. The regulations are vague regarding criteria for
defining BACT calibre technology, its economics or its availability. We
assume that these "temporary" measures will be utilized throughout the
period of analysis (i.e., until 1985).
8-30
Arthur D Little Inc
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Figure 2 shows that the regulations might allow new reverbs to be
built for processing impure concentrates. This is a somewhat speculative
interpretation of the regulations since this issue (new reverbs for impure
concentrates in a smelter at RACT) is never directly addressed in any of
the regulations. This point is less important since, based on our know-
ledge of the industry, we assume that new Impure concpntrates will not
become available and this potential mode of capacity expansion will not
be utilized.
Under the "bubble" concept, emissions decreased at existing equipment
are used to offset emissions increased at other existing equipment.
However, the allowable expansion appears small. After analyzing all
possibilities we find that this case applies only when a SA acid plant
is converted to DA and the reverb emissions are increased to offset the
decrease in acid plant emissions. This allows a 6-7% increase in capacity.
See Arthur D. Little, Inc., "Economic Impact of New Source Performance
Standards on the Primary Copper Industry: An Assessment," Report to EPA,
October 1974, page M-4 for detailed calculations. (This report will be
referred to as the NSPS report in the subsequent discussion).
The NSPS report (page M-8) shows how a green charge reverb can increase
capacity by 50% by installing fluid bed roasters. However, a green charge
reverb would have to be reconstructed to handle hot calcines and such recon-
struction could be prohibited since a reconstructed reverb is a new
source and would have to be controlled. Even if reverb reconstruction is
permitted, it is not certain that industry would utilize this approach
for capacity expansion. The copper companies with experience with fluid bed
roasters consider them to be unreliable and requiring a high degree of
8-31
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
maintenance. In particular, there are four green-charge smelters who
could utilize this approach. Three of these belong to companies who al-
ready have poor operating experience with such roasters. Thus, this
approach, even If permitted, has a low expansion potential.
When emission reduction Is achieved by using new equipment, the
regulations suggest that such reduction cannot be used to offset emission
Increases from existing equipment, I.e., the "bubble shrinks." The regu-
lations are ambiguous on this point. However, the regulations clearly
treat construction of new reverbs or significant reconstruction of
old reverbs as falling within NSFS. Because of this, capacity expansion
Is essentially limited by the smelting capacity of existing reverbs. As
noted In the NSFS report (p. 42) up to 20% capacity Increase could be
obtained by modifying a reverb to use preheated combustion air or by
oxygen enrichment of combustion air. However, if the smelting rate of
any reverb is increased by 20%, its emissions also increase by 20%, but
the latter is not permitted at RACT sites under the bubble concept.
Smelters with multiple hearth (H-H) roasters could install new fluid bed
(F-B) roasters and not require reverb reconstruction for calcine handling.
However, capacity expansion is not possible since the smelting rate in
the reverbs cannot be changed.
Finally, when a new smelting furnace (and the necessary accessories)
are built in an existing reverb location, such a conversion could markedly
decrease emissions. However, such a conversion would be subject to the
New Source Review which could classify the smelter to be at BACT and
therefore disallow the use of SCS. We believe this to have a low probability
8-32
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
of occurring. This approach is potentially a major expansion route for
the industry. However, this type of expansion has about the same lead
time requirements as grass roots smelters and such capacity could not be
available before 1984.
In summary, the analysis of the regulations show the following general
modes for expansion at existing smelters:
• BACT Smelters
- low apparent potential for expansion since BACT smelters are
close to constant emission control limitations.
V RACT Smelters
- 6 to 7% expansion possible at all smelters by converting SA
acid plants to DA. The capacity increment is too small to
interest most smelters.
- Major expansion possible i£ new smelting units (meeting NSPS)
in existing locations can use SCS and operate under the original
RACT bubble. On the other hand, if such smelters are classified
as BACT smelters via New Source Review, SCS cannot be used and
expansion potential might be low. We assume that this
type of expansion will be allowed. However, this type of
capacity will be available only after 1983.
c. Smelter-by-Smelter Analysis of Short-term Capacity Growth
The findings from the previous section are used here for a smelter-
by-smelter analysis of short-term (pre-1983) expansion potential of
existing smelters. While major expansion appears possible by building new
smelting units (meeting NSPS) and operating under the original RACT umbrella
8-33
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
in existing locations, such smelters could not be at full production before
1983. Because of this, the discussion to follow focuses on the other short-
term routes which could potentially provide incremental capacity before
then.
Readers unfamiliar with the locations of existing smelters should
consult the maps and tables in Chapter 4.
Asarco, Hayden (Central Arizona)
(1) RACT
Smelter has multiple hearth roasters, reverbs, converters, a SA
plant on converter gases. The smelter Is at RACT; uses SCS to meet NAAQS.
(2) Expansion Routes
No significant expansion possible.
Phelps Dodge, Douglas (Southern Arizona near the Mexican border)
No expansion possible because the smelter is not at RACT (i.e., control
of converter gas). The smelter contends that such control is not reasonable
for Douglas. Given that RACT for Douglas is yet to be defined, we assume
that Douglas will not expand.
Phelps Dodge, Morencl (Southeastern Arizona)
(1) RACT
The plant has a small F-B roaster. RACT is based on control of strong
streams using SA plant.
(2) Expansion Potential
• A 7% expansion is possible by converting the SA acid plant to DA.
• While the smelter might be permitted to convert completely to a
fluid bed roaster-calcine charging, we believe that this conversion
will not occur for reasons discussed on pages 8-31 and 8-32.
8-34
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Kennecott, Hurley, New Mexico (Western New Mexico)
(1) RACT
The plant is a green charge smelter. Converter gases are controlled
in an SA acid plant.
(2) Expansion Potential
• A 7% expansion is possible by converting the SA plant to DA.
9 The plant is not likely to convert to F-B roasters for reasons
mentioned on pages 8-31 and 8-32.
Asarco, Tacoma (Tacoma, Washington)
(1) RACT
The plant uses M-H roasters, reverbs, and converters to smelt impure
concentrates. Converter gases are controlled.
(2) Expansion Potential
• A 7% expansion is possible by converting the SA plant to DA.
• Because impure concentrates cannot be roasted in F-B roasters,
any options based on such roasters are unrealistic.
• Under NSPS, Asarco could construct new reverbs to smelt impure
concentrates. However, the shortage in domestic smelting capacity
is for smelting clean concentrates. Such concentrates cannot be
smelted in uncontrolled new reverbs.
Asarco, El Paso (El Paso, Texas)
Same comments as Asarco, Tacoma above.
Kennecott, Hayden (Central Arizona)
(1) RACT
The smelter uses F-B roasters, reverbs and converters. Roaster and
converter gases into a DA acid plant.
8-35
Arthur D Little; Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project 0ff'C8r, since the document
may experience extensive revision during review.
(2) Expansion Potential
A 7% expansion is possible by changing SA acid plant to DA.
Magma, San Manuel (South Central Arizona)
(1) RACT
The smelter uses green charge smelting. Converter gases are con-
trolled. Acid plant is SA.
(2) Expansion Potential
The plant is not likely to convert to F-B roasters for reasons
mentioned on pages 8-31 and 8-32.
Kennecott, McGlll (Eastern Nevada)
(1) RACT
This is a green charge smelter. Converters are not controlled at
present. Kennecott's latest position is that, given the limited reserves
and age of the smelter, control of converter gas might not be economically
justified.
(2) Expansion Potential
No expansion.
Phelps Dodge, Ajo (Southwestern Arizona)
(1) RACT
This is a green charge smelter. The plant has an experimental DMA unit
that concentrates converter (and reverb) gases prior to feeding into an acid
plant. The experimental system had not operated often. We believe that the
DMA system will not be used in the future because of its high costs and
operating problems.
8-36
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
(2) Expansion Potential
• A 7% expansion is possible by converting SA acid plant to DA.
• The plant is not likely to convert to F-B roasters for reasons
mentioned on pages 8-31 and 8-32.
Inspiration, Anaconda, Kennecott in Garfield and Phelps Dodge in Hidalgo
These four are new smelters using electric furnace (Inspiration and
Anaconda), Noranda (Garfield), and Outokumpu flash smelting (Hidalgo).
The expansion potential at each smelter is unknown. As such, they can use
unlimited stack height to increase dispersion but may not use SCS. Thus,
the expansion limit will be defined on the basis of modeling studies which
would indicate the maximum permissible emissions to meet NAAQS without
using SCS. Fugitives might cause NAAQS to be exceeded. If this occurs,
no expansion is possible.
2. Capacity Expansion Until 1985
The discussion in the previous section, summarized below in Table 1,
shows that the existing regulations allow little or no room for expansions
in the short term (i.e., before 1983). Beyond 1983, there is the necessary
lead time required for planning, building, and commissioning of a NSPS
calibre smelter in a grass roots or existing location.
8-37
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
14.
TABLE 1
SUMMARY OF THE EXPANSION POTENTIAL OF EXISTING
SMELTERS PRIOR TO 1984
Mode of

Smelter % Expansion
Expansion
1.
Asarco, Hayden
0-7%
SA to DA Acid Plant
2.
PD, Douglas
0%
RACT is undefined
3.
PD, Morenci
0-7%
SA to DA Acid Plant
4.
KCC, Hurley
0-7%
SA to DA Acid Plant
5.
Asarco, Tacoma
0-7%
SA to DA Acid Plant
6.
Asarco, El Paso
0-7%
SA to DA Acid Plant
7.
KCC, Hayden
0-7%
SA to DA Acid Plant
8.
Magma, San Manuel
0%

9.
KCC, McGill
0%
RACT is undefined
10.
PD, Ajo
0-7%
SA to DA Acid Plant
11.
Inspiration

12.
Anaconda

13.
KCC, Garfield

Expansion potential
defined by NAAQS
Probability that
This Route
Will be Followed
Low*
Low*
Low*
Low*
Low"*"
Low*
Low*
Low
Low*
Low
PD, Hidalgo
NOTES: iLow; 7% expansion is too low
Expansion may be constrained by the fugitive emissions.
Source: Arthur D. Little, Inc. estimates.
8-38
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
A major smelter construction project requires the following steps:
• Decision that extra capacity is needed;
• prefeasibility studies—preliminary evaluations of several
alternatives;
• process design and detailed engineering of the selected approach;
• construction;
• startup and shakedown; and
• bringing the plant to full capacity.
We believe that the time span for this to occur is about seven years.
Construction alone typically takes three years and it can be a year or
more after construction is complete before full capacity is reached.
At the present time, we are not aware of any major smelter construction
projects that are under active consideration. Thus, given the time lags
in the system and the uncertainties on the regulatory scene, new capacity
will not come on-stream until 1984.
Based on the above, we have defined two scenarios for smelter and
refinery capacity in the U.S. over the study period, i.e., until 1985.
1. "Constrained Capacity"
This scenario assumes no capacity expansion until 1984 for reasons
discussed above. We assume 200,000 short tons per year of copper in new
smelting (and refining) capacity will come on-stream in 1984 and another
200,000 short tons per year in 1985. We also assume that none of the
existing smelters will shut down.
8-39
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
2. "Reduced Capacity"
This scenario assumes that the uncertainties in the regulations or
economic conditions will delay any new smelting capacity until after
1985. We also assume that two smelters (i.e., McGill and Douglas)
will close in 1977 and 1979, respectively.
D. ESTIMATES OF COMPLIANCE COSTS
Pollution abatement costs were estimated for the historical period
(1970-1975) and for the impact analysis period (1976-1985) using infor-
mation from several sources. Initially, we circulated questionnaires to
individual firms in the industry to obtain their data for the historical
period and their anticipated future outlays (both pollution control-
related capital expenditures and operating and maintenance costs). This
approach, however, was relatively unsuccessful. Several companies did not
respond to the questionnaire. As a result, the responses covered less than
half the industry. Many of the companies that responded provided only
aggregated costs that could not be verified independently. For the fore-
cast period, most companies would not speculate about their expected costs
of compliance with the currently promulgated and/or pending regulations.
The questionnaire returns did indicate that almost all the pollution
control-related cost was a result of Federal regulations. Local regulations
did not appear to play a major role. Many in the industry anticipate large
potential costs resulting from future OSHA regulations. However, given
the uncertainties in this area, it is not possible to estimate these costs
at the present time.
8-40
Arthur DLttk Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The pollution abatement compliance costs shown in Table 2 were
estimated year-by-year for existing facilities using information on
individual smelters in our files and published EPA Development Documents.
The bulk of the cost reflects cost of monitoring and controlling
ambient and fugitive emissions. Since most plants in the west are close
to zero aqueous discharge, the cost of water pollution control is low
(less than a third).
These estimates are for meeting the following regulations:
• The application of Reasonably Available or Best Available
Control Technology (RACT or BACT) at existing and new facilities
for control of air pollution. For most existing smelter locations
these expenditures occurred in the period 1971-1976.
• Effluent limitation Guidelines for 1977 and 1983.
• Order-of-magnitude numbers, i.e., $40 million for meeting
future EPA regulations in the areas of toxic and hazardous
emissions.
Table 3 presents estimates of "upper bound" pollution abatement
compliance costs for purposes of sensitivity analysis.
The estimates of pollution abatement and control costs shown
in Tables 2 and 3 represent "cash outflows" in the years indicated.
They are translated into annualized fixed costs within the model for
impact analysis (Refer to Tables 2-5 for a translation of the capital
expenditures shown here in Table 2, under the Constrained Capacity
and Reduced Capacity scenarios, into annualized fixed costs).
8-41
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 2
EXPECTED POLLUTION ABATEMENT AND CONTROL EXPENDITURES BY THE U.S.
COPPER INDUSTRY,® 1976-1985
(In millions of 1974 dollars)
b c
Capital Expenditures Operating and Maintenance Costs Total
Years
Constrained
„ • Cl
Capacity
Reduced
Capacity
Constrained
Capacity
Reduced
Capacity
Constrained
Capacity
Reduced
Capacity
1976
156.0
156.0
99.5
99.5
255.5
255.5
1977
90.0
90.0
112.4
112.9
202.4
202.9
1978
60.0
60.0
115.8
111.8
175.8
171.8
1979
40.0
40.0
116.2
112.2
156.2
152.2
1980
40.0
40.0
115.1
108.4
155.1
148.4
1981
60.0
40.0
115.9
109.1
175.9
149.1
1982
100.0
40.0
117.2
110.3
217.2
150.3
1983
100.0
40.0
117.8
110.9
217.8
150.9
1984
60.0
40.0
126.5
110.9
186.5
150.9
1985
40.0
40.0
135.8
111.1
175.8
151.1
1976-1985
746.0
586.0
1,172.2
1,097.1
1,918.2
1,683.1
NOTES. including secondary smelters/refiners.
^Figures given here refer to expenditures (dollar outflows), not to Increased fixed costs. In the model,
these Investment figures are translated Into annualized fixed costs through the use of capital
charge coefficients (refer to Arthur D. Little, Inc. [ADL], Econometric Simulation and Impact
Analysis Model of the U.S. Copper Industry. Technical Appendix to this report.
Q
Increases in variable costs due to pollution abatement and control, estimated at about 2.5 cents per
pound of refined copper. These figures are obtained by multiplying 2.5 cents per pound by model
solutions for primary refined copper output.
^These estimates reflect pollution control capital expenditures at existing facilities plus
pollution control invesment associated with capacity expansion coming on-stream in 1984 and 1985.
The latter would add about $80 million associated with capacity growth expected to come on-stream
in 1984 (200,000 annual short tons) and roughly another $80 million associated with capacity growth
expected to come on-stream in 1985 (200,000 annual short tons). These two latter amounts are time-
phased as follows:
Associated with capacity growth coming
Year of on-stream in ($ millions) Total
Spending 1984 1985 ($ millions)
1981
20

20
1982
40
20
60
1983
20
40
60
1984

20
20
SOURCE: Arthur D. Little, Inc., estimates.
8-42
Arthur D Little: Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 3
EXPECTED POLLUTION ABATEMENT AND CONTROL EXPENDITURES BY THE U.S.
COPPER INDUSTRY,3 1976-1985
(in millions of 1974 dollars)
(upper bound estimates for purposes of sensitivity analysis)
b c
Capital Expenditures Operating and Maintenance Costs Total
Years
Constrained
Capacity
Reduced
Capacity
Constrained
Capacity
Reduced
Capacity
Constrained
Capacity
Reduced
Capacity
1976
156.0
156.0
99.5
99.5
255.5
255.5
1977
130.0
130.0
112.4
112.9
242.4
242.9
1978
100.0
100.0
115.8
111.8
215.8
211.8
1979
80.0
80.0
116.2
112.2
196.2
192.2
1980
80.0
80.0
115.1
108.4
195.1
188.4
1981
100.0
80.0
115.9
109.1
215.9
189.1
1982
140.0
80.0
117.2
110.3
257.2
190.3
1983
140.0
80.0
117.8
110.9
257.8
190.9
1984
100.0
80.0
126.5
110.9
226.5
190.9
1985
80.0
80.0
135.8
111.1
215.8
191.1
976-1985
1106.0
946.0
1172.2
1097.1
2278.2
2043.1
NOTES• a
' Not including secondary smelters/refiners.
''Figures given here refer to expenditures (dollar outflo .), not to increased fixed costs. In the model,
these investment figures are translated into annualized fixed costs through the use of capital
charge coefficients (refer to Arthur D. Little, Inc. [ADL], Econometric Simulation and Impact
Analysis Model of the U.S. Copper Industry. Technical Appendix to this report.
CIncreases in variable costs due to pollution abatement and control, estimated at about 2.5 cent', per
pound of refined copper. These figures are obtained by multiplying 2.5 cents per pound by model
solutions for primary refined copper output.
^These estimates reflect pollution control capital expenditures at existing facilities plus
pollution control invesment associated with capacity expansion coming on-stream in 1984 and 1985.
The latter would add about $80 million associated with capacity growth expected to come on-strenni
in 1984 (200,000 annual short tons) and roughly another $80 million associated with capacity growth
expected to come on-stream in 1985 (200,000 annual short tons). These two latter amounts are tune-
phased as follows:
Associated with capacity growth coming
Year of on-stream in ($ millions) Total
Spending 1984 1985 ($ mLlltons)
1981
1982
1983
1984
20
40
20
20
40
20
20
fiO
60
¦>:>
SOURCE: Arthur D. Little, Inc., estimates.
8-43
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CHAPTER 9
METHODOLOGICAL APPROACH; GENERAL ORIENTATION AMD OVERVIEW OF THE ECONO-
METRIC SIMULATION AND IMPACT ANALYSIS MODEL OF THE U.S. COPPER INDUSTRY
A. INTRODUCTION AND GENERAL ORIENTATION
The purpose of this chapter is to provide a nontechnical discussion
of the methodological approach used to assess the economic impact of
environmental regulations on the U.S. copper Jndustry. To this end, we
would like to briefly describe our general methodological orientation
and present an overview of the Econometric Simulation and Impact Analysis
Model of the U.S. Copper Industry developed and used by ADL for economic
impact assessment.^"
The general methodological approach adopted in this study to assess
the industry-wide economic impact of environmental regulations can be
characterized as the development of a dynamic nonlinear simultaneous-
equation econometric simulation model of the U.S. copper industry. The
model is designed, estimated and programmed to simulate the industry's
2
growth and evolution annually over the impact analysis period (1976-1985)
under alternative scenarios (baseline conditions, as well as alternative
environmental policy scenarios).
The model considers, within an interdependent framework, such varia-
bles as demand (paying attention to substitution from aluminum), costs
of production facing the primary producers, the relationship between the
primary and secondary producers, supply functions of secondary producers
(refined and scrap), prices, inventories, investment, and international
trade. It also allows analyses of the industry's financial performance
annually (e.g., cash-flow, rates of return on assets and/or sales, outside
financing requirements, etc.). It represents, in short, a rigorous intern-
ally consistent, comprehensive analytical approach for simulation, forecas-
ting and economic impact analysis.
^"For a technical description of the model, refer to the Technical Appendix
of this report, Econometric Simulation and Impact Analysis Model of
the U.S. Copper Industry.
2
The base year in the model is 1974; the model has been used to simulate
the historical period (1964-1975); it has also been programmed to simulate
the industry's growth annually beyond 1985 (up to 1990).
9-1
Arthur D Little; Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In the remainder of this chapter, we will present a nontechnical
overview of the model, by touching on the following topics:
(B) Basic components of the model;
(C) Linear and nonlinear versions of the model;
(D) Microeconomic considerations: rationale, for a parametric
approach to bound the model's solutions;
(E) Data sources and problems;
(F) Econometric estimation techniques used;
(G) Mathematical solution of the model; and,
(H) Basic differences between this and other econometric
models of the copper industry.
B. BASIC COMPONENTS OF THE MODEL
Very briefly, the model consists of two basic components:
• The Market Clearing Module, and
• The Investment Module.
The Market Clearing Module, which consists of thirteen (13) simul-
taneous equations, simulates every year the production and pricing behavior
of the major producing groups in the industry, the inventroy behavior of
the major participants in the industry, the demand behavior of the users of
copper and the balance of trade effects. The market is cleared in each year
through materials balancing and price equilibrium equations.
The Investment Module serves as the year-to-year "transit" connecting
the solutions of the Market Clearing Module for successive years, by
simulating how smelting/refining capacity changes over time. Thus, the
dynamic Investment Module simulates the evolving short-run, by taking
into account the early solutions from the Market Clearing Module, in
addition to certain exogenous as well as current and lagged endogenous
factors. Stuelting/refining capacity changes are estimated, translated
into total fixed costs (along with increases in total fixed costs due to
mining and milling investment, pollution abatement investment, etc.), which
are then built into the cost functions of the primary producers.
9-2
Arthur D Little: Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Since mining and milling investment decisions typically require
profitability considerations extending over quite a long time-horizon
(typically 25-30 years), the model treats such Investment as exogenous.
However, capacity expansion and replacement investment at the smelting
and refining level is made endogenous. Pollution abatement investment,
as well as pollution-abatement related increases in variable costs enter
the model exogenously.
Once the model is solved for the entire period (e.g., 1974-1983 or
1974-1990), external checks are performed on the model's results, focusing
directly on the industry's overall financial performance. Exogenously
specified mining and milling investment behavior is analyzed in terms
of various measures of profitability, given the price forecasts. Like-
wise, overall cash-flow and flow-of-funds (sources vs. uses) analyses
are performed, by analyzing financial data computed directly from the
model's results, as well as on the basis of detailed historical industry-
wide and specific company-by-company financial data. Various types of
standard financial checks are hence exercised, by examining debt-to-equity
ratios, amount of external borrowing required, profits on sales, rate of
return on assets, and so forth. Hence, this procedure provides, in
effect, a general "block-recursive" financial analysis framework which
permits external checks on the model's performance, from a strictly
financial standpoint, which can in principle be internalized. The "feed-
back loop," as a result, works as follows. If, under the baseline runs,
the external financial checks indicate possible overinvestment at the
mining and milling level, for example, this behavior is modified through
a number of iterations until the results, judged by their financial
implications, appear the most plausible. This completes the model runs
to develop simply a baseline scenario on the industry's performance over
the impact analysis period, in the absence of environmental standards
or constraints. Next, these baseline solutions are "perturbed," by
introducing into the model new scenarios explicitly built around environ-
mental costs/issues. The resulting differences under these scenarios from
the baseline solutions over the impact analysis period are imputed to the
specific environmental costs/issues embedded in the various scenarios.
9-3
Arthur DLittleJnc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Although the model specifically deals with both the primary producers
and with the secondary copper industry (secondary refined, scrap), its
major focus is directed at the primary producers, with careful attention
paid to their discretionary price and output behavior.
C. LINEAR AND NONLINEAR VERSIONS OF THE MODEL
The model has both a linear and a nonlinear version. The nonlinear
version of the model, which represents a more reasonable approximation
of the variables and relationships being modeled, is by far the more
useful analytical system. The nonlinear version, for example, permits
the introduction of capacity constraints in supply and cost curves with
smooth continuously differentiable functional forms, while the linear
versions yields unconstrained production estimates. Essentially, this
means that in the linear case demand curves intersect cost or supply
functions beyond capacity. By contrast, in the nonlinear case, cost and
supply functions rise roughly around 86-90 percent of installed capacity
(smelting/refining capacity) and very steeply beyond this region as
physical capacity is approached.
D. MICROECONOMIC CONSIDERATIONS: RATIONALE FOR A PARAMETRIC APPROACH
TO BQTTKT) TWF MODEL'S SOLUTION
A unique feature of the model is that it deals explicitly with the
central and vexing analytical problem present in any microeconometric
modeling effort where price-output determination does not follow the
textbook simplicity of perfectly competitive behavior. That is, the
structure of the domestic copper industry has been characterized basically
in terms of a core group of oligopolistically-behaving primary
producers (including a dominant group of vertically integrated firms plus
a much smaller group of non-integrated raining firms or independents),
surrounded by a "workably" competitive fringe (i.e., the "outside" market)
consisting of a subset of secondary or custom smelters/refiners selling
on the "outside" market, the producers/sellers of non-refined scrap,
9-4
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
and the merchants. The model is designed to take into account explicitly
not only the discretionary pricing behavior of the primary producers
but also the interaction between the primary producers and the two
2
"workably" competitive sectors within an interdependent or simultaneous
equation framework.
The analysis of the two competitive sectors is theoretically and
econometrically straightforward. Deterministic price and output solutions
for a competitive industry or competitive sector of an industry occur at
the intersection of supply and demand curves, where supply curves represent
the horizontal summation of the marginal cost curves of the member firms.
Economic rents may accrue in light of differential cost conditions across
members. However, no member of a competitive sector can affect price;
they are all price-takers. Short-run production decisions on the part of
a given firm are made by comparing the market price with production costs.
The activities of the merchants may include the following: importing, buying
concentrate, blister or scrap copper for toll smelting/refining for sale
on the "outside" market.
2
For some discussion of this concept, see J.M. Clark, "Toward a Concept of
Workable Competition," The American Economic Review, June 30, 1940, pp. 241-
256; J.M. Clark, Competition as a Dynamic Process (Washington D.C.: The
Brookings Institution, 1961); C.E. Ferguson, A Microeconomic Theory of
Workable Competition (Durham: Duke University Press, 1964); or F.M. Scherer,
Industrial Market Structure and Economic Performance (Chicago: Rand McNally,
1971), pp. 33-38.
9-5
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
In oligopolistic^* markets, by contrast, microeconomic theory no
longer supports the concept or use of a supply function. Deterministic
market solutions, based upon the supply and demand functions alone, are
no longer possible. The reason is, of course, that members of an
oligopolistic industry are no longer price-takers. They are price-setters.
An individual member firm or group of firms in an oligopolistic industry
have pricing discretion. Costs, particularly short-run variable costs,
2
provide a reasonably solid lower bound to pricing behavior, however,
many factors can contribute to pricing behavior and pricing strategies
3
well above costs.
\'e should make it clear, for the general reader, that the term "oligopoly"
or "oligopolistic" covers a wide spectrum of markets, technically
speaking, between the polar conditions of perfectly competitive markets
in one extreme and monopolistic behavior in the other.
"Oligopoly" as a technical economic term is used to describe an industry
or market structure characterized by a great deal of interdependence,
actual or perceived, among the firms in that industry in their capacity
as sellers. By this is meant that the number of firms is small enough
so that the selling price and output decisions or actions of any one
firm will depend on and will affect the policies of its rivals. The
oligopolist is like a person who is playing chess: before taking any
action, he must consider the possible reactions on the part of his
opponent and how to counter them.
In our purely technical usage of the terms "oligopoly" or "oligopolistic,"
we refrain from even remotely rendering any value judgement on the
behavior of the firms involved. We are not unaware of the fact that
these terns, common as they are among economists as purely technical
constructs, have seemingly gained among businessmen a certain pejorative
connotation. None is intended by our use of these terms. Some comfort
may be found in the fact that oligopoly is probably the main market
structure of the business world, a fact noted to the surprise of many
in 1939 by Hall and Hitch as part of the studies of "The Oxford
Economists Research Group." See R. L. Hall and C. J. Hitch, "Price
Theory and Business Behavior," Oxford Economic Papers (1939); re-
printed in T. Wilson and P. W. S. Andrews (eds.), Studies in the Price
Mechanism (Oxford University Press, 1951).
2
In a dynamic model, even this lower bound could be broken.
3
Witness the details of R. F. Lanzillotti, "Pricing Objectives in Large
Companies" American Economic Review, December 1958, pp. 921-940. Also,
see any modern microeconomics textbook, preferably one which deals with
oligopolistic behavior in more than a few pages. For an excellent
reference, see A. Koutsoyiannis, Modern Microeconomics (New York: John
Wiley and Sons, 1975).
9-6
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Given that inevitably a range of possible price and output outcomes
can be expected in oligopolistic markets purely on theoretical grounds,
we have chosen to "bound" the "solution space" or possible (and most
plausible) outcomes analytically in our own modeling work. These limits,
defining the range of possible and plausible outcomes, would enable us
to examine or measure the industry impacts at what we might call extreme
points; this would, then, by definition map out for us the range of
"in-between" outcomes or impact results. This is what we mean by para-
metric approach: we effectively define the parameters (outer boundaries)
of possible outcomes and assess the sensitivity of the impact results to
variations in behavioral parameters.
Both microeconomic theory and a substantial body of empirical
literature on price formation behavior in industries characterized by
oligopolistic features strongly suggest the following three points, corres-
ponding to three different possible pricing strategies of the primary
producers, to define the parametric solution bounds:
• Average variable cqst pricing (AVC = AR, where AVC is the
average variable cost schedule and AR is the net demand schedule
facing the primary producers);
• Full cost pricing (ATC = AR, where AR is as defined and ATC is the
average total cost schedule facing the primary producers); and,
• Implicit monopolistic pricing (obtained via the intersection of
the marginal cost, MC, and marginal revenue, MR, schedules).
The first and third solution points provide the most plausible
theoretical boundaries of the expected market solutions with respect to
prices and output,^" conditioned to great extent by the prevailing macro-
economic factors shaping demand. Ue lay no claim to any argument that
'Another possible solution point is given at MC = AR, since under "normal"
market conditions there would be little micro-theoretic reason for producing
to the right of the intersection of the MC and AR schedules (i.e., in this
region, marginal cost would exceed price). However, it would seem that,
such a solution point, while reasonable from a theoretical standpoint,
does not appear to have a basis in reality, as we understand the industry,
and would provide only a marginal improvement over the range of solutions
that can be expected.
9-7
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
solutions (price, output) would never fall outside this range. In fact,
the model's simulation results over the 1964-1976 period indicates
some years (two or three) when solutions do fall outside such a range, fully
consistent with reality. We are only happy to report that the4.model
has picked this up very well, indeed.
In summary, the pricing strategies or modes of pricing behavior
utilized in the model for analyzing the primary producers identify, first,
the "most likely" or "normal" pricing behavior of the primary producers
in a given year and, second, define reasonably solid bounds around that
"most likely" or "normal" pricing behavior.
"Full cost pricing" (or "average cost pricing") characterizes the
"normal" behavior of the primary producers in a normal year."'" By this
formulation, price is set equal to average total cost, ATC, where average
total cost includes average operating costs (i.e., average variable costs)
plus average fixed costs (which include a target or desired rate of return
on investment). The desired or target rate of return on investment can
be thought of as that return required to maintain and expand the capital
2
stock of the primary producers. In a public utility sense, that target
rate of return is the "fair rate of return" required to attract sufficient
3
new capital.
While "full cost pricing" appears to realistically characterize the
pricing strategy of an oligopolistic firm or group of firms in "normal"
years, with "normal" demand and supply conditions, there are going to be
short-run conditions that deviate such a pricing strategy from its target.
For the primary producers, unforeseen developments including strikes,
For a discussion and bibliography on "full cost pricing," see F. M. Scherer,
Industrial Market Structure and Economic Performance (Chicago: Rand
McNally, 1971) pp. 173-179, 223-224, 290, 305-306; and Edwin Mansfield,
Microeconomic Theory and Applications (New York: W. W. Norton and Co.,
Inc., 1975).
2
For greater elucidation of the use of a target or desired rate of return see
Lanzillotti, op. cic.,; A. D. H. Kaplan, J. B. Dirlam and R. F. Lanzillotti,
Pricing in Big Business (Washington, Dv. C.: The Brookings Ihstitution, 1958),
Scherer, op. cit., Chapters 6-9.
3
See Scherer, op. cit., Chapter 22; and Alfred Kahn, The Economics of Regu-
lation, Vols. 1 and 2 (New York: John Wiley and Sons, 1970).
9-8
Arthur D Little; Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
collapse of world demand, nationalization of ore deposits, and/or over-
heating of world demand during the Vietnamese War years, can impinge
themselves upon pricing and production decisions and prevent the primary
producers from realizing the expected "full cost pricing" strategy.
To take account of the effects of such developments, we have attempted
to provide a bound around the short-run "full-cost pricing" solution
with the "average variable cost" pricing solution (demand-slack solution)
and the "monopolistic" pricing solution (depicting the extreme case of
perfect collusion among the primary producers).
The lower bound on price in a given year has been identified as the
equality of price and average variable costs (AVC). At this point, the unit price
is covering average operating costs alone without any fixed cost coverage.
While this lower bound reflects a possibility in the short-run, a firm
or group of firms cannot price at this lower bound for very long without
going bankrupt.
The short-run upper bound upon price identified for our analysis is the
"monopolistic" point determined by the intersection of primary sector's
marginal cost and marginal revenue curves. Of course, this is a theoretical
upper bound only in the hypothetical sense that perfect collusion exists,
that profit sharing agreements were operative and worked perfectly and
that the marginal cost curve fully articulates this collusive behavior.^
As a matter of fact, the simulation results of the model indicate that
the "monopolistic" price solutions are considerably above the "full
cost pricing" solution in most years. This provides little evidence,
if any, of industry behavior that comes anywhere close to short-run
monopolistic pricing behavior. Both because of legal reasons and because
of the real limit-pricing concern about long-run substitution in demand
to aluminum, it was not, at any rate, expected that the primary producers
would gravitate consistently to a short-run collusive monopolistic price
solution. However, this upper bound has been included for theoretical
reasons, if not for its practical significance.
9-9
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
These three modes of price-setting behavior for the primary producers
are identified as parametric solutions 1. 2 and 3:
(1) Average variable cost pricing (P = AVC);
(2) Full cost pricing (P = ATC);
(3) Collusive monopolistic pricing (MR = MC).
Clearly, the parametric solutions 1 and 3 bound the parametric solution
2 ("normal year, full cost pricing with a target rate of return" solution).
Bounds exist for both price (P^ - P^) and quantity (Q^ - Q^) solutions.
The width of the bounds in a given year are determined by many factors:
the elasticity of demand, the elasticity of supply in the two competitive
sectors, the level of total copper demand, the assumptions regarding the
oligopolistic structure of the primary producers as reflected in the shape
and level of their cost curves.
E. DATA SOURCES AND PROBLEMS
Numerous data sources have been used in our modeling effort, including
published data from the Copper Development Association (CDA), American
Bureau of Metal Statistics (ABMS), U.S. Bureau of Mines, Engineering and
Mining Journal, results of a questionnaire survey of the industry, and the
annual company reports, among others, (e.g., such as internal ADL data
sources). The CDA time-series data on quantities (e.g., tota] copper con-
sumption, output of primary refined copper, etc.) were used, with certain
modifications, mostly because this procedure provided some semblance of
accounting consistency.
The basic point to be made regarding data problems in the copper
industry is that it would take no less than a hercules- effort to develop
a comprehensive set of internally consistent data accurately depicting
this industry's activities. Existing data sources, ars, to say the least,
incomplete and inconsistent. We hence had to devote £ good deal of
effort to make sure the data used were largely internally consistent and
of reliable accuracy. This could not, however, be g-.iranteed across-the-board.
9-10
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
For example, we pretty much had to accept the available data on inventory
changes. Estimates of productive capacity at the mining/milling and
smelting/refining levels required far greater effort than originally
thought.
Finally, while there is obviously room for improvement as far as
the data base is concerned, we have made every effort to use the available
data only after careful checking and verification.
F. ECONOMETRIC ESTIMATION TECHNIQUES USED
Both the linear and nonlinear versions of the model are linear in
the parameters. Hence, linear estimation techniques were used. The data
for the estimation usually covered the period 1947-1974.
The equations in the model contain endogenous variables and a lagged
dependent variable on the right hand side. The technique used in the model
recognizes both these problems. The technique is that suggested by Fair
and is essentially a combination of 2SLS and a correction for autocorrelation.
In general, the autocorrelation correction used was the iterative Cochrane-
2
Orcutt technique. There is the danger, however, that this technique may
3
lead to a local rather than global minimum of the sum of squared residuals.
R. C. Fair, "The Estimation of Simultaneous Equation Models with Lagged
Endogenous Variables and First Order Serially Correlated Errors,"
Econometrica, Vol. 38, May 1970, pp. 507-516.
2
D. Cochrane and G. H. Orcutt, "Application of Least Square Regressions
to Relationships Containing Autocorrelated Error Terms," Journal of the
American Statistical Association, Vol. 44, 1949, pp. 32-61.
3
R. S. Pindyck and D. L. Rubinfeld, Econometric Models and Economic Fore-
casts, (New York: McGraw-Hill, 1976), pp. 111-112.
9-11
Arthur D Little: Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
When this likelihood arose, the Hildreth-Lu scanning technique was used.^
The Hildreth-Lu technique, given the use of a fairly refined grid, will
2
give a global minimum. Full information (3SLS) techniques or mixed
2SLS/3SLS techniques were not utilized, because the increased*computational
and analytical effort was judged unnecessary.
At several junctures in the course of our econometric analysis, the
natural desire to fully analyze, formulate and test sharp behavioral
hypotheses could not be completely fulfilled. The greatest analytical
effort and consequently most thorough hypothesis testing has focused on
demand for refined copper by fabricators and semi-fabricators, inventory
behavior, the supply curves for the secondary producers, and the cost
functions for the primary producers. On the whole, the principal focus
of the econometric analysis has been to develop sound behavioral speci-
fications into a well-functioning simulation model. As a result, the
econometric analysis was conducted until the behavioral specifications
worked well in the model.
G. MATHEMATICAL SOLUTION OF THE MODEL3
In spite of their functional, as well as pragmatic desirability, the
use of simultaneous nonlinear equations presented solution difficulties
that were not easily overcome. We finally used a modified Newton-Raphson
technique that is insensitive to the initial guess for the root. It so
happens that solution convergence using a Newton-Raphson technique is highly
dependent upon the initial guess for the root. It was discovered fairly
G. Hildreth and J. Y. Lu, "Demand Relations with Autocorrelated Disturbances,"
Michigan State University, Agricultural Experiment Station, Technical
Bulletin 276, November, 1960.
2
R. S. Pindyck and D. L. Rubinfeld, op. cit., pp. 112.
3
For a more detailed discussion, refer to Supporting Paper 6: "Mathematical
Solution of the Model," given later in this volume.
9-12
Arthur D Little; Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
early that the use of the previous year's nonlinear parametric solutions
and/or the use of the previous year's linear model solutions did not pro-
vide an "initial guess" good enough for consistent convergence. In order
to annually simulate an unfolding reality over a ten-to-twenty year
period, it was hence necessary to develop a Newton-Raphson technique that
is essentially independent of the initial guess for the root. In spite of
this solution technique, the set of nonlinear equations were found to
become ill-conditioned given some extreme values of the exogenous
variables. For these reasons, the linear form of the model has been
retained in order to back up the nonlinear model if "convergence" or
"ill-conditioning" problems arise.
H. BASIC DIFFERENCES BETWEEN THIS AND OTHER ECONOMETRIC MODELS OF THF
COPPER INDUSTRY ~~
Before designing, econometrically estimating and making operational
the present model, we have reviewed carefully not only past econometric
studies of the copper industry but also the basic facts concerning the
industry's organization, structure and operation. A critical review of
the major recent econometric studies of the copper industry is presented
later in this volume in our Supporting Paper 1: "Econometric Analyses
of the Copper Industry: General Theoretical Considerations and Critical
Review of Selected, Empirical Studies." Among these past econometric
attempts, the work of Charles River Associates, Inc. (CRA) has been of a
continuing nature, resulting in an operational model which, as far as
we are aware, is still very much in use. Although, in our own work, we
have benefited substantially from these past efforts on which we have
reported (and a few on which we have not reported to avoid excessive
repetition),^ we would like to use the CRA model as a point of comparison,
For example, the following: Tumay Ertek, "World Demand for Copper, 1948-
1963: An Econometric Study," Unpublished Ph.D. Thesis, The University of
Wisconsin, 1967; and some econometric work reported in Ferdinand E. Banks,
The World Copper Market: An Economic Analysis (Cambridge, Mass.: Ballinger
Publishing Company, 1974).
9-13
Arthur D Little Inc.
-------
.DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
mostly as a way of conveying our intellectual debt.
First, we have made an effort to develop a dynamic model of the
Industry, by explicitly embedding into the model the industry's investment
behavior. This was particularly important in this case in order to cope
in an analytically satisfactory way with the implications of pollution
abatement investment. As indicated earlier, smelting/refining capacity
expansion was made endogenous in the present model; for reasons already
cited, mining/milling capacity expansion was treated exogenously, along
with pollution abatement investment. The incorporation of investment
behavior in the model enables us to trace through the effects of increases
in investment year-by-year on the cost functions of the primary producers.^"
Second, going beyond the essentially static linear case, we have
attempted to develop a nonlinear model of the U.S. copper industry, which
we feel introduces a far greater element of realism into our modeling
effort.
Third, the supply curve utilized by CRA (as well as others) for the
primary producers is not supported by microeconomic theory under conditions
where (as here) the behavior of the firms in the industry is not characterized
by perfect competition. We have hence explicitly attempted to deal with
the problem of a non-existent industry supply function by taking two
direct approaches. We have first focused attention on the cost schedules
of the primary producers, by estimating engineering cost functions and
by building a link between capacity expansion and shifts in these cost
functions. We have secondly introduced the "parametric approach" to
bound the model's solutions in any given year, as explained above.
Fourth, the model presented here is a fully simultaneous system.
2
The CRA approach was essentially block-recursive, with the attendant
How this process is computationally accomplished is detailed in Supporting
Paper 4: "Analysis of Capital Charge Coefficients .and. Eixed Costs for the
Primary Producers."
I
On this point, it must be pointed out that the CRA September, 1970 report
is not as explicit as the earlier March, 1970 report.
9-14
Arthur D Little; Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
problems of simultaneity. The price of primary copper is determined by
exogenous variables and primary copper production is determined by that
price and the exogenous variables. The second equation block determines
(total consumption of copper), Pg (price of scrap), Qq<, (recovery of
copper from old scrap), Q^g (generation of new scrap), NE^ (net exports
of refined copper), and changes in Ip (fabricators' end of year in-
ventories of refined copper), and P (weighted average price of copper)
simultaneously.
Fifth, the CRA treatment of all secondary copper as old and new
scrap ignores the distinction between secondary refined copper and non-
refined scrap, which we have tried to retain in our analysis.
Sixth, the categorization of ASARCO as a secondary refiner by CRA
displays a basic confusion not only between custom-refining and toll-
refining but also concerning ASARCO's role in the domestic copper industry.
Quite apart from its role as a producer of secondary refined copper,
ASARCO1s activities have in the past included the smelting and refining
of its own mine output, as well as custom and toll smelting/refining.
As far as we have been able to ascertain, ASARCO's behavior over the entire
historical period has not warranted its classification as a secondary
refiner (and, hence, its inclusion as part of the "outside" market).
There may remain other differences in approach between the model
presented here and the CRA model (as well as other previous modeling
attempts); these can be gleaned by reading Supporting Paper 1: "Econo-
metric Analyses of the Copper Industry: General Theoretical Considerations
and Critical Review of Selected Empirical Studies."
9-15
Arthur D Little Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
CHAPTER 10
ECONOMIC IMPACT ANALYSIS
A. INTRODUCTION
This chapter presents an assessment of the economic impact of the
presently promulgated air and water pollution abatement and control regu-
lations on the U.S. copper industry over the period 1976-1985.
The objective of economic impact analysis is to identify and assess
what effects, if any, environmental regulations would have on such key
economic variables as prices, output, consumption, investment, employment
and international trade, among others. At the Industry level, the impact
analysis might further focus, as appropriate, on the financial performance
of the industry, by considering the cost of capital and capital availability,
as well as the cash-flow position, external financing requirements and
profitability of the firms in the industry. It is also Important to analyze
the impact of compliance on the industry's structure, by considering effects
on the degree of competitiveness or concentration. Effects on the supplier
as well as the consumer industries may also require examination. In addi-
tion, effects on the international competitive position of the domestic
industry or industries deserve emphasis. Finally, it is necessary to
Identify possible plant closures and assess regional or community Impacts.
One main causal route through which environmental regulations may lead to
such economic impacts is the additional cost borne by the industry to meet
environmental regulations. The costs of compliance with environmental regu-
lations, defined narrowly to include both capital expenditures (fixed costs)
and operating and maintenance expenses (variable costs), cause an upward shift
10-1
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
in the Industry's pertinent cost schedules, thus ultimately affecting prices,
production, and the whole range of economic variables indicated earlier.
How precisely compliance costs affect production costs (or supply) becomes,
therefore, analytically important for economic impact analysis.^ Compliance
costs, serving generally as the central causal instrument, hence represent
an input into economic impact analysis; compliance costs and economic
impacts are, in this sense, not synonymous.
^"For a review of how the cost schedules are affected by compliance costs,
refer to Technical Appendix to this report, Econometric Simulation and
Impact Analysis Model of the U.S. Copper Industry, Supporting Paper 5:
"Effects of'Pollution Abatement and Control Costs on Industry-Wide Cost
Functions.11
As indicated here, in the short-term (e.g., a year), the case of pollution
abatement cost Impact is perfectly analogous to the case of a specific tax
levied on the output of the firms in the industry (e.'g., x cents per pound
of refined copper) only in the restricted instance of an upward shift in
the industry's total variable cost function. Consequently, the average
variable cost (AVC), average total cost (ATC), and marginal cost schedules
(curves, functions) shift upward by a constant.
However, in the case of pollution abatement and control capital investment
only, average fixed cost (AFC) and ATC schedules shift upward (which in-
creases in severity at lower levels of capacity), while the AVC and MC
schedules are not affected.
If compliance costs involve both capital expenditures and variable costs,
then assuming linear total cost, total fixed cost, and total variable cost
functions, the AVC, MC, AFC and ATC schedules all shift upward; while AVC
and MC shift upward by a constant, the shift in AFC and ATC becomes Increas-
ingly severe at lower levels of production. Given a typical downward-sloped
industry demand schedule, these results have different implications for
industry price-output determination behavior and therefore impact results,
depending on market structure.
Over time, while the demand schedule would be expected to shift secularly
to the right, the relevant cost functions would be shifting not only to
the right (with capacity expansion) but also upward, both secularly (in
the case of an increasing cost Industry) and because of compliance costs
(in each year as well as In prior years).
10-2
Arthur D Little; Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Pro/ect Officer, since the document
may experience extensive revision during review.
Another route through which environmental regulations may lead to such
economic impacts is by adversely affecting, directly or indirectly, expansion
in the industry's productive capacity. The promulgated environmental regu-
lations may directly affect capacity growth by specifying in technical
detail the conditions under which the industry may or may not expand existing
capacity or build new capacity. The effects on capacity growth may also
take a slightly indirect form, with potentially equal consequences: compliance
costs may cause the actual shutdown of plants or may slow down capacity growth.
Alternatively, the uncertainty caused by both the evolving (i.e., "moving
target") nature of environmental regulations plus costs of compliance may
together impede capacity growth by influencing the timing of investment as
well as perceptions concerning the riskiness of investment.
In examining the economic impact of environmental regulations on an
industry, it is necessary to assess not only (or simply) the economic impacts
of costs of compliance as such but also the economic impacts of constraints
on capacity growth caused directly or indirectly by environmental regulations.
This could prove quite difficult analytically, however, and is often not
addressed in most industry impact studies.^" In certain situations (such as
in the case of the domestic copper industry, as detailed in Chapter 8 and
further noted below), the economic impacts of capacity-constraining or
capacity-reducing influences of environmental regulations may far outshadow
the economic impacts of compliance costs as such.
Generally, it is necessary to develop a model of the real world (i.e.,
the industry under consideration) which can be used for impact analysis.
"'"The analytical difficulty lies chiefly in quantifying the negative effects of
compliance costs on future investment behavior and therefore capacity growth.
10-3
Arthur D Little: Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
This is primarily because model building forces us to think clearly about
and account for all the important interrelationships involved in a problem.
With or without models, the basic analytical issue at hand is to assess to
what extent compliance with environmental regulations will influence the
course of a set of pertinent economic variables (at the national, industry
and regional levels), over a period of time in the future.
Economic impacts are typically measured as differences from a set of
baseline forecasts. Baseline forecasts trace out the values that all
pertinent variables would take, over a period of time, in the absence of
environmental regulations."*" With the regulations, both because of increased
costs of production due to compliance costs and the adverse effects, if any,
of environmental regulations on capacity growth, the same variables would
take new values, over the same time period. The differences are attributed
to the environmental regulations.
With these introductory considerations in mind, it should be noted that
we have assessed the economic impacts of the presently promulgated air and
water regulations on the U.S. copper Industry by developing and using a
computerized model which can be described in more technical terms as a
dynamic nonlinear simultaneous-equation econometric model of the U.S. copper
Industry. An overview of this model is presented in Chapter 9. A technical
description of the model is given in a separate volume prepared as a technical
'At least in substantial absence of environmental regulations.
10-4
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
appendix to this report.*
Very briefly, the model considers, within an interdependent framework,
such variables as demand (paying attention to substitution from aluminum),
costs of production facing the primary producers, the relationship between the
primary and secondary producers, supply functions of secondary producers (re-
fined and scrap), prices, inventories, investment and international trade.
2
It also allows analyses of the industry's financial performance annually.
Costs of production are directly factored into the model through engineering
cost functions so that technological developments affecting mining, milling,
smelting and refining operations can be readily assessed.
The model is currently programmed to simulate the growth and evolution
of the industry year-by-year through 1985. The model is used to develop
annual forecasts over the period 1976-1985, which defines the impact analysis
Refer to Technical Appendix to this report, Econometric Simulation and Impact
Analysis Model of the U.S. Copper Industry. The model is econometrically
estimated (Including demand functions, investment/capacity expansion behavior,
supply functions for the competitive secondary copper sectors, inventory
equations, etc.) by using a combination of 2SLS with a correction for auto-
correlation (iterative Cochrane-Orcutt technique, augmented by the use of
the Hildreth-Lu scanning technique when the former led to a local, rather
than global, minimum of the sum of squared residuals).
The model is mathematically solved by developing and using a modified version
of the Newton-Raphson technique where the solution is made essentially
independent of the initial guess for the root.
2
The financial analysis module is block-recursive with respect to the econo-
metric model. Overall cash-flow and flow-of-funds (sources vs. uses)
analyses are performed, by analyzing financial data computed directly from
the model's results, as well as on the basis of detailed historical industry-
wide and specific company-by-company financial data. Various types of
standard financial checks are exercised, by examining debt-to-equity ratios,
amount of external borrowing required, profits on sales, rate of return on
assets, and so forth.
10-5
Arthur D Little Inc
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
period, under baseline conditions as well as under alternative environmental
scenarios (described below). Under baseline conditions, the model internally
(endogenously) forecasts the industry's capital expenditures for both replace-
ment and expansion and therefore the industry's capacity growth.^ Under
environmental scenarios, the industry's capacity growth is no longer Internally
forecasted by the model since, as detailed in Chapter 8 and summarized below,
the presently promulgated environmental regulations effectively constrain
capacity expansion. That is, capacity expansion routes available in the past
can no longer be used. Hence, it was necessary to conduct a smelter-by-smelter
analysis outside the model, build the results into the model and subsequently
use the model to determine the economic impacts of both compliance costs
and constraints on capacity growth simultaneously. What the model does for
impact analysis purposes, therefore, is simply to spell out in quantitative
terms, in an internally consistent and comprehensive manner, the implications
of both compliance costs and constraints on capacity growth.
In the rest of this chapter, our aim is to present and interpret main
economic impacts of alternative environmental scenarios. To this end, we
start with a definition of the baseline conditions and forecasts which provide
a point of reference for impact analysis. Following this, we define two
The starting year for both baseline and impact analysis forecasts using the
model is chosen as 1976, for both practical and theoretical reasons. Practically
speaking, the analysis is focused on the future and not on the past, so that
the future implications of the presently promulgated environmental regulations
can be clearly spelled out.
Theoretically speaking, how the course of the U.S. copper industry might have
been different in years prior to 1976 (most Importantly, over the period
1970-1975, when the industry was required to allocate resources towards
compliance with environmental regulations) poses a nearly Intractable analytical
problem. At any rate, any past impacts of environmental regulations, as will
be seen, in no way diminish the dimensions of economic impacts expected in
the future.
10-6
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
basic environmental scenarios (i.e., "constrained capacity" and "reduced
capacity") for economic impact analysis. These two environmental scenarios
effectively represent two different pictures as to the industry's ability
to expand domestic smelter capacity, over the 1976-1985 period, under the
presently promulgated environmental regulations. A discussion of the
economic impact results under these two basic environmental scenarios, using
the model, is presented next. We also examine, in this connection, the sensi-
tivity of key impact results to a hypothetical relaxation of EPA's present
regulations (which is labelled the "roll-back" scenario), not only for
pedagogical reasons but also to investigate the highly practical question of
what the consequences might be of a significant relaxation in EPA's present
regulations.
The quantifiable impact results derived from the model have broader
implications or raise certain issues that we have attempted to identify
next. These unquantified (unquantifiable) issues/implications, some of
which would be of obvious policy concern, are identified by reference to three
major areas: (a) the present regulatory environment, (b) issues pertaining
to the growth of the domestic copper indsutry, and (c) international economic
implications.
Appendices A, B and C contain model printouts giving baseline fore-
casts and the results of the two environmental scenarios tested (i.e.,
"constrained capacity" and "reduced capacity"). Appendix D provides a
list of all model variables.
10-7
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
B. BASELINE CONDITIONS AND FORECASTS
Baseline conditions, or forecasts, provide a point of reference from
which comparisons can be made In order to gauge the relative and absolute
magnitude of economic impacts. Such a reference point helps define the
evolution, growth and performance of the U.S. copper industry over the
Impact analysis period. The baseline assumes the existence of National
Ambient Air Quality Standards^ but the absence of additional restrictions
regarding how such standards might be achieved.
The baseline therefore assumes that the Industry would have expended
capital investment over the 1972-1975 period in order to have capacity
expansion come on stream In 1976 and thereafter, even after allowing for
the Industry's pollution abatement Investment during this period, and that
the uncertainties associated with environmental regulations affecting invest-
ment decisions over this period were largely absent.
The baseline costs for new productive capacity take into account tech-
nological changes and associated pollution control. Pollution control costs
are hence treated as part of costs of production. Other Federal regulatory
programs (e.g., OSHA, etc.) are excluded. However, any future effects on
the industry of past pollution control efforts Implicitly remain a part
of the baseline conditions.
A detailed set of the baseline forecasts of the U.S. copper industry is
given in Appendix A to this chapter, together with a list of the forecasted
values of the exogenous variables.
^This assumes, in other words, voluntary industry compliance with the
National Ambient Air Quality Standards through minimal permanent control
and extensive use of SCS.
10-8
Arthur D Uttle Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Before testing for the economic impacts of the various environmental
policy options, the model was run under numerous baseline scenarios. These
have included:
• alternative macroeconomic recovery and growth scenarios ("slow",
"moderate", "robust"), including expected economic recovery and
growth in Europe;
• alternative sets of forecasts of LME refined copper prices, consistent
with the forecasted macroeconomic conditions (both in the United
States and Europe) and reflecting expected growth in mined copper
output in the rest of the world;
• alternative estimates of increases in costs of production at pro-
duction levels near full capacity (e.g., in the region beyond
roughly 86 percent of installed capacity);
• alternative mining/milling investment levels, estimates of the
cost of capital, target rates of return, machinery/equipment retire-
ment rates, capital charge coefficients on existing and new (both
productive and pollution control) investment.
Broadly speaking, the results of the model under a fairly wide range
of assumptions are found to be internally consistent, directionally correct
and, perhaps most importantly, extremely stable.
The baseline forecasts used for impact analysis reported in this chapter
are based, in part, on macroeconomic forecasts (e.g., growth in overall
industrial production, inflation, interest rate, etc.) over the period 1976-
1983, prepared by Chase Econometrics, Inc., under contract with U.S.
Environmental Protection Agency (EPA).^" Macroeconomic forecasts beyond
^The May 17, 1976, version of the Chase Econometrics, Inc., forecasts are used.
10-9
Arthur D Little, Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
1983 reflect ADL growth assumptions. Some of the key Chase Econometrics,
Inc., forecasts are summarized In Table 1. A complete listing of the base-
line macroeconomlc growth variables and other Independent variables over
the 1976-1985 period, as well as the associated baseline model forecasts
are presented In Appendix A to this chapter.
The macroeconomlc forecasts prepared by Chase Econometrics, Inc., for
EPA and used in this study for baseline forecasts in order to provide
consistency with other EPA studies generally anticipate moderate economic
recovery (in 1976 and 1977) followed by a slowdown or mini-recession (in
1978, 1979), In turn followed by a strong recovery and steady growth (1980-
1983).
The impact results reported in this chapter assume cyclical, but robust,
recovery and growth, as noted above; the Impacts under macroeconomlc pro-
jections reflecting much less robust economic recovery and growth are
similar, although slightly smaller in absolute terms but remain generally
the same in relative terms (as percent differences from the baseline).
Selected baseline forecasts over the period 1976-1985 using the Chase
Econometrics, Inc., macroeconomlc growth scenario (with ADL macroeconomlc
assumptions beyond 1983 plus ADL assumptions on other independent variables)
are presented in Table 2, under the column "Macro II." In order to test for
the sensitivity of baseline forecasts to a considerably less robust macro-
economic growth scenario, we have prepared a new or modified set of baseline
forecasts by judgmentally modifying the Chase forecasts. The results of
this modified macroeconomlc scenario are given in Table 2 under the column
"Macro I." The basic difference between Macro I and Macro II is that the
10-10
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
growth in industrial production over the 1976-1985 period is 2.43 percent
per year under Macro I, while it is 4.56 percent per year under Macro II.
The baseline results, consequently, show considerable spread over the
1976-1985 period, as given in Table 2. The major point to which we would
like to draw attention here is that the baseline scenario used for impact
analysis purposes should be viewed not as precise predictions of the
future but as directionally plausible forecasts. Since obviously there
exists considerable variability in what the future might hold under base-
line conditions (as just indicated), our basic interest for analytical
purposes is to focus on percent deviations from baseline forecasts, under
alternative environmental scenarios, and not as much on absolute deviations
from baseline forecasts. We can report at this point, anticipating the impact
analysis discussion given below, that the impact results (defined as percent
deviations from baseline forecasts) are fairly invariant under different
macroeconomic growth scenarios.
10-11
Arthur D Little, Inc
-------
TABLE 1
SUMMARY OF BASELINE MACROECONOMIC FORECASTS PREPARED BY
CHASE ECONOMETRICS, INC., 1976-1983
0
1
ro
(Percent Change Given in Parentheses)
1976 1977 1978 1979 1980 1981 1982 1983
3 o °
GNP (billions, 1972 1,263.3 1,324.1 1,331.4 1,344.1 1,417.9 1,508.8 1,584.6 1,651.8 " § I >
dollars) (-) (4.8) (0.6) (1.0) (5.5) (6.4) (5.0) (4.2) S 3 g ZJ
3 a
Index of Industrial i J S g
Production 124.2 136.0 134.7 131.6 140.6 155.5 167.3 176.8 8 ™ 3 §
(1967 = 100.0) (-) (9.5) (-0.9) (-2.3) (6.9) (10.6) (7.6) (5.7) S'S ,
| * | H
Prime Interest Rate 7.5 10.1 10.0 7.1 7.2 7.7 7.8 8.0 § 3 ? ®
| S 3 |
GNP Implicit De- 133.2 141.6 150.4 157.6 165.5 174.2 183.3 192.9 »o° ?
flator (1972 = (-) (6.3) (6.2) (4.8) (5.0) (5.3) (5.2) (5.2) § f f. ='
100.0) fJS g I
3 s s §
Wholesale Price 3 ® £• S.
Index—Industrial 1' ? < o
Commodities 183.1 199.4 217.7 230.5 247.9 263.4 278.7 295.1 S a ? 8
(1967 = 100.0) (-) (8.9) (9.2) (5.9) (7.5) (6.3) (5.8) (5.9) 8 g 3
5 ~ 5
3 is"
3 3 5
H H (D
Source: Chase Econometrics, Inc. (May 17, 1976).
>
3
3"
C
-I
O
CT
{L
R
-------
TABLE 2
SELECTED BASELINE FORECASTS UNDER TWO ALTERNATIVE MACROECONOMIC
GROWTH SCENARIOS, 1976-1985
1976 1985
Variable Description Macro I Macro II Macro I Macro II
Net imports*5 52.6 134.7 247.0 377.0 ® m -S 3
S > §1
c
d
3 g -g o
< S 2 -»
Primary refined copper prices 67.4 66.3 81.4 105.3 0 2 B >
(cents per pound) -5 f o H
® (O ^ 3J
Primary refined copper production3 1,973.7 2,066.2 2,741.3 3,110.9 § 5 S ?
<» O
O
Total consumption 3,424.4 3,587.5 4,685.7 5,350.0 =>
2 J n
<
Employment 49,152 51,314 68,342 7 7,028 " £ § 3
® " cL
Domestic primary smelting/refining ; ?
capacitye 2,605 2,605 3,148 3,449 I ? Er 5
o. 8 5« S
Capacity utilization .758 .793 .871 .902 5 3 5
5': » o
10 3 ® 3
_ Q n
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
C. DEFINITION OF INDUSTRY GROWTH SCENARIOS FOR ECONOMIC IMPACT ANALYSIS
The copper industry has traditionally Increased smelting capacity via
small expansions at existing smelter locations. The construction of smelters
In new locations ("grass roots" smelters) or similar major expansions,
have been rather the exception and not the rule In the past. The lead time
required for planning, engineering, construction, shake-down and start-up
for small expansions at existing sites Is about three years while that for
new grass roots smelters is about seven years.
Chapter 8 presented a detailed discussion of the impact of the Clean
Air Act requirements (as interpreted by the EPA) on modes of capacity growth
in this industry. The major findings are that existing regulations do not
allow small expansions of the type used traditionally by the industry. While
there are some uncertainties, the regulations do allow the construction of
NSPS calibre smelters in new or existing smelter locations. At the present
time, we are not aware of any major smelter construction projects that are
under active consideration. Thus, given the time lags in the system, new
capacity will not come on-stream until 1984.
The detailed findings from Chapter 8 are summarized below:
1. Small smelter expansions (which could occur prior to 1983) are
not possible because emissions from a plant cannot increase above the limit
defined by applying "Reasonably Available Control Technology" (RACT). Even
if such a RACT limit did not exist the "Modification and Reconstruction
Provisions" of the New Source Performance standards would prevent any
significant modification of existing reverbs necessary to increase smelting
capacity.
10-14
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Proiect Officer, since the document
may experience extensive revision during review.
2. Existing RACT smelters could expand significantly after 1983 by
installing new smelting technology but by operating under the RACT limit.
There is some concern that such expansion might be disallowed under New
Source Review. The probability of such disallowance is very low and we
assume that this type of expansion will occur after 1983.
3. Existing BACT smelters have a low expansion potential since they
cannot use SCS and they are already close to the constant emission control
limitations.
A. "Grass roots" smelters for clean concentrates have to use Best
Available Control Technology (BACT), such as autogeneous or electric smelting
and therefore cannot use SCS. These smelters would meet NAAQS by using
tall stacks for dispersing collected emissions. We assume that this type
of expansion will occur after 1983. While reverb-based smelters are allowed
for smelting impure concentrates, such smelters cannot be built in most
locations since SCS is not allowed. This is because SCS is usually necessary
to reverb-based smelters for meeting NAAQS. However, there is no demand
for smelting capacity of this type.
5. All smelters (reverb-based smelters as well as new smelters based
on the Best Available Control Technology) might exceed NAAQS in the vicinity
of the smelter as a result of low level fugitive emissions. It is not
clear whether SCS can be a useful strategy for dealing with the fugitive
problem. This problem could be dealt with by acquiring land in several
kilometer radius around a smelter. Such a strategy is probably impossible
for existing smelters but could be feasible for new "grass roots" smelters
in remote locations. We assume that this potential problem will be resolved
10-15
Arthur D Little, Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
without major cost consequences to the industry.
In accordance with our interpretation of how recent EPA regulations
affect domestic smelting capacity growth, highlighted above, we have defined
two basic policy scenarios for purposes of economic impact analysis
(1) "constrained capacity" and (2) "reduced capacity."
1. Constrained Capacity
This is currently the most likely scenario, reflecting restrictions on
smelting capacity expansion in the short run. Accordingly, this scenario
assumes no capacity expansion until 1984 for reasons discussed above.
We assume 200,000 annual short tons of new smelting (and refining) capacity
will come on-stream in 1984 and another 200,000 annual short tons in 1985.
We also assume that none of the existing smelters will shut down.
2. Reduced Capacity
This scenario, which is the more severe, assumes that the uncertainties
in the regulations or economic conditions will delay any new smelting capacity
until after 1985. We also assume that two smelters (e.g., McGill and
Douglas)^" will close In 1977 and 1979, respectively.
78,000 annual short tons of refined copper equivalent; assumed to
close down in 1977; domestic smelting/refining capacity is hence
assumed to drop by 78,000 annual short tons at the beginning
of 1978.
90,000 annual short tons of refined copper equivalent; assumed to
close down in 1979; domestic smelting/refining capacity is hence
assumed to drop by 90,000 annual short tons at the beginning of
1980.
10-16
^McGill:
Douglas:
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Protect Officer, since the document
may experience extensive revision during review.
Expected pollution abatement and control capital expenditures, as
well as operating and maintenance costs over the period 1976-1985, under
the two policy scenarios just described, are given in Table 3. Pollution
control capital investment is $746.0 million under the Constrained Capacity
Scenario and $586.0 million under the Reduced Capacity Scenario (in constant
1974 dollars) over the period 1976-1985 (compared with $868.7 million over
the period 1970-1975, in constant 1974 dollars). Operating and maintenance
costs are increased about 2.5 cents per pound of refined copper over baseline,
requiring total expenditures of $1,172.2 million over the period 1976-1985
under Constrained Capacity and $1,097.1 million under Reduced Capacity.
Capital expenditures for pollution abatement and control undertaken
in a given year do not necessarily measure actual costs incurred in that
or subsequent years. This is because the useful life of a machine or
equipment extends many years and the real costs associated with the
acquisition of a machinery or equipment are spread over its entire useful
life, encompassing depreciation, interest payments and the like. These
are fixed costs, faced annually, over many years. It is therefore
necessary to translate initial pollution abatement and control investment
levels into fixed costs spread over many years, using fixed charge coefficients.
This is accomplished in Table 4.
It can be seen in Table 4 that fixed costs faced in 1985, for example,
include fixed costs due to pollution control equipment installed in
all years since 1970.
Table 5 summarizes the expected annualized fixed costs and variable
(operating and maintenance) costs over the period 1976-1985 (in constant
10-17
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 3
EXPECTED POLLUTION ABATEMENT AND CONTROL EXPENDITURES BY THE U.S.
COPPER INDUSTRY,3 1976-1985
(in millions of 1974 dollars)
Capital Expenditures Operating and Maintenance Costs Total
Constrained Reduced Constrained Reduced Constrained Reduced
Years Capacity Capacity Capacity Capacity Capacity Capacity
1976
156.0
156.0
99.5
99.5
255.5
255.5
1977
90.0
90.0
112.4
112.9
202.4
202.9
1978
60.0
60.0
115.8
111.8
175.8
171.8
1979
40.0
40.0
116.2
112.2
156.2
152.2
1980
40.0
40.0
115.1
108.4
155.1
148.4
1981
60.0
40.0
115.9
109.1
175.9
149.1
1982
100.0
40.0
117.2
110.3
217.2
150.3
1983
100.0
40.0
117.8
110.9
217.8
150.9
1984
60.0
40.0
126.5
110.9
186.5
150.9
1985
40.0
40.0
135.8
111.1
175.8
151.1
1976-1985
746.0
586.0
1,172.2
1,097.1
1,918.2
1,683.1
NOTESa a
' Tiot including secondary smelters/refiners.
^Figures given here refer to expenditures (dollar outflows), not to increased fixed costs. In the model,
these investment figures are translated inL" annualized fixed costs through the use of capital
charge coefficients (refer to Arthur D. Little, Inc. [ADL], Econometric Simulation and Impact
Analysis Model of the U.S. Copper Industry. Technical Appendix to this report.
cIncreases in variable costs due to pollution abatement and control, estimated at about 2.5 cents per
pound of refined copper. These figures are obtained by multiplying 2.5 cents per pound by model
solutions for primary refined copper output.
^These estimates reflect pollution control capital expenditures at existing facilities plus
pollution control lnvesment associated with capacity expansion coming on-stream in 1984 and 1985.
The latter would add about $80 million associated with capacity growth expected to come on-stream
in 1984 (200,000 annual short tons) and roughly another $80 million associated with capacity growth
expected to come on-stream in 1985 (200,000 annual short tons). These two latter amounts are time-
phased as follows:
Associated with capacity growth coming
Year of on-stream In ($ millions) Total
Spending 1984 _ 1985 ($ millions)
1981
20

20
1982
40
20
60
1983
20
40
60
1984

20
20
SOURCE; Arthur D. Little, Inc., estimates.'
10-18
-------
TABLE 4
Years When
Fixed Costs
Are Faced
1970
1971
1972
1973
19 74
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
TRANSLATION OF EXPECTED POLLUTION ABATEMENT AND CONTROL CAPITAL EXPENDITURES BY THE U.S. COPPER INDUSTRY INTO
ANNUALIZED FIXED COSTS, 1970-1985
(in millions of 1974 dollars)
"CONSTRAINED CAPACITY" SCENARIO
(Pollution Abatement and Control Capital Expenditures, by Year, and Resulting Annual Fixed Costs in Subsequent Years)3
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984
20.9
30.0 146.4 204.6 226.0 240.8 156.0
90.0
60.0
40.0
40.0
60.0 100.0 100.0
60.0
3.55
3.55 5.10
3.55 5.10 24.89
3.55 5.10 24.89 34.78
3.55 5.10 24.89 34.78 38.42
3.55 5.10 24.89 34.78 38.42 40.94
3.55 5.10 24.89 34.78 38.42 40.94 26.52
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20
3.55 5.10 24.89 34. 78 38.42 40.94 26.52 15.30 10.20 6.80
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80
0-63 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80
0 63 0.90 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80
0-63 0.90 4.39 34.78 38.42 40.94 26.52 15.30 10.20 6.80
1985 Annualized
Fixed Costs
40.0 By Year
6.80
6.80 10.20
6.80 10.20 17.00
6.80 10.20 17.00 17 00
6.80 10.20 17.00 17.00 10.20
6.80 10.20 17.00 17.00 10.20
3.55
8.65
33.54
68.32
106.74
147.68
174.20
189.50
199.70
206.50
213.30
223.50
240.50
254.58
264.78
6.80 271.58
>
3
zr
c
These estimates, obtained outside the model (where annualization is computed internally), reflect the following major assumptions:
(1) useful economic life of 13 years, (2) fixed charge coefficient of 0.17 (i.e., 17 percent), (3) continued fixed cost at
3 percent of original cost beyond the first 13 years, to reflect continued general administrative expenses. It is implicit from
these assumptions that the full initial cost is paid off in 13 years.
SOURCE: Arthur D. Little, Inc. estimates.
8
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 5
ANNUALIZED FIXED AND VARIABLE (OPERATING AND MAINTENANCE)
COSTS DUE TO POLLUTION ABATEMENT AND CONTROL, THE U.S.
COPPER INDUSTRY, 1976-1985
(In millions of 1974 dollars)
CONSTRAINED CAPACITY SCENARIO
Variable
Annualized (Operating and Total &
Years Fixed Costs Maintenance) CostB Annualized Costs
1976
174.2
99.5
273.7
1977
189.5
112.4
301.9
1978
199.7
115.8
315.5
1979
206.5
116.2
322.7
1980
213.3
115.1
328.4
1981
223.5
115.9
339.4
1982
240.5
117.2
357.7
1983
254.6
117.8
372.4
1984
264.8
126.5
391.3
1985
271.6
135.8
407.4
Not6S* 3
' It should be noted that annualized fixed costs over the period
1976-1985 Include annualized fixed costs due to pollution abatement
and control capital expenditures incurred in earlier years.
Source: Based on Tables 3 and 4.
10-20
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
1974 dollars) due to pollution abatement and control under the Constrained
Capacity Scenario.
Tables 6 and 7 refer to the Reduced Capacity Scenario and provide
information on annualized fixed costs (Table 6), followed by a summary
of both annualized fixed costs and variable (operating and maintenance)
costs over the period 1976-1985 (Table 7).
10-21
Arthur D Little Inc
-------
TABLE 6
TRANSLATION OF EXPECTED POLLUTION ABATEMENT AND CONTROL CAPITAL EXPENDITURES BY THE U.S. COPPER INDUSTRY INTO
ANNUALIZED FIXED COSTS, 1970-1985
(in millions of 1974 dollars)
"REDUCED CAPACITY" SCENARIO
(Pollution Abatement and Control Capital Expenditures, by Year, and Resulting Annual Fixed Costs in Subsequent Years)
Years When
Fixed Costs
Are Faced
1970
1971
1972
1973
1974
1975
1976
; 1977
* 1978
1979
1980
1981
1982
1983
1984
1985
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Annualized
Fixed Costs
40.0 40.0 40.0 40.0 40.0 40.0 40.0 By Year
20.9
30.0 146.4 204.6 226.0 240.8 156.0 90.0 60.0
3.55
3.55 5.10
3.55 5.10 24.89
3.55 5.10 24.89 34.78
3.55 5.10 24.89 34.78 38.42
3.55 5.10 24.89 34.78 38.42 40.94
3.55 5.10 24.89 34.78 38.42 40.94 26.52
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80 6.80
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80 6.80
3.55 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80 6.80
0.63 5.10 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80 6.80
0.63 0.90 24.89 34.78 38.42 40.94 26.52 15.30 10.20 6.80 6.80
0.63 0.90 4.39 34.78 38.42 40.94 26.52 15.30 10.20 6.80 6.80
6.80
6.80
6.80
6.80
6.80
6.80
6.80
6.80
6.80
6.80
6.80
6.80
6.80
6.80
3.55
8.65
33.54
68.32
106.74
147.68
174.20
189.50
199.70
206.50
213.30
220.10
226.90
230.78
233.38
6.80 219.68
>
3
3"
c
o
C"
/T
8
NOTES: (See Table 2)
SOURCE: Arthur D. Little, Inc. estimates.
-------
Years
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
Notes:
Source
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 7
ANNUALIZED FIXED AND VARIABLE (OPERATING AND MAINTENANCE)
COSTS DUE TO POLLUTION ABATEMENT AND CONTROL, THE U.S.
COPPER INDUSTRY, 1976-1985
(in millions of 1W4 dollars)
REDUCED CAPACITY SCENARIO
Variable
Annualized (Operating and Total
Fixed Costs Maintenance) Costs Annualized Costs
174.2
99.5
273.7
189.5
112.9
302.4
199.7
111.8
311.5
206.5
112.2
318.7
213.3
108.4
321.7
220.1
109.1
329.2
226.9
110.3
337.2
230.8
110.9
341.7
233.4
110.9
344.3
219.7
111.1
330.8
It should be noted that annualized fixed costs over the period
1976-1985 include annualized fixed costs due to pollution
abatement and control capital expenditures incurred in earlier years.
Based on Tables 3 and 6.
10-23
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
D. DISCUSSION OF ECONOMIC IMPACTS UNDER "CONSTRAINED CAPACITY" AND
"REDUCED CAPACITY" SCENARIOS
The model has been used to measure economic impacts under the Constrained
Capacity and Reduced Capacity scenarios, as defined above. Model results,
together with assumptions on exogenous variables, are presented as three
appendices to this chapter. Appendix A contains baseline forecasts, while
Appendix B and Appendix C contain, respectively, forecasts under the
Constrained Capacity and Reduced Capacity scenarios.
The combined effects on both capacity constraints and pollution control
expenditures in terms of their economic impacts are summarized below.
1. Summary of Economic Impacts
Table 8 compares the baseline with the Constrained Capacity and the
Reduced Capacity Scenario results. The impacts can be summarized as follows:
a. Impact on Prices
Compared to the baseline, real prices in 1983 are 13.5 percent higher
under Constrained Capacity and 17.2 percent higher under Reduced Capacity.
By 1985, real prices are 24.4 percent higher under Reduced Capacity but
10.3 percent higher under Constrained Capacity.
Clearly, price Impacts under both environmental scenarios are severe,
but this is more pronounced under the Reduced Capacity Scenario, under which
productive capacity is not only constrained but also reduced. The drop in
price differential to 10.3 percent from the baseline in 1985 under Constrained
Capacity (from the high of 13.5 percent in 1983) is due to capacity expansion
coming on-stream in 1984 (about 200,000 annual short tons) and in 1985
(another 200,000 annual short tons). It can be seen, therefore, that the
10-24
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
addition of new capacity during this period has a noticeable impact on
prices.
b. Impact on Production
The impact of the Constrained Capacity and Reduced Capacity scenarios
on domestic primary refined copper production becomes progressively more
severe. By 1983, production falls by 17.2 percent under Constrained Capacity
and by 22.0 percent under Reduced Capacity from baseline levels. By 1985,
the drop in production from the baseline level reaches a staggering 28.6
percent under Reduced Capacity and 12.7 percent under Constrained Capacity,
a significant drop even after allowing for capacity expansion (under the
Constrained Capacity Scenario) coming on-stream in 1984 and 1985.
c. Impact on International Trade
The overall pattern emerging from the model forecasts under the various
scenarios tested is that net imports show a persistent increase over time.
Net Imports increase 11.3 percent under Constrained Capacity and 18.6 percent
under Reduced Capacity in 1981. In 1983 and 1985, however, net imports
under Constrained Capacity are only 4.3 percent and 2.9 percent higher,
respectively, than the baseline forecasts, while by contrast, they remain
8.4 percent and 10.2 percent higher under Reduced Capacity.
While these international trade impacts, especially under Reduced Capacity,
should be considered important enough for policy concern, they nevertheless
are less serious than was expected. One explanation is that, with capacity
expansion constrained in the United States, world prices would be higher,
which in turn would result in a drop in demand for copper from external
sources. Since under both Constrained Capacity and Reduced Capacity domestic
10-25
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
producer prices overtake LME prices in 1982, a real question is why net
imports do not rise much faster over the 1982-1985 period. One answer is
the capacity expansion coming on-stream under Constrained Capacity in 1984
and 1985, just when net imports may have shown a significant increase.
Another answer, more applicable to Reduced Capacity, could be that the speed
of adjustment to lower prices in the rest of the world on the part of the
domestic consumers, is perhaps not as fast or automatic as would have
been thought. This is consistent with the behavior of the independent
fabricators in the past when they continued to purchase copper from the pri-
mary producers even where copper at lower prices was available on the "out-
side market."
d. Impact on Consumption
Consistent with economic theory, consumption falls from baseline levels
under both Constrained Capacity and Reduced Capacity due to substantially
higher prices. The fall in consumption reaches 4.6 percent in 1983 under
Constrained Capacity and 8.1 percent in 1985 under Reduced Capacity.
e. Impact on Employment
The impact of Constrained Capacity and Reduced Capacity on industry-wide
employment at all stages of production—mining through refining—is expected
to be most serious in terms of curtailing employment growth that would occur
under baseline conditions. Basically, Constrained Capacity would prevent
about 9,000 jobs (about 5,650 in mining/milling and 3,350 in smelting/refining)
and Reduced Capacity nearly 20,300 jobs (about 12,760 In mining/milling and
7,520 in smelting/refining) in 1985, which respectively represent 11.7 percent
and 26.3 percent less employment than under baseline conditions (see Table 9
10-26
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
for more detail)."'"
These employment Impacts do not reflect layoffs but represent lower
potential growth in a few Western states where domestic copper production
o
(mining through refining) is largely concentrated. As noted in Chapter 4,
principal copper producing states in 1974 were Arizona (56 percent of total
U.S. mine production of recoverable copper), Utah (14 percent), New Mexico
(12 percent), Montana (8 percent), Nevada (5 percent), and Michigan (4 percent).
The distribution of copper mining and milling employment by state in
1974 was as follows:
(SIC 1021 -- Copper Ores Mining and Milling)
State Employment (June 1974)a Percent Breakdown (%)
Arizona
Utah
New Mexico
Montana
Nevada
Michi^an^
Other
TOTAL
27,372
59.2
5,899
12.8
2,764
6.0
4,008
8.7
2,094
4.5
2,790
6.0
1,279
2.8
46,206
100.0
aNumber of persons employed (both supervisory and nonsupervisory or
production workers) figures refer to June, 1974 — a peak month in 1974.
includes the following: Missouri (502), New York (381) and Texas (123).
Source: U.S. Bureau of Labor Statistics, Employment and Wages, Second
Quarter 1974, Table C-8 (p.70).
The employment forecasts discussed here reflect labor productivity con-
ditions prevailing in about 1973, which was a peak production ("demand
crunch") year. As indicated in Chapter 4, overall labor productivity
in the domestic copper industry has at best remained fairly constant
in recent years. Employment forecasts reflect no significant improve-
ment in labor productivity over the 1976-1985 period. To the extent
that the industry's productivity problem further deteriorates, the
employment impacts given here would understate potential impacts.
2
Possible layoffs would be associated, under this analysis,only in the
eventuality that the McGill and Douglas smelters would close down as
assumed under the Reduced Capacity scenario.
10-27
Arthur D Little: Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Further, of the total smelting and refining employment of 17.2
thousand in 1972, more than half of 9.0 thousand was concentrated in the
five-state Mountain Region (Montana, New Mexico, Arlxona, Utah and Nevada).
Arizona alone accounted for 3.0 thousand (17.4 percent). The Northeast
Region, basically covering operations in New York (Phelps Dodge-Laurel Hill),
New Jersey (Asarco-Perth Amboy, which has since closed down), Maryland
(Kennecott-Anne Arundel County, Asarco-Baltlmore, which has since closed
down), Pennsylvania (Reading Industries, Inc.-Reading), accounted for 6.6
thousand (or 25.6 percent).^"
If Kennecott-McGlll (Nevada) and Phelps Dodge-Douglas (Arizona) smelters
actually do close down, as hypothesized under the Reduced Capacity Scenario,
the impact on these two Isolated communities, which are essentially one-
industry towns, would be severe.
2. Related Findings
These main economic impact results are supplemented by the following
related findings:
a. Impact on Capacity Growth and Utilization of Capacity
As shown in Table 10, the shortfall in domestic primary smelting/refining
capacity compared to the baseline reaches about 400 thousand annual short
tons of refined coutput under Constrained Capacity and nearly a million
annual short tons under Reduced Capacity (equivalent to nearly 40 percent of
1976 capacity) by 1985.
Capacity utilization is, as expected, higher throughout the period under
Constrained Capacity and even higher under Reduced Capacity, compared to the
''"The employment data given here are obtained from U.S. Bureau of the Census,
Census of Manufactures. 1972. Industry Series; Smelting and Refining
of Nonferrous Metals and Alloys. MC72 (2)-33C (Washington, D.C.; U.S.
Government Printing Office, 1975), Table 2. It should be noted that
employment data at the state level (except for Arizona) are withheld
to avoid disclosing figures for individual companies.
10-28 Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
baseline forecasts. It can be seen that under the baseline forecasts
"demand crunch" conditions are foreseen in the early 1980's, reflecting
the relatively "robust" economic growth over this period indicated by the
macroeconomic forecasts underlying the baseline results.
Both the capacity shortfall and the utilization rates projected may
be less serious under more "moderate" economic growth scenarios. However,
the point is that the situation could be as critical as projected here
under a more vigorous macroeconomic scenario. Also, the capacity utili-
zation rates (especially under the baseline) are not likely to change
significantly. Under the baseline, for example, a "moderate" scenario
would probably lower capacity expansion somewhat. This, along with the
time-lags associated with smelter/refinery capacity expansion and/or the
construction of "greenfield" plants, would still indicate fairly high rates
of capacity utilization.
The emphasis here on capacity utilization rates is simply this:^"
(i) the "optimal" capacity utilization rate for the industry, in terms of
producing at minimum average total cost is roughly around 86 percent of
installed capacity; (ii) beyond this region, the average total cost of pro-
duction rises rapidly and very steeply near the "practical" capacity limit
(at roughly 92 percent of installed capacity, due to irreducible shutdown
for repairs, etc.); (iii) consequently, prolonged production along this seg-
ment of the industry's average total cost (total unit cost), average variable
"'"For a detailed discussion of the points made here, pertaining to the
cost functions of the primary producers, refer to Technical Appendix
to this report, Econometric Simulation and Impact Analysis Model of
the U.S. Copper Industry, Section B, "Statement of the Model:
Specification and Final Form of the Estimated Equations", especially
pp. 26-31.
10-29
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project O'ficer, since the document
may experience extensive revision during review.
cost (unit operating and maintenance cost) or marginal cost schedules would
occur at higher costs and therefore, higher prices as long as there Is no
sharp fall in demand (such as in 1975); (iv) therefore, capacity constraints
imposed under Constrained Capacity and Reduced Capacity would Inevitably
lead to higher prices, in a strictly microeconomic sense; these effects
are simply quantified, in an internally consistent way, by the model,
b. Impact on Secondary Copper Prices and Production
Impact results for secondary copper prices and production are tabulated
In Table 11. The basic conclusion emerging from the model is that prices of
both secondary refined copper sold on the "outside" market and scrap prices
rise precipitously in response to domestic primary smelting/refinery capacity
constraints. In response to these price Increases, production of secondary
refined copper (produced by secondary smelters/refiners) riseB only very
slowly, given the fairly Inelastic supply function econometrically estimated
for secondary smelters/refiners. The situation is different, however, with
respect to the supply of scrap that goes directly into the consumption
stream: production rises more sharply in response to rising prices.
It should be noted that both prices and production of secondary refined
copper and scrap are directionally correct under the various scenarios:
results under Constrained Capacity are higher than the baseline forecasts,
while results under Reduced Capacity are higher than those under Constrained
Capacity.
It should finally be noted that price differences from the baseline
become quite serious by 1983 and 1985. In 1985, secondary refined prices
are 8.5 percent higher than the baseline under Constrained Capacity and
10-30
Arthur DLittklnc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
19.8 percent higher under Reduced Capacity. Scrap prices display a similar
pattern (in 1985): they are 10.4 percent higher under Constrained Capacity
and 24.7 percent higher under Reduced Capacity.
3. Implications of the Relaxation of Present Environmental Regulations
The expected shortage in U.S. smelting capacity over the period 1976-
1983 would result primarily from the fact that the industry can no longer
use routes which require a lead time of 2-3 years for expanding capacity.
All the permissible routes require about 6-7 years for increasing present
capacity. In view of this, it is relevant to examine whether extra capacity
might come on stream if environmental regulations governing small expansions
(mainly certain provisions in the New Source Performance Standards) as well
as emissions from existing loactions were to be changed.
In principle, a series of actions could be identified with the aim of
alleviating the apparent domestic smelter capacity bottleneck in the
medium-term future. This would mean a "roll-back" of the presently promulgated
environmental regulations. We believe certain roll-backs in the present
regulations will restore, to some degree, the industry's ability to expand
in the short-term. However, major relief would require an increase in
emissions. Also, there is major uncertainty as to whether the roll-back
expansion routes would be utilized if they are opened, quite apart from what
their environmental consequences will be. That is, while the "roll-back"
opens up some expansion routes, it does not eliminate uncertainty and it is
difficult to define the extent to which such routes will be utilized.
Finally, although such roll-backs would provide some relief, we do not
believe new incremental capacity can be expected to be avilable before
10-31
Arthur D Little Inc.
-------
ORAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
1980 even if they are defined as early as in 1977. For these reasons, plus
the fact that the deviations from baseline capacity growth actually started
before 1976 as a result of investment decisions that would have been made
then,^" we believe any roll-back scenario will bring only minor relief to
the apparent domestic smelter capacity bottleneck between now and 1983
and will fall far short of returning the Industry capacity to baseline
capacity levels.
do not want to leave the impression here that the industry chose to constrain
capacity expansion in recent years exclusively because of costs of compliance
with environmental regulations. However, pollution control costs were a
significant portion of their capital expenditures during that period.
10-32
Arthur D Little Inc
-------
TABLE 8
ECONOMIC IMPACTS UNDER ALTERNATIVE ENVIRONMENTAL SCENARIOS AND CORRESPONDING COMPLIANCE
COSTS ON THE U.S. COPPER INDUSTRY, 1976-1985: SUMMARY OF SELECTED RESULTS
(all dollar figures in 1974 prices; thousands of short tons)
Impact Variable
Scenario
1976
1978
1981
1983
1985
Primary refined copper prices
(cents per pound)
Baseline
Constrained Capacity
Reduced Capacity
66.3
69.2
69.2
76.3
78.7
ei. 5
77.3
84.6
88.6
106.3
120.6
124.6
105.3
116.1
131.0
Percent Differences from Baseline (%)
Primary refined copper
production
Net Imports
Total Consumption
Employment
Constrained Capacity
Reduced Capacity

4.4
4.4
3.1
6.8
9.4
14.6
13.5
17.2
10.3
24.4
Baseline
Constrained Capacity
Reduced Capacity

2066.2
1990.7
1990.7
2402.3
2315.0
2236.1
2549.6
2317.5
2181.5
2845.5
2355.1
2218.2
3110.9
2715.5
2221.9
Percent Differences from
Baseline
(%)

Constrained Capacity
Reduced Capacity

- 3.7
- 3.7
- 3.6
- 6.9
- 9.1
- 14.4
- 17.2
- 22.0
- 12.7
- 28.6
Baseline
Constrained Capacity
Reduced Capacity

134.7
146.4
146.4
221.1
225 9
236.8
219.1
243.8
259.8
378.8
394.9
410.8
377.0
387.8
415.5
Percent Differences from
Baseline
(%)

Constrained Capacity
Reduced Capacity

8. 7
8.7
2.2
7.1
11.3
18.6
4.3
8.4
2.9
10.2
Baseline
Constrained Capacity
Reduced Capacity

3587.5
3549 0
3549.0
4022.1
3981.4
3946.8
4475.6
4362.3
4291.7
5056.2
4821.6
4749.4
5350.0
5150.0
4915.0
Percent Differences from
Baseline
(%)

Constrained Capacity
Reduced Capacity

- 1.1
- 1.1
- 1.0
- 1.1
- 2.5
- 4.1
- 4.6
- 6.1
- 3 7
- 8.1
Baseline
Constrained Capacity
Reduced Capacity

51314
49550
49550
59462
57532
55734
63547
58207
55069
70789
59653
56485
77028
68035
56750
Percent Differences from
Baseline
(%)

Constrained Capacity
Reduced Capacity

- 3.4
- 3.4
- 3.2
- 6.3
- 8.4
- 13.3
- 15.7
- 20.2
- 11.7
- 26.3
NOTES * 3
Domestic production of refined copper by primary producers, from all sources (domestically mined
copper, imported ore/concentrate/blister/scrap, domestically generated unalloyed scrap); although
it contains some secondary refined copper, it is exclusive of secondary refined output produced by
secondary refiners.
Net of exports.
0
Includes primary and secondary refined copper, directly consumed scrap and imports.
^Total full-time equivalent employment (number of persons) including raining and milling, smelting and
refining employment at all domestic primary producer facilities, employment by secondary
smelters/refiners are excluded.
SOURCE: Arthur D. Little, Inc. (ADL), based on the Econometric Simulation and Impact Analysis Model of the
U.S. Copper Industry.
10-33
Arthur DLttklnc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 9
EMPLOYMENT EFFECTS OF ALTERNATIVE ENVIRONMENTAL OPTIONS
ON THE U.S. COPPER INDUSTRY, 1976-19853
Baseline
1976 1978 1981 1983 1985
Total 51,314 59,462 63,547 70,789 77,028
Smelting and refining 17,480 20,324 21,570 24,074 26,319
Mining and milling 33,834 39,138 41,977 46,715 50,709
Constrained Capacity
Total 49,550 57,532 58,207 59,653 68,035
Smelting and refining 16,842 - 19,585 19,606 19,925 22,974
Mining and milling 32,708 37,947 38,601 39,728 45,061
Reduced Capacity
Total 49,550 55,734 55,069 56,485 56,750
Smelting and refining 16,842 18,918 18,456 18,767 18,798
Mining and milling 32,708 36,816 36,613 37,718 37,952
NOTES• a
" Total full-time equivalent employment (number of persons); employment
by secondary smelters/refiners is excluded.
SOURCE: Arthur D. Little, Inc., based on results of the Econometric Simulation
and Impact Analysis Model of the U.S. Copper Industry.
10-34
Arthur D Little; Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
TABLE 10
DOMESTIC PRIMARY SMELTING/REFINING CAPACITY GROWTH AND
CAPACITY UTILIZATION UNDER ALTERNATIVE SCENARIOS,
1976-1985
(Capacity in thousands of annual short tons of refined copper)
Scenarios 1976 1978 1981 1983 1985
Baseline
Capacity 2605 2708 2908 3150 3449
Percent Capacity
Utilization .793 .887 .877 .903 .902
Constrained Capacity
Capacity 2605 2605 2605 2605 3005
Percent Capacity
Utilization .764 .889 .890 .904 .904
Reduced Capacity
Capacity 2605 2527 2437 2437 2437
Percent Capacity
Utilization .764 .892 .895 .905 .912
SOURCE: Arthur D. Little, Inc., based on the Econometric Simulation and Impact
Analysis Model of the U.S. Copper Industry.
10-35
Arthur D Little Inc
-------
TABLE H
SUMMARY OF IMPACTS ON SECONDARY COPPER PRICES AND PRODUCTION,
(all dollar figures
1976-1985
in 1974 prices; thousands of
short tons)

Impact Variable
Scenario 1976
1978
1981
1983
1985
Prices of secondary refined copper
(cents per pound)
Baseline 66.2
Constrained Capacity 67.6
Reduced Capacity 67.6
78.8
81.0
82.7
86.9
92.0
94.5
108.9
121.4
124.0
110.0
119.3
131.8
Production of refined copper from seraph
Baseline 221.6
Constrained Capacity 220.5
Reduced Capacity 220.5
250.2
250.5
252.9
291.4
292.3
293.9
315.3
330.9
331.8
319.8
331.0
334.0
Prices of scrap
(cents per pound of refined
equivalent)
Quantity of scrap generated (directly
consumed)
Baseline 49.7 62.2 68.0 92.9 93.4
Constrained Capacity 51.2 64.6 74.1 106.0 103.1
Reduced Capacity 51.2 66.7 77.2 109.1 116.5
Baseline 974.3 1134.5 1209.8 1528.9 1534.7
Constrained Capacity 993.3 1166.0 1287.3 1696.7 1659.6
Reduced Capacity 993.3 1193.0 1327.1 1736.5 1832.0
NOTES * 3
" Secondary refined copper produced by secondary smelters/refiners and sold on the "outside" market
Refers to production by secondary smelters/refiners only.
Excludes scrap going into the smelting/refining stream.
SOURCE: Arthur D. Little., based on the Econometric and Impact Analysis Model of the U.S. Copper Industry
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
E. UNQUANTIFIED (UNQUANTIFIABLE) IMPLICATIONS OF ENVIRONMENTAL REGULATIONS
AND RELATED ISSUES
The environmental regulations and the impact results discussed earlier
have broader implications and raise certain issues which deserve emphasis.
These pertain to the regulatory environment, growth of the domestic copper
industry and international economic implications.
1. Regulatory Environment
Environmental regulations not only lead to increased costs, due to costs
of compliance, but also and perhaps more importantly, cause uncertainty because
of their evolving "moving target" nature. From a planning standpoint, the
problem of uncertainty is bound to make the industry more cautious and increase
both the lead times and the costs required for adding new capacity. The un-
certainty element, combined with the cumulative and sometimes conflicting
nature of environmental regulations, may further be creating unintended con-
sequences, for example by effectively curtailing domestic productive capacity
expansion.^ Moreover, the existence of many regulatory agencies affecting a
given industry, with little or no coordination among them (in the apparent
absence of any legal requirement for them to coordinate their activities), may
well compound the unintended and unforeseen effects of their actions falling
upon the industry being regulated. The situation may get even worse in the
future if the present pattern of environmental regulation of industry by
Federal Government agencies continues.
There are several recent developments which might make the "reduced
capacity" scenario of this chapter quite optimistic. To some extent, that
\ie have discussed in Chapter 8 in considerable technical detail how the
present environmental regulations effectively constrain domestic capacity growth.
In retrospect, this was clearly unintended.
10-37
Arthur D Little, Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
scenario is already optimistic in the sense that it assumes some degree of
roll-back or accomodation between the EPA and the industry. For example, that
scenario assumes that RACT guidelines will not be tightened, and that the fugi-
tives problem at existing and new smelters can be resolved without major cost
or capacity penalties at an early date. We present below specific examples:
0 We understand that EPA is already considering possible ways for
tightening the RACT guidelines.
• EPA regional offices are Involved in redefining or further defining
control requirements that go beyond the RACT guidelines. From a
statutory viewpoint, the states can require standards that are "tougher"
than Federal standards. In more than one case, the EPA regional offices
appear to have taken the lead in this regard, and provide many of the
policy inputs to the state agencies.
• Several proposed OSHA regulations will affect productivity in the
copper Industry. In some instances, EPA and OSHA requirements are
in conflict (e.g., OSHA will permit control of ambient concentrations
via dilution while EPA will not). For example, if gases from a multiple-
hearth roaster are to be used in an acid plant to reduce SOg emissions,
such roasters would have to operate at a low draft to reduce dilution
air. OSHA requirements might require operation of such roasters
under, higher draft. In general, while OSHA requires the use of
engineering controls to reduce ambient concentrations, such controls
10-38
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
achieve little to meet EPA requirements. In other words, except for
fugitives, there is little synergism between EPA and OSHA control costs
and such costs are additive. OSHA regulations which would affect the
copper industry are those for inorganic arsenic, handling of explosives
in open pit mines, SO2, etc.
2. Issues Pertaining to the Growth of the Domestic Copper Industry
a. Uncertainty in Regulations and Planning Difficulties
As noted before, the uncertainty of new regulations and the way in which they
will be enforced will extend the planning horizon. It is instructive to consider
how other countries with strong environmental requirements deal with this problem.
In Sweden, the pollution control at any new plant is defined via negotiation
between the industry and the regulatory body. Once this is over, the owner of
the plant has an "environmental license" to operate for ten years. During this
period, the plant is not required to add incremental controls. A similar approach
could be used in the U.S. where construction of new plants and the phasing-out
of old plants could be negotiated between industry and regulatory bodies in the
context of regulations which remain unchanged over a predefined time span.
b. New Resource Development
The smelter capacity bottleneck will definitely constrain new mine development
in the United States. As discussed later, the U.S. copper industry believes
that political risks abroad are greater than environmental risks within the U.S.
However, the constraints on planning capacity expansions in the U.S. would
suggest that capacity will be exported abroad to areas which are considered less
risky politically. The recent growth in copper production capacity in Canada
takes on new significance when viewed in this light. It appears that Canadian
copper industry will be a major beneficiary of the capacity constraints in the
10-39
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
United States. It also appears that this industry will gear up to export copper
to the U.S., probably selling such copper on the basis of producers'prices rather
than at "outside market" prices.
In view of the general macro-economic scenario which shows a worldwide
recovery, the export of new U.S. concentrates to Japan for toll smelting could
not occur to the degree sufficient to eliminate the deviations from baseline
conditions. This is because Japanese smelters do not have excess uncommitted
capacity of this magnitude.
c. Technological and Energy Implications
EPA regulations affecting the copper industry are unique in the sense that
they are more complex than regulations affecting even larger industries (e.g.,
iron and steel or steam-electric power plants). One reason for this complexity
in EPA's apparent desire to force a technological change away from reverb-based
technology towards less polluting new smelting technology which is more
amenable to control via the use of sulfuric acid plants.
Most reverb-based smelters use natural gas or fuel oil. As soon as
natural gas prices rise to the level of fuel oil prices or cheaper natural
gas is not available because of shortages or allocations to other classes
of consumers, the reverb-based smelters will have to either switch to
coal or look into less energy-intensive processes. The fuel prices in
the U.S. are rapidly approaching this point. In the long term, the
industry would have probably at any rate selected new technology in order
to minimize energy costs.
10-40
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
d. Substitution from Aluminum
In the past, the process of substitution has been a gradual one, limited
in its pace by the fixity of the machinery and equipment in the short run, the
need for process-design changes requiring virtually irrevocable, heavy invest-
ments in new machinery and equipment and a desire to avoid risks associated
with high degree of maintenance costs in new applications. However, in the
future, substitution is likely to continue, even though at a slow pace.
In forecasting relative aluminum and copper prices in the future, it
has often been remarked that the higher energy content of aluminum, together
with stronger threats of a bauxite cartel,"'" would tend to virtually bring to
a halt further substitution of aluminum for copper.
Recent activities by several important producers of bauxite, the major
2
ore used to produce aluminum, have led to a doubling of price. However,
because the cost of ore is only a small portion of the total cost of producing
aluminum (10 percent), larger price movements would be required to significantly
influence aluminum prices.
The reference here is to the International Bauxite Association (IBA), established
in a meeting in Conakry, Guinea, March 5-8, 1974; seven founding members include
Australia, Guinea, Guyana, Jamaica, Sierra Leone, Surinam and Yugoslavia;
headquartered in Kingston, Jamaica. In a Council of Ministers Meeting of the
organization held in Georgetown, Jamaica (November, 1974), three new members
(Dominican Republic, Ghana and Haiti) were admitted; three other countries
(Greece, India and Trinidad and Tobago) were accepted as official observers.
It was also decided that Indonesia and Malaysia would qualify as observers if
they should apply. IBA controls about 80 percent of world bauxite production.
2
Jamaica unilaterally proceeded to institute a new levy of 7.5 percent of the
realized price on sale of primary aluminum and increase royalties to 50 cents
per ton of bauxite mined. The Government also purchased a 51-percent equity
in Kaiser Bauxite Co. and has presumably the same ownership in Revere Jamaica
Aluminum, Ltd. Surinam has signed a letter of intent with Alcoa, according
to which levies on one ton of bauxite (estimated at $2.50) would be increased
to $9. In Haiti, Reynolds agreed to pay increased levies similar to those in
Jamaica. See, L. Nachai [U.S. Bureau of Mines], "Investment for Mineral
Exploration and Development in Foreign Countries—Problems and Positive Factors,"
paper presented at the AIME Annual Meeting, Las Vegas, Nevada (February 22-26,
1976), pp. 6, 7.
10-41
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Compared to copper, which has been estimated to require between 86 and 112
million BTU/ton product,"'' aluminum ingot production is estimated to require twice
6 2
as much energy per net ton product (i.e., 244 x 10 BTU's per ton product).
Consequently, further increases in aluminum prices, whether or not induced
by higher energy costs, could slow down but would not necessarily put a stop to
substitution from aluminum.
An important end-use market where further substitution could take place is
power transmission and distribution cables. Aluminum has already claimed the
majority of the market for overhead transmission cable and for distribution
cable. Further, it has made considerable inroads into the distribution wire
3
market. While house wiring poses a real question for the future, telephone
conductor cable and automobile radiators pose perhaps the most serious threat
of substitution from aluminum.
"'"Cement copper (86); refined copper (112), with the following breakdown: mining
(21.6), at 0.2 percent grade with 157 tons of ore per ton metal; concentration (42.3)
smelting (38.2); refining (10.2). This high energy consumption stems from
problems associated with the relatively low grade of the ore. See, Earl T.
Hayes, "Energy Implications of Materials Processing," Science [Materials 1
Vol. 191, No. 4228 (20 February 1976), 661-665.
2Ibid.
3
Certain practical difficulties stand in the way of significant substitution of
aluminum for copper. For example, with copper wire it is very easy to make con-
nections, while with aluminum considerable care is needed. Also, since aluminum
"creeps" more than copper, slack can develop in connections, which can lead to
a build-up in resistance in the circuit. This poses a subsequent fire risk by
promoting oxidization of the metal and, unlike copper, causing a rise in the
temperature. Difficulties with installation and with fire risks have led to
outright bans of aluminum wire in several areas, notably in California and
Washington, D.C.
10-42
Arthur D Littls Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
3. International Economic Implications-*-
Both the capacity constraints imposed domestically by recent EPA
regulations and costs of compliance with these regulations may have
significant international economic implications beyond those noted
above pertaining to international trade effects. A series of basic
questions arise in this context:
(a) What will be the effects of domestic environmental regulations
on the long-run competitive position of the U.S. copper
industry?
(b) What are likely to be the effects of domestic environmental
regulations on the domestic as well as international investment
behavior of U.S. primary copper producers?
(c) What effect, if any, would domestic environmental regulations
have on the future structure of the world copper market?
(d) What are the prospects for the cartelization of the world
copper market (outside the United States) and/or for the
emergence of commodity access agreements for controlling the
world price of copper? What are the potential implications
of such developments for U.S. dependence on external sources
of copper?
We have investigated these and similar questions in some depth
as part of this study. Summarized below are our major findings.
^"The discussion presented here draws upon working papers and unpublished
material provided by Professor Raymond F. Mikesell, W. E. Miner Professor
of Economics, University of Oregon (Eugene, Oregon); he remains, however,
blameless of the interpretation of his inputs and the conclusions drawn by
ADL.
10-43
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
a. Effects on the International Competitive Position of the
U.S. Copper Industry
Assessment of the potential effects of domestic environmental
regulations on the international competitive position of the U.S. copper
industry requires (a) comparative costs of production internationally,
(b) information on foreign environmental regulations and estimates of
compliance costs on a basis comparable with similar information for the
U.S., and (c) consideration of pollution acceptance as a resource in
international trade.
First, comparable data on costs in the copper industry in various
countries of the world are very difficult to obtain and to interpret in
terms of relative competitive advantage. For new large mines, capital
costs tend to be somewhat similar because the technical conditions of
production are much the same. On the other hand, infrastructure costs
incurred by the copper producing firm may differ substantially.
Interest costs may differ, depending upon how the financing has been
arranged. Labor costs may account for one-third to one-half of operating
costs, depending upon whether the mine is an open-pit or underground
operation, since the latter type operation is more labor intensive.
Wages and labor productivity are important determinants of cost. Rapid
increases in wages (such as have occured in Peru and Central Africa) which
are not offset by exchange rate depreciation may shift a low-cost mine into
a high-cost category within a few years. Differences in the quality of
the ore may be offset by the existence of co-products such as gold, the
price of which has increased several-fold in recent years.^
^"When the Bougainville mine in Papua New Guinea went into operation in
1972, the high gold content of the ore helped to make that mine a
relatively low-cost producer.
10-44
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerninguse,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The five-fold rise in international oil prices has changed relative
costs substantially throughout the world, depending upon the source of
energy used in the production and transportation of copper. For example,
the rise in oil prices was largely responsible for shifting the
Philippine mines from relatively low-cost producers to a high-cost
category. Capital and operating costs are also affected by environmental
regulations, a subject that will be examined later on. Finally,
royalties, excise taxes (which are usually included in production
costs), and corporate income taxes introduce complexities in determining
comparative costs since these charges have a different impact on government-
owned mining enterprises as contrasted with privately-owned mines.
In his recent book, Copper: The Anatomy of an Industry, Sir Ronald Prain
ranks the US as a medium-cost producer and Canada and South Africa and
some of the new high-volume mine operations in Southeast Asia as low-cost
producers. He classified the former low-cost producing countries of
Chile, Zambia, and Zaire as currently high-cost producers (pp. 192-3).
On the other hand, a 1974 report of the Commodities Research Unit (CRU)
entitled "The Current Costs of Producing Primary Copper and Future Trends"
ranks the US and Canada as the highest cost producers (although there is
a wide range of costs among mines). The CRU report (only a summary of
which has been available) ranks the Asian-Australian mines as the least
cost, followed by African mines and South American mines in that order.
However, these relative positions are expected to change over the next
five years, with differential rates of domestic inflation not offset by
exchange rate adjustments, and by differential energy costs (e.g., the
development of cheap hydro-electric power in Zaire and exploitation of
10-45
Arthur D Little Inc
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction'of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
South African coal reserves). Despite the low grade of US copper ore,
the CRU report foresees a narrowing of the cost differential between the
United States and Canada on the one hand and other regions of the world
on the other hand over the next five years. The reasons given for this
trend are: (1) labor costs in North America are expected to rise at a
slower rate than elsewhere; (2) most antipollution costs have already
been absorbed by North American producers; (3) all the major by-products
of North American copper mines are likely to show an increase in value
relative to by-products in other mines; and (A) the US and (especially)
Canada are likely to be less adversely affected by the future rise in
energy prices. Some of these reasons given by the CRU report are clearly
subject to question and further examination.
Second, comprehensive and comparable information on foreign pollution
abatement standards and compliance costs are lacking to permit quantitative
cost comparisons. Information on European countries with smelters—
principally Belgium, West Germany, Norway and Sweden—Indicates that their
pollution abatement standards are comparable to those in the US, but that
there is more flexibility in their administration, particularly as related
to existing local ambient conditions, so that costs may be lower in some
cases than for the United States. Japan may have even higher standards
but again with greater administrative flexibility. Even before the imposition
of strict S(>2 emission standards, Europe and Japan found it profitable to
employ smelting techniques that captured a high proportion of SC^ for
production of sulphuric acid.^
^This was in contrast to smelters in the western United States which until
recently at least, did not have any outlet for the acid.
10-46
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Pollution abatement standards in developing countries vary but are
generally lower than in the developed countries. This is in part
because most of the smelters in Africa and Latin America are located
far from populated areas. Despite the desire of the developing
countries to process their own ores by building smelters or encouraging
foreign investors to do so, it seems likely that most developing countries
will over time insist on pollution abatement standards but perhaps
with allowance for the ambient conditions and population. Some of the
new mine development agreements between host government and foreign companies
provide for observance by the foreign companies of environmental regulations,
but without providing details regarding those regulations. Anaconda
is building a pyro-type smelter in Brazil under contract with a Brazilian
government enterprise, which calls for the same pollution abatement standards
as apply in the United States. Consideration was given to the use of the
Arbiter process, but, because of the heavy demand and high price of sulphuric
acid in Brazil and the high price of ammonia (used in the Arbiter process),
it was decided to use a pyro-metallurgical process. Finally, the World Bank
Group has been encouraging its members to adopt environmental standards
in the formulation of the projects for Bank financing, and in some cases
has insisted on the incorporation of pollution abatement facilities in
such projects.^
Finally, we should consider the implications, for the competitive
position of the U.S. copper industry, of the willingness elsewhere in the
world to accept pollution (or to tolerate lower standards of pollution
abatement) as a national resource which will affect the country's comparative
"'"See Environment and Development, World Bank, Washington, D.C. , June 1975.
10-47
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
advantage in international trade. It is argued that if certain countries
are willing to accept more pollution than others, they will gain a relative
advantage in producing those commodities which involve pollution in their
production and whose costs of pollution abatement tends to be high.^
This advantage may also occur because of the profitability of locating
high-polluting production in certain countries in areas far from populated
centers (e.g., the location of copper smelters in the deserts of northern
Chile). One possible mitigating factor would be the possibility of changing
the technical conditions of production for any particular commodity toward
the use of non-polluting processes, so that over time nonpolluting technology
becomes competitive with polluting technology. New nonpolluting processes
in copper smelting, such as the hydrometallurgical processes for smelting
and refining, may become comparable in cost with the pyro-type. Moreover,
over time pollution abatement standards are likely to become more important
in the developing countries, thereby reducing their relative advantage.
In conclusion, we do not, on balance, expect the international
competitive position of the U.S. copper industry will be significantly
affected by domestic costs of compliance per se, given the mitigating
factors in the rest of the world having a substantial influence on costs
of production.
^"See Ingo Walter, "Environmental Control and Patterns of International
Trade and Invesment: An Emerging Policy Issue," Banca Nazionale del
Lavoro Quarterly Review, (March 1972); Anthony Y. C. Koo, "Environmental
Repercussions and Trade Theory," The Review of Economics and Statistics.
(May 1974); and W. Leontief, "Environmental Repercussions and the Economic
Structure: An Input-Output Approach," The Review of Economics and
Statistics, (August 1970).
10-48
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
b. Effects on the Investment Behavior of U.S. Primary Copper
Producers
On the basis of operating and capital costs, and without regard to
taxes and political risk, foreign Investment would appear to be more
attractive than Investment in the U.S. before any consideration of
differences in pollution abatement costs or the capacity constraining
influence of EPA regulations domestically. There is virtual concensus
in the industry that differences in pollution abatement costs per se
are likely to be too small in relation to the large number of uncertain
factors associated with foreign investment to make an appreciable difference
in their decision regarding a foreign investment in most developing countries.
In a perfectly competitive world economy with no constraints on
foreign investment, a decline in the profitability of an industry in the
United States arising from increased total unit costs alone would tend to
shift investment in that industry to other countries where costs have not
risen. Capital might be attracted from the United States as well as from
other countries, including the countries where the investment opportunities
exist. Lower rates of profit in the U.S. industry would reduce the amount
of domestic capital available for reinvestment in the industry, while higher
rates of profitability abroad would increase foreign capital available for
investment in other countries. Higher costs in the United States, accompanied
by a slowing down in the rate of capacity growth, would in the long-run tend
to bring about upward pressure on world prices, and expected profitability
in foreign areas would tend to rise. Even if U.S. mining firms did not
increase their investments abroad relative to those in the United States
as a consequence of lower relative profitability in the U.S. industry,
U.S. firms might shift their investments into other domestic industries,
10-49
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
while less U.S. capital would be attracted to the domestic mining industry.
In the absence of constraints on foreign Investment in the copper
industry, and given a fully competitive world market for copper, foreign
copper-producing capacity should grow relative to U.S. capacity.
c. Implications for the Future Structure of the World Copper
Industry
In reviewing broadly the possible implications of domestic environ-
mental regulations for the future structure of the world copper industry,
it might be well to start with the observation that the long-run supply
factors, rather than demand factors, are likely to be the more crucial,
given the relative inelasticity of demand for copper and even after allowing
for continued long-run substitution from aluminum.
On the supply side, we might begin by dwelling briefly on known world
reserves. Reserves are not static but change with the amount of exploration
activity and with the price of copper, since the lower the grade of the ore
and the higher the cost of extraction, the higher must be the price for
its recovery to be profitable. It has been estimated by the U.S. Department
of the Interior that at a price of 52 U.S. cents per pound, recoverable
world reserves are 340 million short tons while at a price of 75 U.S. cents,
recoverable world reserves are 457 million tons, or 34 percent larger. A
recent study shows that U.S. recoverable reserves increase from about 70
million short tons at 50 cents per pound (calculated for a 12 percent rate
of return on DCF), to over 125 million tons at $1.00 per pound.^ In addition
^TJ.S. Bureau of Mines, An Economic Appraisal of the Supply of Copper from
Primary Domestic Sources. Bureau of Mines Information Circular 8598 (1973) ,
p. 44. It may be noted that recoverable copper is a function of both the
price of copper and the rate of return on Investment necessary to attract
mining companies to produce the copper.
10-50
Arthur D Little Inc.
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
to Identified world copper reserves, reserves now unknown but suspected
to be present near known deposits provide another 400 million tons of
potentially recoverable copper. Undiscovered mineral deposits that may
exist in unknown districts are estimated at 320 million tons. In addition,
substantial amounts of copper may be found in the seabeds. Thus, identified
and potential copper world reserves are in excess of a billion tons of
copper content, more than three times the estimated cumulative world
consumption of copper between now and the year 2000. Hence, it is most
unlikely that aggregate world reserves will constitute a constraint on
output in the foreseeable future. On the other hand, reserves could
constitute a constraint on output in particular producing areas over the
next several decades and this is more likely to be the case in the absence
of adequate exploration activity for identifying additional reserves.
Next, nearly two-thirds of known world reserves are located outside
the United States, mostly in the less developed countries (LDCS). In
virtually all foreign copper exporting countries, except Canada, the copper
content of the ores is substantially higher than in this country, and it
is likely that the differential in metal content will increase over time.
There are, of course, a large number of other factors which have a bearing
on cost and, perhaps more important, the rate at which copper resources
can be developed. The shift in ownership and control patterns in the mining
industries of the developing countries and the declining role of the
international mining companies in exploration and development in these
countries have made it difficult to assess the reasons for relative rates
of increase in copper producing capacity abroad.
10-51
Arthur D Little Inc.
-------
DRAFT REPORT-The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
The LDCs are anxious to develop their mineral resources in order to
expand their export earnings, and they recognize the need for the technical
knowledge, venture and debt capital, and managerial ability of the inter-
national mining firms. A case can be made that for some countries at
least exploration and new Investment have been curtailed by the nationali-
zation movement. However, It would be rash to predict that the growth of
copper mining capacity will be substantially retarded in the developing
countries as consequence of the nationalization movement and of the
emergence of new relationships between the host countries and the foreign
investor. In fact, most of the governments of the copper exporting
countries have ambitious plans for expanding their copper producing
capacity and these plans may be pushed without regard for the outlook for
profitability as ordinarily perceived by private enterprise, provided the
capital can be obtained. Moreover, governments are not subject to the
kinds of constraints on investment in new capacity imposed by high taxes,
government regulations, and political instability that deter private investors.
However, there are serious difficulties facing many foreign countries
in obtaining the necessary technology, management and capital from abroad
for realizing their national plans for resource development. Some important
questions still remain basically unresolved. First, will there be an
adequate expansion of exploration in the developing countries?1 Will host
governments be able to raise the billions of dollars required to develop
their mineral reserves as majority or 100 percent owners and managers?
*It might be pointed out that virtually all of the properties that Minero
Peru is planning to develop were originally concessions held by foreign
companies on which considerable sums had been spent for exploration.
10-52
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
Will the host governments be able to maintain or attract the technical
and managerial personnel needed for the efficient operation of existing
mines and the expansion of their productive capacity? The answers to
these and other questions, such as those relating,to the effects of
nationalization on world markets, will have an important bearing on the
long-run supply of copper. However, in this context, it seems quite
likely that for the present and for some years to come, the development
of new mining capacity, particularly in the developing areas, will depend
upon management and technology provided by the large international
mining companies and upon the ability of these companies to raise large
amounts of capital, running into many billions of dollars, from outside
sources.
d. Prospects for Cartelization and Commodity Access Agreements
In recent years there has been a great deal of discussion and theorizing
regarding the international control of copper prices. The purpose of
control arrangements might be simply to avoid sharp fluctuations in world
copper prices that prove uneconomic and harmful to producers and consumers
alike. The objective of such an effort would be to maintain the price of
copper close to its long-term equilibrium level as determined by long-run
cost and demand factors. Alternatively, the purpose might be to maximize
the copper earnings of the developing countries, since the developing
countries account for the vast bulk of the primary copper produced outside
the United States and nearly all of this copper is exported. Recently
serious concern has been expressed that the present members of CIPEC, or
an organization involving all of the major copper exporting countries, might
act in concert to double or triple the world price of copper—much in the
10-53
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
same way that OPEC has tripled the price of petroleum over the past two years.
We shall explore briefly the possibility of achieving market price control
for copper later on In this section.
CIPEC has not yet evolved a mechanism to stabilize prices, although
it hopes to promote a buffer stock arrangement for copper involving both
producing and consuming countries. In March, 1976 representatives of
76 producing and consuming countries (Including the U.S., which does
both) met in Geneva at the invitation of the U.N. Conference on Trade
and Development (UNCTAD) to work towards a buffer stock arrangement.
UNCTAD suggested the creation of an internationally financed buffer stock
to buy up more than half a million tons of surplus copper that would be
sold when prices exceeded a stipulated maximum, along the lines of the
existing tin agreement.^ Meanwhile, CIPEC apparently intends to maintain
a 15 percent cutback in production by its members during the rest of 1976
and perhaps beyond. The CIPEC Secretariat does not foresee a balance
between world demand and supply of copper that would permit a substantial
2
price rise before 1978.
The history of efforts at collusive control of copper prices shows
that while it has been possible to maintain or raise prices over relatively
short periods, disequilibrium prices soon invite increased primary copper
production, increased supplies of secondary copper, and the substitution of
other metals for copper in important uses. Thus any rational undertaking
^Robert Prinshy, "Copper Parley Isn't Likely to Make Much Progress Toward
a Price Pact," The Wall Street Journal (March 25, 1976).
2
Based on information from private sources.
10-54
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
by CIPEC to control copper prices must take into account the intermediate
and long-term effects on their foreign exchange earnings, and not simply
their ability to influence prices in the short-run. In the short-run,
the non-CIPEC world supply of primary copper is probably fairly inelastic,
but account must be taken of the supply of scrap which can be increased
rather readily in the short-run.
CIPEC's world market power in copper differs from that of OPEC's
in petroleum in several important respects. First, world petroleum reserves
are heavily concentrated in the Middle East, and at the rate of growth of
world petroleum demand in 1970-1972, nearly half of the required annual
increase in output over the next decade would have to come from one country,
namely Saudi Arabia. Copper resources on the other hand are more widely
distributed throughout the world, and the CIPEC countries account for a
much smaller share of world copper exports than do the OPEC countries of
the world petroleum exports. Second, substitutes for primary copper,
including scrap and other metals, are more readily available in the short
and intermediate-run than are substitutes for petroleum for meeting the
world's energy requirements. Withholding the oil output of two or three
Arab states could substantially impair the economies of Western Europe and
Japan. Withholding all of CIPEC's copper output would inconvenience the
world economy but not seriously reduce the world's industrial and agricultural
production. Third, several of the Arab oil states have producing capacity
that substantially exceeds their need for foreign exchange over the next
few years, and at current levels of production they are accumulating
reserves on a massive scale. This is not true for any of the CIPEC countries,
10-55
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
all of which desire to expand output and to develop their copper reserves
for meeting their foreign exchange requirements. This factor is important
for attempts to control output and productive capacity of copper over the
longer-run. Some of these factors would operate to limit CIPEC1s market
power even if the organization were expanded to include all of the major
copper countries in the developing world and if they were able to unite
on a common program for market control.
In conclusion, nevertheless, in the face of constraints on domestic
capacity growth the likelihood that an expanded CIPEC will be able to
exercise some control over the world price of copper in the medium-term
future should not be ruled out. In the longer-run, all copper producing
countries would probably want to obtain a larger share of the world market;
hence, it is most unlikely that there will be any agreement on sharing the
growth in copper producing capacity over the long-run. At any rate, even
If CIPEC were able to achieve somewhat greater price stability in the
medium-term through the operation of a buffer stock, or otherwise, the long-
run average price of copper might not be greatly affected. Moreover, if
the average price of copper were raised, revenues might not rise because of
competition from substitutes for primary copper, including scrap copper,
aluminum and plastics.
10-56
Arthur D Little Inc.
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX A
BASELINE MODEL FORECASTS
(1976-1985)
Arthur D Uttle Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX A—BASELINE MODEL FORECASTS
Presented in this appendix are the following:
1. Historical and projected values of all independent (exogenous)
variables, along with historical values of all dependent
(endogenous) variables;
2. Summary of year-by-year model solutions for the nonlinear ver-
sion of the model; and,
3. Summary of year-by-year subsidiary calculations (e.g. sales,
production, employment, capacity, capacity utlization, etc.).
General Notes:
(1) Listing of variables/values: refer to Appendix D for
a "dictionary" of the variables;
(2) Three "parametric" model solutions have been obtained
for each year:
one: AVC = AR (Average variable cost = net demand
schedule for primary producers)
two; ATC = AR (Average total cost = net demand
schedule for primary producers)
three: AVC = MC = MR (Implicit monopolistic solution).
The solution used in our analysis (and also listed here)
refers to Solution Two (ATC = AR). Refer to the technical
Appendix for more detail.
i
Arthur D Little, Inc.
-------
EXOGENOUS AND ENOOQENOUS VAR t*8Lf 3 lISTCD Btl.0*
YEAR
CONST
RPAl
YUO
RPLHE
YUD/YGR
195a
1,0000
20,555
43,082
58,525
1,3548
1955
1.0000
32, « 11
49,296
79.356
1.3469
|956
1.0000
28,ass
50,953
69,752
1.2667
1957
1.0000
25.002
51.284
44,777
1.2298
1958
1.0000
20,745
44.905
39,699
1.0595
IPS'
1 .0000
22,765
51.533
47,139
1.1130
I960
1.0000
21,520
52.444
48,689
1.0144
1 961
1 ,0000
18,921
51.450
45.642
.93716
J96?
1.0000
17,562
57.166
46.631
.99767
1 96 J
1.0000
18,572
60.895
46,646
1.0521
I 96a
1 .0000
IP.506
65,451
69,101
1.0132
1965
1.0000
22.770
73,322
90.972
1.0751
t 966
t.oooo
19.569
82.021
104.93
1.1853
1 967
i .0000
t S,589
82.850
76,148
1.2511
1968
1.0000
14.472
87,407
80.416
1.1623
1 96»
1 .0000
17,991
91,145
91,460
1.0659
1970
1.0000
14.515
84.093
64,768
.93333
1971
1.0000
10,591
82,353
62.581
.09709
197?
1.0000
9.2281
89.B09
59,578
.94140
197*
1 .0000
15.018
101,08
94,261
.99387
1974
1.0000
16.180
100,00
93.000
1.OOOO
| 975
1,0000
22,«42
70,000
50,340
.97400
1976
1,0000
50.093
98,524
56,640
1.0360
1977
t,0000
29,329
107,88
73.000
1 ,025(1
1978
1.0000
29.051
106,85
71,800
1,0258
1979
1.0000
28,874
104.39
65.080
1.0287
1980
1.0000
28.552
111.53
76,000
1.0208
1981
1.0000
28.528
125.35
91.UOO
1.0101
198?
1.0000
28,757
132,71
96,UOO
1.0030
1981
1.0000
28,918
140.25
99,800
.99610
1984
1.0000
28.918
144.74
101.90
.99S50
1985
1.0000
28.9)8
149.37
1 0 a, o 0
.99289
1986
1.0000
28.918
154,15
106.00
.99 0 36
1987
1 ,0000
28,9| 8
159.08
1 0 8 , 4 0
.9® ft 0 0
1 988
1.0000
28.9|8
164.17
110.70
.9«570
1989
l,oooo
28.918
169.43
113.10
.98346
199o
t.oooo
28,9)8
174.85
115,60
.97895
1991
1,0000
28,918
*.00000
115.60
•.00000
1 99?
1,0000
28.918
-.00000
115,60
«.OOOOO
1995
1 ,0000
28.9|e
•,00000
115.60
-.unooo
DUMST2
OIGOV
.50000
199.10
1.bPOO
?3.t>00
.oonoo
49.500
.oooon
7 9 . 0 « 0
.oonoo
124.70
4.6700
4.50"0
.75000
* . 0 0 0 0
.ooono
-5,0000
.ooooo
¦7.4000
,00000
-1 1 .400
2,0000
-27.400
.ooooo
-12?.51)
.ooooo
-04 5.0 0
5.5000
-17 7,20
i . 0 0 0 0
-1 j. * on
.nonoo
- A , (I o I1 0
,nooao
.00000
1,0000
-1 ,«ono
. o o o n o
.0 00 110
,00000
- 41. e o o
2.2500
¦ 1 62.SO
.OOOOO
.OOpno
.OOOOO
.oopno
1.5000
50.000
.OOOOO
10 0.00
.00000
t 0 0 . (1 o
.75000
5 0 . 0 HO
.00000
.00000
.00000
.00000
1 .5000
,00000
.00000
.ooooo
.noooo
.ooooo
I.5000
.ooooo
.oooon
.f'OQOO
.ooooo
• 000 no
.75000
.ooono
,00000
. o o o n o
, 0 0 n n o
.onono
1.5000
. 'J 0 o 0 0
.O0O00
.ooooo

QFAB
87,700
2113,0
47. I on
2565.0
61 ,M)0
2435.5
12u.6n
2214,(1
I «1. (Ill
?0?l ,5
8 n . 7 (i o
2 3*5.0
6 4.8(111
2119.5
139.30
15.0
7 9.801)
?u? 5.0
1 I 7.40
2510.5
7 6.9(1 0
28*3.0
4S .*>00
3(1*2.5
60 ,P(||)
3J°e.5
65.700
?9n 5.0
55.4(iii
29 1 1 .0
5 J", ft (Ml
3274.0
45 ,90|l
2820.0
1 6(1 . 6(1
29n9.5
1 0 J . 0 (1
3234,0
157,40
35«6.S
4 9, lOO
3097.0
194.90
2315. (J
264.9(1
2602.1
274,90
2649.3
221 .4(1
2822. 1
1 67.9(1
?7*7.2
219.90
29<)5.t!
271.90
3256.0
216.40
3505.3
1 64.9(1
37(14.4
2 0 0 . (Ml
3?22,9
20 0. on
3945.3
20 0. no
4071.5
2 0 0 . o n
42n 1 .8
20 0.00
4336.3
20 0.0(1
4475.0
2 0 0 . (1 o
"618.2
2 o 0 . 0 0
- . onono
20 0,00
-.onono
2 0 0 . 0 0
« .0(1000
0STE2
J ,5(100

.00(1(10

.oonoo

.UOO00
3
o
o
&
c
a
4 . 6 7 0 0
Q)
<
3
«-~
o
S
o
3
30
,75(100
.noooo
, uiiii on
CD
X
"8
CD
9
5
CO
T1
H
3D
, n o " o o
CD
3
i-¥
3"
O
m
O
30
2. oooo
o

O
Q.
1
5.5n i»0
3. o n o o
.110 (Ml II
3
eg
<
CD
cS
"D
O
o
c
a
o
3
H
3"
CD
3
&)
,uunoo
<
#-»
O
Q.
CD
i.onoo
(/»
O

,00(100
o
3
5
f
5!'
,0 0"'|0
Q.
8
V)
s
2,25uo
C
-
3
5
.00(100
5
CO
5
CD
o*
3
,U(IOOO
3
o
CD
fij
CD
a.
i .500(1
<
i-*

o
,uoouo
,oonoo
CD
s
CD
a
S
«-»
3"
o
3
O
CD
.75n»0

u
n
O
c
3#
.00(10 0

c
3
r+
3*
-------
VEAR
IF(-t)
ms(-i >
OD(-l)
IPOlLMtM

1954
17?,00
60,000
2287,0
.00000
.00000
1955
146.00
35,000
1916,5
•ooouo
.oouoo
1956
170.00
56,000
2418,7
.00000
.ooooo
J957
177.00
59,000
2-3 <>5,0
.OOOOO
.00000
1958
175,00
43.000
2106,4
,00000
•ooooo
1959
179.00
nv.noo
1974,6
,ooooo
.ooooo
I960
140.00
71,000
2318,6
,00000
. o (i o o o
1961
148.00
62,000
2079,3
,00000
.ODIJOO
1962
152,00
43.000
2170,0
.00000
.onuoo
1963
157.00
59,000
2361.1
.00000
.ooooo
1961
149.00
47,000
2S65.7
.00000
.14600*09
1965
159.00
53.000
2775,0
.00000
. 1 5 8 il u * 0 9
1966
168.00
49.000
2995.4
.ooooo
.1710 0*09
1967
2 31.00
52.000
3368.6
.ooooo
.J8400+09
j 968
18?.00
48,000
2850,4
.ooooo
.19700*09
1969
168.00
42.000
2813.5
.ooouo
.21100*09
1970
1 78.00
57,000
3164.2
.OOuOO
•2?5O0*09
1971
? 4 ? , 0 0
68,0 00
29 Jo.5
.OOUOO
,24000*09
197?
229.00
51.000
2956,0
,00000
.25700*09
1 97 J
167.00
46.000
3266.2
,00000
, U5450+09
19 7a
1 67.00
42.000
3491.7
•oouoo
,46500*09
1975
242.00
4 3.0 00
3106.2
,00000
,37JOU+09
1976
272.00
63.000
".00000
.00000
,39330*09
1977
281.00
63.000
-,00000
,00000
.40000*09
1978
255.00
52,000
•.00000
•ooooo
.40000*09
1979
229.00
41,000
•,00000
.1)0000
.40000*09
1980
25?.50
5!.400
",00000
.ooooo
,4O000+09
J 981
276.00
61,000
•.ooooo
.OOuOO
.40000*09
1 98?
250.00
50,800
•.ooooo
,00000
.40000*09
1983
224.00
39.800
•.00000
,00000
.40000*09
19R4
250.00
50,000
.,00000
.ooooo
,50000*09
1985
250.00
50.000
•.Ooooo
.00000
.50000*09
t 98b
250.00
50.000
-.00000
.00000
.50000+09
1 9B7
250,00
50.000
-.ooooo
.00000
.50000*09
1988
250.00
50,000
•.00000
.00000
.50000*09
1989
250.00
50,000
•.00000
.00000
.50000*09
1990
250.00
50,000
-.00000
.00000
.50000*09
J9Q1
250.00
50,000
•.uoooo
.ooouo
.50000*09
J 99?
250,00
50,000
".00000
,00000
,50000*09
1993
250,00
50,000
•.00000
.00000
.50000*09
>
ZT
C
-n
o
rc
3
n
IPOLLS+R
K APSR
KAPPR
.00000
20 0,110
1696,0
.noooo
206,00
1656,0
,00000
271,»0
1799.0
,00000
271.00
1793,0
.ooooo
271 .00
1*10.5
.00000
?96.00
1*1?,5
.00000
296.00
20 13.0
.00000
313.50
20 17,5
.00000
313,50
2027.5
.00000
317,50
2016,5
.00000
317.50
2"1 * , 5
.ooooo
317.*0
2nl*,S
.00000
317.50
2 I U?,5
.00000
314.00
21 1?.5
.00000
319.00
2 ? 0 n. 0
.oonoo
30 4,0 0
233P.it
.40000*08
30 4,00
2372,0
,40000*08
304.00
237?.0
.40000*118
30 4.00
2 u P « , U
.40000*0 8
30 u . '10
2 i | o , it
.22600*09
31/4.00
254*, 0
.24080*09
30 4.00
-.ooooo
.00000
350.00
-.ooooo
,00000
350,00
- . 0(10(111
.ooooo
350,00
• .00 0 II 0
.00000
350,00
- , HQ 0()I1
.OOOOO
350,00
-, ooooo
.00000
350,00
•.ouooo
.ooooo
350.00
-.00000
.ooooo
350.00
- . 0 (1 (1 o (1
.00000
350.00
- . 0 0 0 0 (1
,00000
350.00
¦.ooooo
,00000
350.00
-.0000 0
.OOOOO
350.oo
- , 00 0 0 II
.00000
350.00
-.00 0 0 0
,00000
350.00
- . 0 0 " 0 0
,00000
350.00
-.00 00 0
.00000
350.00
-.0000 0
,00000
350.00
-.00000
,00000
350.oo
-.00000
OOUKAP CAP4C
535,76
•OOOUO

540,64
,00000

545.35
•Ouooo

5511,1 1
,00000

554.90
,uuouo

559.74
.00111)0

564.62
.uoooo

569.54
.ooooo
3
Q>
<
CD
o
n
o
574.51
579,5?
.uoooo
•ouooo
o
3
Q>
c
o
&r
37
>
584,57
,?4?9?*1u
X
Tg
a
h
o
T1
H
589.67
,00000
3
CO
3
3D
594.fi|
.uoooo
cd"
#-+
O
m
60n.00
.UOOOO
3
o

¦a
3D
j
694.J8
.00000
X
-o
>
o
1
746.P4
.00(100

'
o
»
o
r+
o
o
3
O
3
03
Q.
CD
1600,0
.uoooo
o

c7>"
1600,0
,000 00
n
s'
(A
s
1600,0
,00000.
c

3
Q>
5
1 600.(1
.OUOOO
5'
CO
o
16O0.0
•uoooo
CO
3
o
a
2
3
CD
160(1.0
,00000

SS
160 0.0
•ouooo

161)0.0
•uuouo

1600,0
,00000

1600,0
•ooouo

160 0.0
•uoooo

1600,0
,uoooo

1 6(l0 , 0
•uuooo

-------
tEA«
PCC0EF1
PCCOET2
FCC0EK3
PCC0EP4
FCC0EF5
\.00000
19BS
.25280
.17000
.26280
*.0000 0
-.ooooo
t 986
.25280
,17000
.26260
-.00000
-.ooooo
1987
.25280
,17000
,26260
>.00000
>.00000
1 98B
.25280
.17000
.26280
..ooooo
-.ooooo
1984
.25280
.17000
.26260
* .ooooo
-.00000
1990
.25280
.17000
.26260
•.ooooo
- . 0II0 0 0
1 94 J
.25280
,17000
.26260
•.00000
-.ooooo
194?
.25280
,17000
.26260
•.00000
-.ooooo
1945
,25280
,17000
.26260
•.00000
-.ooooo
FCC0EF6
OtPl
DEP2
PEP
OCU
.22120
.15700-01
.15700-01
.26600-01
655.50
.22120
.15700-01
,157i
0-0 1
.26600-01
948.60
.22120
.15700-01
,157(
0-0 1
.26600-01
1104.2
.22120
.15700-01
.1571
0 — 0 |
.26600-01
1066.4
.22120
.15700-01
.1570
0-0 1
.26600-01
974.30
.22120
. 1 5 7 n 0 - 01
.1571
0-0 1
,26600-0|
62o.80
.22120
.15700-01
.157i
o-n 1
.26600-01
10C0.2
.22120
,15700-0 1
.1571
O-lll
.26600 — 0 I
1)65,2
,22120
. 15700-01
• 1 57'
0»|l |
.26M10-01
1226. tt
.22120
.15700-01
.1571
0>0 1
.26600-01
1215.2
.19460
.15700-01
. I57(
0-01
.26600-0 1
1246,6
,?2120
.15700-0)
. 157(
ii-ii 1
.26600-01
1351 .7
. 1ooootoo
. 1 5 700-0 1
. I57<
0-01
.2660(1-01
l«29,?
,?50l)0-0l
.157 0 0-01
.1571
0-0 l
.26600-01
45 u , | 0
.17460
.15700-01
.)5700-01
.26600-01
1204.6
.25690
.15700-01
.1571
o-oi
,26600-0 I
1544,6
.27510
.15700-01
.1571
0-01
,26600-01
1714.7
,1ooootoo
. 1 5700-01
.1571
o-oi
,26600-01
152?.?
.16*50
.15700-0)
. I57(
0-0 I
.26600-01
1664.8
.20580
. 157'lu-OI
,157(
0-01
.261 0 0-0 1
1717.4
.?3280
. J001
,00000
,25280
.30000*01
.1571
0-0 I
.552i'0-0|
•ooooo
,23280
. 300UU-IJ)
.1571
o-o 1
.53200-01
•uouon
.? i?8ft
.30000-01
.1571
0-01
.55200-01
.00000
.ooooo
.50000-01
.1571
0-111
.53200-0 J
•ooooo
.00000
.30000-01
. )57<
0-01
.53200-01
. 0 0 0 0 0
.00000
. S0P00-U1
.1571
O-OI
.55200-01
,00000
.00000
.30000-01
.1571
0-0 1
.55200-01
.00000
.ooooo
.JIOOO-OI
.1571
0-0)
.55200-01
*00000
.ooooo
•3O0O0-U1
. 157<
0-0 1
,552oo-01
.O0000
.00000
,30000-01
,)57i
(1-0 1
.5 3200-0 1
.00000
.00000
.30000-01
• 1 57(
0-0 1
,5 1200-01
,000 0 0
.OOOOO
.50000-01
.1571
0-0 1
,53200-01
,00000
.00000
,30000-01
.1571
0-0 |
,53200-01
,00000
-------
YEAR
NITY
CCAPI

FIPOE

VARCOS1
VA9C0S2
1 954
,18549*06
.14620

84.000
«
.ooooo
*.00000
1955
,31379*06
.46490

B5.V00
•
.OOOUO
•.onooo
1956
,42300*06
.21100

41 .800
•
.000(10
-.00000
1957
.22611*06
»,B8800-
01
47.->00
•
.OOOUO
*,00000
1958
.17079*06
,45500-
01
100.00
•
.00000
-.onooo
1954
.20221*06
.172S0

102,00
—
•ouooo
..00 000
1 960
.22508*06
• .2? 700*
01
102.20
—
. 0 n 0 U 0
*.00000
1961
.20391*06
. t 15'(0

10?, 10
•
.00000
•.onooo
196?
.2 t 782*06
.62000*
01
102,30
•
.ooooo
•.onooo
1965
.220"5*06
.15450

102.30
-
.OUUUO
-.Onono
1964
. 27t>26* 06
.19810

103.00

36.000
-.00000
1963
.17756*06
.12170

103.90

37.000
-.onooo
t 96b
.14100*0o
,40400-
Ol
106.00

18.000
-.00000
1967
.1174J.06
,63000—
01
104.30

39.(100
-.ooooo
1 968
.4?022* 0 6
.16590

112.00

40.000
-.onooo
1964
.55141*06
.17490

115.20

41.000
•.onooo
1970
.51607*06
.11750

120.10

42.000
•.onooo
1971
.61506*06
•.49500-
01
124.50

'13.000
*.00000
197?
.18122*06
.6J700-
01
126,50

44.000
-.ooooo
1971
.59681*06
.41100-
01
130,00

45,000
*.00000
1974
.88 I 16*06
,7e4U0-
Ol
1«3.50

41.000
*,00000
1975
•.00000
• 11180

150,00

43.000
*.00000
1976
..(10000
.14160

155.00

43.000
*.00000
1977
•.00000
.14400

160.00

43.000
*.00000
1 97B
•.00000
.15600

165,00

43.000
..onooo
1979
*.00000
,15870

170.00

43.000
-.ooooo
19A0
•.UOOOO
. 1 " 8 9 0

175,00

43.000
..onooo
19fl 1
>.00000
,11810

1 BO,00

43.000
..ooooo
198?
*.00000
.13280

165.00

43,oOO
..ooooo
1981
-.oouoo
.13410

190.00

43,000
-.ooooo
J96U
-.00000
.liulo

*.OOOOO

43.000
-.UIIOOU
1985
•.OOoOO
.13410

*.00000

43,000
•.OOOOO
1986
*.00000
.13410

*.00000

43,000
-.onooo
1987
•.00000
.13410

*.00000

43,000
-.00000
1988
•.00000
.13410

*.00000

43,000
-.ooooo
1 989
-.00000
.13410

«.ooooo

43.000
-.onooo
1 990
•.OOUOO
.11410

*.00000

41,000
..000110
1941
•.00000
.13410

*.00000

43.000
-.onooo
I 94?
-.00000
.13410

*.00000

43.000
•.00000
194}
•.00000
.13410

-.00000

43.000
..onooo
VART.0S3
VARC0S4
QD
RPEMJ
NE
.ponoo
•.onooo
1916.5
55.566
I?4.70
.oonoo
•.00000
241A.7
67.769
40.800
.ooooo
-.00000
2165,(1
71.0?6
83.10U
.00000
..onooo
210 6,4
48.157
?7a.oo
.oonoo
..ooooo
1974,6
41 .201
287.40
.oonoo
*,on 0(10
2118,6
49,284
•12.900
.oonoo
- .00000
2(174,1
SO.616
41(4.00
.nonoo
-.onono
2170,(1
47 .500
4 80.50
.nonoo
-.OOOOO
2161 . 1
48.611
269,60
.oonoo
.,00000
2565.7
48.611
226.a0
.oonoo
-.ooooo
2775,0
50.204
267.70
.oonoo
-.ooono
2095,4
5 4 . 1 ? 0
256.10
.oonoo
-.ooo«o
1168,6
5a.901
115.10
.oonoo
- .000(10
2»5(1.4
56,81 a
— 1 ?1,60
.nonoo
-.onooo
2811.5
60.086
. *72.700
.oonoo
-.000(10
1164.?
65.577
110.70
.OOOOO
-.onooo
2910.5
76.556
168.90
.oooon
-.ooono
2056.0
65.J?4
7U.U00
.nonoo
- .yoooo
V66.2
62.118
29.5 00
.00000
-. 0000 0
1481.7
6 8 . f> 64
72.600
.ooooo
-.onooo
111)6.2
• . 0 0 0 0 0
•10b.SO
.noooo
-.onooo
-.1)0 0(1(1
-.01(000
-.UOOOO
.00000
*.00000
-.000011
*.00 0 0 0
*.00000
.00000
-.onooo
-.oonoo
-.00 0 0 (I
- . OllOOO
.ooooo
-.ooooo
-.OOMIIII
-.0 (III 0 0
-. u o o o 0
.noooo
- .00000
MO 11(10
- ,000(1(1
-.0000(1
.00000
-.00000
-.0 00 00
• . 0 0 0 0 0
.. uuooo
.00000
*,00000
- , 0 0 0 0 0
*.00000
-.00000
.00000
*.00000
*,0000 0
• . 0II0 0 0
•.00000
.00000
¦, noooo
-,(10 0 011
- . 0(100 0
-.Ooooo
.OOOUO
-.ooooo
-, ooooo
-. (i (i o o o
* . u u o o o
.ooooo
-.00000
-,(10 000
- . 0 0 o 0 0
-.00(100
.noooo
-.ooooo
-. (I0O00
-.OllOOO
-.UOOOO
.00000
-.00000
-.ooooo
*.OdOOO
-.UOO00
.00000
-.ooooo
-.00000
• .00oou
-.ooooo
.00000
-.onooo
-.oonoo
-.0(100 0
-,0OOO0
.ooooo
*.00000
-.ooono
..0 llOOO
-.UuilOO
.ooooo
-.onooo
-.00000
..OdOOO
-.00000
.00000
*.ooooo
-.ooooo
..OOOOO
-.UOIIOO
.00000
-.OOOOU
-.00ooo
• . 0 0 0 0 0
*.00000
3 I
x a
SI"
I -
O CD
CD
CD m
x -o
to >
3
(A TJ
IS
3 |
< ^
5! o
O
3 ^
Q_ 8
c r*
5' *
(O 3
CD
CD
< r*
5 2"
S "
Q.
O
o
c
3
c °
° 5
s 5;
r+ T1
o* H
3 3D
S 3
- O
«> X
"5 H
I J.
a 3"
§ s
o>
O S"
dr «"
«> 2
3 §
» q
5 £
5 CL
o
* §
f-f O
3* CD
8 i.
*~ 3
-K
-------

' 'year
' 'OR
OEl'jr
' toELlRR
DEIIRS
,
' i «»59,500
-19,000
i
' 1962
' 1fiMft5
5.0000
1 37,600
16,007

1 I '61
i«8o.4
•8,0000
'-00,500
•12,000

' 1961
1990.4
io.ooo
'•31 ,500
6.0000

1 1965
2210.6
9,0000
1 15.200
-4,0000
r
1 1966
2183.'3
65,000 1
' 0,9000
3,0000
!
1 (96 7
1526.6
•49,000 1
'-10.300
-4,0000

1 1968
1839.0
•lo.ooo
1 1.2000
-6.0000

1 1969
2214.9
10.000
•10.700
IS,000

1 1970
2242.7
64,000
' 114.70
11,000

1 t ^71
i96?;<»
-15.0O0 1
'•57 ,600
•17,000

' 1972
2258.'5
•62.0 08 1
1 5'l,0 00
-5,0000

' t 9 7 3
2312.6
,000 00 '
'•108.30
-0.0000
:
1 1971
il5o.5
7S.000 '
1 105.80
1.0000

1 "t 975
•.00000
50,000
' 70.000
20.000

' 1976
-.ooooo
9.0000
1 10,000
.ooooo

1 1977
•,00000
•26.000
'-53,500
-11,000
F
1 1978
>.00000
• 26.0 0 0
'-5 5,500
-11,000

1 \970
-.ooooo
25,500
' 52.000
10,400
i
1 1980
-.00000
23.500-
1 52,000
10,000

1 198!
-.00000
-26.0 00
'-53.000
-11,000

198?
-.00000
-26.000
'-53.000
-11 ,000

1 I 98 J
-,00000
25,500
' 52.000
10.000
t
i
' 1984
-, ooooo
-.ooooo
-.00000
-.ooooo
i
' 198S
• ,00000
•.00000
•,00000
-.00000
i
¦
t 9B6
•.00000
•,00000
•,00000
-.00000

1987
-.00000
•,00000
-.00000
•.noooo

1988
•.00000
•.00000
-.OOOOO
•.00000

1 989
-.00000
- , 0 (10 0 0
•.ooooo
-.00000
r
1990
-.00000
-.00000
-.00000
-.00000
i
1991
-.00000
-.00000
-.00000
-.00O00

199?
-.ooooo
•,00000
-.00000
•.00000

t 99 J
-.00000
•.00000
-.00000
•.00000
>
3"
C
-n
o
{1
D
O
OPR
RPSB
og»
RPS
QSNR
RPFUTt
1220.1
60,605
198.50
05.929
742.00
06.753
1320.7
77,043
242.10
60.774
958,80
57.375
1467,2
68.903
220,60
55.*17
855.40
76.868
1022,1
50.095
250,oo
3?.803
808,70
52.575
1373,1
48.91?
206.00
28.119
755.50
36.420
1071.6
53,035
259.90
55.*06
885.10
45.210
1559.6
50,790
255.00
53.017
851.60
49.021
1609.2
52,040
200.70
30.S77
778.40
43.903
1677.6
52.575
206,90
34,297
804.10
4 8.061
1659.7
53,504
200,70
55,267
809,00
45.343
1700.7
56,519
249.70
00,8(0
989,70
48.27?
1864.0
75.662
27*.80
55.098
1025.6
55.*89
1696.5
87,523
t'Hh.80
67. 790
10 15.1
82.559
1251.4
68.5fl64
9J2.10
7 7.041
1506.3
67.136
292.70
07.035
982.60
73.855
1937.0
78.477
277.90
59.|61
10A2 , 9
67.260
1975.1
70.917
26 r.fco
52.542
978,50
69.9 55
1753.5
60 , 0<»2
229.lo
55.'Mft
9/1.90
60.085
2011.4
72.02*
20 7. to
07.885
1 0*2.2
60.086
20P7.2
8'i.20|
c'^S.'JO
5«,S79
1119.5
6U.329
1B3B.8
7 9. MO
297.70
5o.Pun
. 1»25.1
61.600
.00000
-.00000
-.00000
-.00000
• , OoOOO
• . 0 0 0 0 0
.00000
-.OOOOO
-.ooooo
- , 0 0 0 () (I
- . Olid 0 0
-.00000
.00000
•,00000
- . 0 « 0 0 0
-,onooo
- . OllOOII
-.00000
.00000
-.OOOOO
-.0 00 0 0
-,oo (too
-.0000 0
-.00000
.ooooo
-.00OO0
-.00000
- . 11011(1(1
• , OtlOOO
-.00000
. ooooo
-.ooooo
-.ooooo
*.
(/>
I'o
3 S
<
5! O
o 3*
3 ~
Q. 8
c r1
5* ^
(O 3
O
3 *
< ^
5 J
S «
a.
o
o
c
•g O
° 2
^ -n
o' H
3 30
- O
3 jo
1 H
&i«
a g"
i 3
a. 8-
5' 2
3 §
S o
S 3
5" Q-
« 3
a- s
8 i
>-*¦ 3
-K ®
^ c
s 56
-------
:*»
i
«>
6UMM4RV FOR YEARS I 1974 - 1985
MOST Pf»0«ABLF .. .
" " PARAMETRTC SOLUTIONS for THE ENDOGENOUS VARIABLES
_ l'Tfl 1975 1976 J 977 _ 1978 .
QD • TOTAL CON8UMPT TUN IN US 3598,477 2982.701 3587.493 3969.061 4022.147
RPEMJ • Dm. AVE HEF". PRICE "" 68.710 59.177 66.269 66.*51 76.125
NE « NET EXPORTS SCRAP ~ REF, >28,582 43,134 -134.681 *195.115 -221.098
OR • TOTAL PRUOUCTI ON REFINED 2314,769 2044,503 2287.408 2543.530 2646.060
DEL TF - STOCK CHANGE FAORICAT, -.380 .40.166 -37.371 -51.4J0 -3I.8J7
DELTBH m STOCK CHANCE RTF Ine R , 36,756 .77.148 -151.740 -179.521 -90.827
DELTR9 m STUCK CHANGE SCRAP 13,656 5,262 *5.04a -4.8B8 5.943
UPR . TOTAL PROO, PRIMARY REF, 2015,238 1824,807 2066.154 2307.573 2402.259
HPSP •> PRTCt SECONDARY REFINED 81,794 58.591 66.005 7J.214 78.979
O
U*H . PRDO REFINED FROM SCRAP 299,532 219.697 221.254 235.95A 243.801
RPS - REAL PRICE UP SCRAP 61 ,243 <11,447 49.442 55.157 62.461
QSNR • SCRAP RECEIPTS NOT SEC, 1122,661 869,299 971.249 1044,579 1138.287
RPFUM • OEFL FllT PRICE (JAN) 70,665 48,689 51.553 60.711 58,447
OUANTify FSMHATEfl IN ItlOO'S OF SHORT TON5
PRICE ESTIMATfcS IN CENTS PER POUND
3 n
< |
x S
1-
2 ®
ffi
<0 m
x -o
S >
3
vi tj
3 Q
< **
£ O
§ 3
c °
O 5
£ >
5* H
3 DO
o rn
=5 "D
„ o
o 33
¦R -I
s.'
§ 3
** Q>
r% a.
3
CO 3
3 3
5 5
S "
Q.
O
n
c
CO* 8
3 5
» o
S 2
-1 n>
5* Q-
— a
1 §
O
ZT CD
8 i
3
-K
^ c
» ss
c
-1
O
{L
3
o
-------

SUMMARY FOR YEARSI 1970 - 19B5
MOST PROBABLE
PARAMETRIC SOLUTIONS FOR THE E"D0SFN0U8
VARIABIES
-- -
-
•
J979
1 980
1981
I9e2
1 963

00 ° TOTAL CONSIIMPT TON TN US
AUTO.518
4J93.489
<1475.554
4771.903
5056.210

; RPCM.1 - DEFL . AVE REF^ PRICE
76,058
75.255
77.341
93.505
11I6.J37
... -
; NE • NET JXPIIHT8 SCRAP ~ R£F.
-274,153
-277.732
-219.131
-285.836
-378.830
_ .
OR . TOTAL PHOOIICTION REFINED
2758,242
2705,697
2837.973
3014,099
3158.277

' DEL IF - STOCK CHANGE FAGRICAT,
•19,894
-31.958
-28.851
"3.107
-3.526

! DELTRR « STOCK CHANCE REFINE R.
,2,703
<•96.223
-179.943
-97,471
-21.137

0EITR3 - STUCK CHANGE SCRAP
6,659
7,759
2,537
1ft,A39
31.0S9

OPR « TOTAL PROO, PRIMARY RtF,
2595,629
2145.513
2549.571
2711,966
2845.51?

RPSR • PRTCt SECONDARY REFInEO
77,716
79.819
86.989
99,125
108.62J
—
nsK - proo refined from scrap
196,130
260.184
288,402
302,133
312.764

' RPS - REAL PRICE uF SCRAP
61.206
62.566
68.221
81 ,924
9«?.«>38

, OSNR » SCRAP RECEIPTS NUT SEC.
1122.183
1139.638
1212.194
1388,026
1525.50U

RPFUTt « OEFL Fill PRICE (JAN)
55,697
61.216
67.177
69.451
72.897

UUAhTITy ES'lMATtS IN 100U"S OF SHORT IONS
PRICE E8T1MAUS IN CENTS PfcR POUND
® §
< 2.
8 a
1 =
c °
§ 5
Sf >
r+ -n
5 H
5J{ CO 3 30
(d H o 2
3 =r
n a
CD
cd m
X T3
s >
vt *tJ
3 o
3 jo
P -I
I
ct> a.
_ o
3 Jl
<_ "
2 O
9
o
c H
3 3"
§ a
« s.
10 3
3 ®
<
Q.
O
o
c
3
CD
3
* 8
3 §
S o
5 s
5' Q-
~~ o
§ §
3- 8
2 1.
•» 3
=;• c
>
rr
c
-t
D
CT
fiT
3
o
-------
summary FOB VEARSl 197U - 1985
MOST PROBABLE
PARAMETRIC SOLUTIONS FOB the ENDOGENOUS VARIABLES
=r
OD
I
1 «>8<1
1965
00 • TOTAL CONSUMPTION IN U8
SMI,098
5350,026
RPCM.I - DEFl. AVE REF, PRICF
1 O't ,255
105.338
NE • NET EXPORTS SCRAP ~ RfF,
_ • SS't.lBO
-376.999
OR • TOTAL PRliOilCT(ON RCFINED
5278,792
312A.308
DEL IF - 8T0CK CHANCE FABRIC AT,
-2,200
8,931
DELI8R • STUCK CHANCE REFINER.
-56,562
—^6.556
DELTAS - STUCK CHANCE SCRAP
22,196
22.625
r" ' OPK m TOTAL PROD, PRIMARY REF,
296*1,351
3110.868
' HP8H • PRICE SECONDARY REFINED
108.126
109,607
OSH - PROD refined FRI1H SCRAP
SI'l.flUl
317,140
~ RPS - REAL PRICE U? SCRAP
91,606
92,967
| mNR • SCRAP RECEIPTS NOT SEC',
(SI 2,260
1529,720
RPFUT1 • OEFl FUT PRICE (.IAN)
72,133
73,088
; tJUANTITT ESTIMATES IN 1000'S OF
SHORT IONS

PRICE t8TI MATES IN CENTS PER POUND
c °
§ 5
E? >
^4 -n
3 n
< I
"a
5' ,* O !2
- O
3 3D
^ H
o I
c H
a 3*
§ 3
a

D
«/» "O
l'&
CD
3 u
£ o 9-
2. O ¦* *5
§2-5'
ex s
D -¦
10 3
3 ®
< -~
5 2"
i ®
Q.
O
O
c
3
CD
s* £
3 §
S o
? 3
m CL
— (1
* §
9 8
2 i.
3
-h ®
—i" c
z «
3"
C
{L
B
-------
SALES
**»•*
EMPLOYMfNTfMAN.YEAHS)
SUMMARY FOR YE*RS« 1970 • 19A5
HOST PPOPARLE
PARAMETRIC SOLUTIONS FOR THE END^GFMOUS VA»I*hLES
PRODUCTION
*«*•**»•**
1971
1975
1976
1977
1978
PRIMARY REFINED
secondary RFFTNEO
NONiREFINEO SCRAP
2770550,300
189991,850
1375096,700
2159718.100
257115.590
721163.680
2739279.200
292079.36.0
96 0117.860
3076050.700
315506.210
1 1*52323.600
3f.670fr6.S0l)
3851 us.29i)
1121961.000
HKXM AHY RfcF TNEO
SECONDARY PFFTNEO
non»reftneo SCKAP
2720017,900
167651 ,560
1375096,700
2251025,100
251256.600
721163,680
2910153.600
298738.550
960117.860
3315 356.60 0
iS^fci.VO
1 15232 3.60 0
3«US7 I «. 7
375716.170
1121961 ,(|0U
PRIMARY REFINED
SECONDARY RFF1NE.D
MINING ANO MILLING
17019,387
253'(,108
31238.211
1513*.296
1858.687
30210.659
17180.151
1871.861
33833.509
19522.M 1
1996.259
37621 ,667
20323.682
2062.615
39138.105
POLL, A&ATEHtNI INVESTMENT
***** *»~*»*~~*
MINING ANO MULING
SMELTING ANO DEFINING
,000
226000,000
,000
207601.170
.000
.ono
.000
.ooo
. o (I o
.0 oo
PHT8ICAL REFINERY CAPACITY
******** ******** ********
BEGINNING OF YEAR
NET CHANCE
2516,000
-,000
2516.000
59.000
2605.000
60.725
2665.725
II .886
2707.611
38.539
CAPACITY HTU 17A1 ION
«**«**«* ***********
PRIMARY REFINED
SECONDARY PFFTNED
.792
,985
.717
.723
.793
.632
.866
.671
.8R7
.697
QUANTITY ESTJMATE8 IN 100018 OF SHORT TONS
MONETAKY ESTIMATES IN |000"S OF DOLLARS
-------
PRODUCTION
**f**«*••*
SUMMARY FOR YEARS! 1974 - 198S
MOST POORABLF
PARAMETRIC SOLUTIONS FOR THE ENOOGf NDUS VARIABLES
1979
1980
1 98 1
1982
1983
PR IMAKV REFINED
SECONDARY PFFINEO
NON-REFTNIO SCRAP
SALES
*****
PRIMARY RfFTNEO
SECONDARY PFFTNEO
NON^REFTNEi) SCRAP
EMPLOYMENT CMAN.YEARS J
***«**«***
PRIMARY REFINED
SECONDARY REFINED
MINING AND MlltlNR
POLL, ABATEMENT INVESTMENT
***** ********* **********
MINING AND muling
SMELTING AND REFINING
PHYSICAL KEFJNEhy CAPACITY
***•*«*« *»*«***« ~~~~»~**
0ECINNING OF YEAR
NET CHANCE
394656'!,300
304849,670
1373676,300
3952496,600
294500,160
1373676,300
21959,636
1659,30*
40797,711
,000
,000
2746,150
63,934
3680724,700
415352,110
1426018,90 0
3625549,600
402965,850
1426048,900
20689,621
2201.221
00020,513
,000
,000
2810,064
97,723
3943752.100
501756.150
1653931.400
4222093.200
497341,5U0
1653931.400
21569,977
24 39.949
41977.026
.000
,000
2907.607
120.101
507162a.1oo
598978.7«e
227425 7.500
5253904.500
565991,900
?274«>57 . 30 0
2^9113.872
*556. 1 18
44562.138
.00(1
.00 0
3027.909
121.874
6051677.700
#.79t|70.8U0
2826390.210
6«»9#i630. 40«
M 1996.620
282*390.200
24073.710
2646.OS9
46714.702
.000
.000
3149,782
117,150
3
a>
<
a
x
T&
CD
3
O
»
9
X
CD
3
C °
o 5
sr >
H Tl
O* H
3 3D
o m
3 °
S 3D
•o -I
3 o
<2. o
0 5;
1 8'
5" 2.
•° z
3 ®
<
5" J
s ®
a.
o
n
c
3
° I
c H
a y
§ i
° I"
» 8
3 §
51 o
ra =
n ®
£" Q-
— o
s. §
3- S
8 3
*~ 3
-*
-------
PRODUCTION
*******•~»
PRIMARY REFINED
SECONDARY REFINED
NON*RE F! NED SCRAP
SAL F 8
*****
PRIMARY REFUSED
SECONDARY RFFINED
NON-REFINtD SCRAP
eHPI. OYME NT t MAN. VEAHS )
«**•*•»***
PRIMARY REFINED
SECONDARY REFINED
MINING AND MULINO
POLL, AOATEMtwr INVESTMENT
***** ««**•**** **********
MINING AND M11 L I NO
SMtLTlNG AND WEFINJNG
PHYSICAL HEFINChy CAPACITY
«»*****« ******** ********
BEGINNING OF YEAR
NET CHANGE
CAPACITY UTH I7A1 TON
******** *MM«*»M>
PRIMARY RfcFTNEU
SECONDARY REFINEO
SUMMARY FOR YEAPSl 1974 • 19A5
MOST ppoeuhle
PARAMETRIC SOLUTIONS FfliJ THE EMOPGFwnuS VA«M*PIES
190/4 1965
6180960,200
679903,700
2770653,4 00
6553030 ,300
695074,150
201 '427 3 ,0 00
6290400,000
6319 04,000
2770653 ,'400
6651920.700
646276,940
2844273,000
25079,113
2660,245
40497,269
26310,660
2685,616
50708,765
,000
.000
,000
,000
3206,933
161,630
3440,563
181,711
II
5 a
* J
1 -
2 ®
CD
® m
x -o
CD >
3
(A "O
I' 3
3 o
c °
° 2
Ef >
5 H
3 DO
0
^ -c
o
3 J3
1 -t
S I
3 I
§ 3
U A
2. o ®
o 3
3
Q_ 8
c c
5' 2
« 3
3 ®
<
5 2"
S ®
a.
o
o
c
3
(V
3
2
3 &
£ o
5 5
5" Q-
— o
* 3
B i.
3
u! i
,902
.096
,902
,907
QUANTITY1 ESTIMATES IN lOOO'S OF SHOfM'TONS
MONETARY E5t1mATEB IN 1000'S OF dollaps
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX B
"CONSTRAINED CAPACITY" ENVIRONMENTAL POLICY SCENARIO
MODEL RESULTS
(1976-1985)
Arthur D Little; Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX B—"CONSTRAINED CAPACITY" ENVIRONMENTAL POLICY SCENARIO
MODEL RESULTS
Presented in this appendix are the following:
1. Historical and projected values of all independent (exogenous)
variables, along with historical values of all dependent
(endogenous) variables;
2. Summary of year-by-year model solutions for the nonlinear ver-
sion of the model; and,
3. Summary of year-by-year subsidiary calculations (e.g. sales,
production, employment, capacity, capacity utilization, etc.).
General Notes:
(1) Listing of variables/values: refer to Appendix D for
a "dictionary" of the variables;
(2) Three "parametric" model solutions have been obtained
for each year:
one: AVC = AR (Average variable cost = net demand
schedule for primary producers)
two: ATC = AR (Average total cost = net demand
schedule for primary producers)
three: AVC = MC = MR (Implicit monopolistic solution).
The solution used In our analysis (and also listed here)
refers to Solution Two (ATC = AR). Refer to the technical
Appendix for more detail.
i
Arthur D Little Inc.
-------
EXOGENOUS AND
ENDUGENOU8
V ARIABLF S LIBTfD BtLOw
1
i
y E ar
CONST
RPAL
VUD

VUD/VGR

t«s«
1,0000
24,555
43,082
98,525
1.3548

t 955
1.0000
52,411
49,296
79,356
1.3469
-
t '56
1,0000
28.855
50,953
69.752
1.2867
,
1957
1.0000
21,002
51.284
44,777
1.2298
i
1958
1.0000
20,745
<1'1,905
39,699
1.0395

1950
1.0000
22,76?
51,533
17,139
1.1130

I960
1.0000
21,320
52,444
48,689
1.0144

1961
1.0000
18,924
51 ,450
45,642
.93716
¦*
I 96?
1.0000
17, W
57,16b
46,631
,99767
1
1 96 J
1.0000
18,372
60,895
46,6(16
1.0321

1964
t.0000
19,306
6r»,/l51
69,101
1 .0132

1965
1.0000
22,770
73.322
90,972
1,0751

1966
1.0000
19,369
82,021
10 4,93
1,1853

1967
t.0000
15,589
82,850
76, 1 /18
1 .?3M
n ™
1 968
t.0000
10,472
87,007
80,416
1 .1623
,
I960
I.oooo
17,991
91,1 15
91 ,4h0
1 .0659
i
1970
1 .0001)
14,515
P'l,093
84,768
.93333

197 t
t .0000
10,593
8?,35 3
62.561
,897 09

197?
1.0000
9,2281
89,809
59,578
.94140

1 97 J
t.0000
13.016
101,08
94,261
,99387

1 974
1.0000
16,160
100,00
93,000
1.oooo

1975
t.0000
22,HHP
78,000
51). 34o
,97400

1976
I,0000
JO, 0.93
98,'„;<1
56,640
1,0360

1977
1,0000
29,329
107,88
73,000
1,0250
CD
1978
1.0000
29,051
106,85
73,000
1,0258
H-
1979
t,0000
28,874
104,39
75,000
1,0287

1980
1,0000
28,352
111,53
80,000
1,0208

J9»1
1.0000
?R,5?e
123,35
9?,000
1 , o 1 0 1
,
1982
1.0000
28,737
132,71
100,00
1,oo So

1983
1,0000
28,910
140,25
110,00
,99610

1 984
t,0000
26,91e
1 't 4 , 7 4
108,45
,99S50

1 985
1,0000
28,91 A
1 4 9, 3 7
112,00
,99289

1986
1,0000
28,9)R
154,15
*,00000
,99036

I 9ft 7
1,0000
28.9J 8
159,08
*,00000
,98800

1988
1,0000
28,9|S
164.17
-.00000
,98570

1989
t ,0000
28,9)8
169,43
*,00000
,98 346

1990
1,0000
28,918
174,85
*,00000
,97895
>
1991
1,0000
28,9)8
«,00000
*,(10 000
*,00000
r-f
19"?
I ,0000
28,9|n
«,00000
*,00000
•,00000
3-
c
199J
1,0000
28,918
*,00000
••ooooo
*.00000
D
d
3
o
0UM8T2
D1G0V
,50000
199,30
1,5000
23.600
,00000
49,500
,00000
79.000
.00000
12"«70
4,6700
4, SO 0 0
,75000
6,0000
.OOOOO
*5,0000
,00000
*7,10 0 0
,00000
• 1 1 . u 0 0
2,0000
• ? 7 . 1 0 0
,00000
• 1.J2.50
.ooooo
*445.00
5.SOOO
-1 7 7. 2(1
3.0000
*1 5.8 DO
,00000
*8.0000
.00000
.OOOOO
1.0000
¦ 1 . 8 0 0 0
.00000
.00000
.ooooo
•3S.800
2.2500
¦1B2.50
.ooooo
. 0 0 f, o o
.ooooo
. U 0 0 0 0
1,5000
50.000
,00000
10 0,00
.00000
10 0.00
.75000
50.000
.00000
.00000
.00000
.OOpoo
1,5000
.ooooo
,00000
.00000
.00000
.ooooo
1.5000
. o n o o o
.ooooo
.00000
.ooooo
.OOOOO
.75000
.00000
.00000
.00000
.00000
.ooooo
1 .5000
.00000
.ooooo
.00000
iKR(*n
QFAB
87.700
2113.0
4 7 . 1 (Ml
2565,0
61.600
2435,5
1 20,611
2214.0
lfll.00
? 0 21.5
8(1, 700
2385.(1
64,too
21 19.S
139.30
2213.0
79,800
24? 1,0
117.40
25<4(i ,5
7 6, 9 (Ml
286 J.O
45.600
3052.*
60 , 8011
3394).5
65,700
29n } ,o
5S,uo2, |
274.9(1
28U9, 1
221 .4(1
28?2. 1
167.9(1
2757.2
219.90
2945.8
271 ,9(1
3258,0
218.40
35o5,3
164.90
3 7(i4 . 4
200.00
3822,9
200,00
39U5.3
2HO.0 0
4 0 71.5
2oo,on
42(i 1.8
2oo, oil
4336.3
200.00
4475,(1
2oo.oo
4618.2
?"0.00
* , 0 li 0 (I (1
20 0 . (Ill
¦ , 0 (ill (HI
2oo,no
*.0(1110 0
I3STF2
1,5000

,00(1011

,00 000

,00000
3
o
n
D
4,6700
,75000
•OOOOO
(to
<
CD
X
o
3
to
a
c
o
s»
o*
3D
>
H
H
,0000 0
3
CO
3
3D
,00000
2,oooo
,00000
CD
3
o
CD
CD
3-
CD
m
O
3
¦o
m
•v
O
3D
H
,00000
X
rt
-o
o
|
5,5000
CD
3

Q_
c
H
3, uII0 0
, 0 0 0 0 0
l/»
<*
CD
"U
o
CD
a
§
j-
CD
3
, 0 II 0 0 0
1,0000
3
<
(A
O
<-»
o
o
to
Q.
CD
,00000
o
^+1

U)
,00000
Q
8
5»"
s
2.25O0
c

3
§
, o 0 (10 0
3
CA
00
o
.ooooo
(O
d'
o
®
2.
3
CD
1,5000
3
<
CD
5"
a
o
,00000
,00000
,75000
CD
s
Er
CD
Q.
O
o
S
3-
8
o
3
3
3
,000 00

5'
, o 0 0 (10
I .5000

3
CD
3
r+
(A
CO
c
8
,00000

,00000

1 , 5 0 II 0

,000 00

,00000

,75000

,00 0 00

,00000

1 ,50 0(1

,00000

-------
YE AR
lfl-1)
ins(«i)
00 C* 1 )
IPOLLf4*"
IPROOM+m
1 osn
172.00
60,000
2287.0
,00000
.00000
19SS
14 6,00
15,000
1916.5
,00000
.00000
1956
170.00
56,000
2'li8.7
. (10 0 U 0
.00000
1*57
177,00
59,000
2365,0
,00000
.onooo
1958
17S.00
41,000
2106,4
,00000
.00000
195*>
t 79,00
49,000
1974,6
,00000
.00000
1 960
140.00
7|,UOO
2316,6
.ooooo
.00000
t 961
148,00
62,000
2079,3
.00000
. 0 0 0 0 0
196?
IS?,00
4 } , 0 0 0
21 /0.0
•onooo
• 0 0 0 0 0
<963
I "57,00
59,000
2 561,1
.00000
.00000
t 964
109,00
47,000
2565,7
.00000
.146011 + 09
}96S
159,00
5 J,000
2775.0 "
.00000
.15600 + 09
1966
168,00
49,000
2995.4
,00000
.17100*09
1967
2)1,00
52,000
3368,6
.00000
. 1 840(1 + 09
1 96B
162,00
46,000
2»50.4
.00000
.19700+09
| 969
168,00
42,000
2B13,'i
,00000
.21 100+09
1970
178,00
57,000
3164,2
,00000
.22500 + 09
1971
242,00
68,000
2930.3
•ooooo
,24000+09
I 972
229,00
51,000
2 9 'j 6 . 0
,00000
,25700+09
1971
167,00
46,000
3266,?
•ooouo
.4545U+09
1971
16 7,00
42.000
3'! 8 1 ,7
¦oouoo
,46500+09
J975
242,00
4 5,000
3106,2
.00000
.37100+09
1976
272,00
61,000
.,00000
•OOOOO
.25000+09
1977
2fl!,00
63,000
7,00000
.00000
.25000+09
J97B
255,00
52,000
•,00000
.00000
.25000+09
1979
229,00
41,000
•.OOOOP
.00000
.250011 + 09
J 98o
252,50
51,400
-.00000
•ooooo
.25000+09
1 98 1
276,00
61,000
».00000
.00000
.42000+09
1962
250,00
50,80 0"
*,00000
.00000
,76000+09
1983
22'', 00
49,800
*,00000
. o o o o o
.76000+09
i 984
250,00
50,000
*,00000
.ooooo
,44500+09
1985
250,00
50,000
*,00000
.00000
,30000+09
1 986
250,00
50,000
*.00000
.ooooo
.onooo
198 7
250,00
50,000
*,oooo()
•ooouo
. 0 P 0 0 0
1988
250,00
50,000
*.00000
.00000
.00000
1989
250,00
50,000
*.00000
.00000
.00000
1 990
250,00
50,000
*,00000
.00000
.00000
194)
250,00
50,000
*,ooooo
,00000
.00000
1992
250,00
50,000
*,00000
•ooooo
.00000
199)
250,00
50,000
*,00000
,00000
,00000
IP0LL3+R
KAPSR
KAPPR
DOIKAP
CAPAC
.00000
200,00
1696,0
535.76
, 0 0 0 0 0
.noooo
20 6.00
1656,0
540.64
, 0 U 0 0 0 " ~
, n o n o o
27 1 ,1)0
1799,0
5 '4 5 . 3 5
.00000
,00000
271 ,00
1 79 * , (I
55(1. 1 1
.Oo(ioo
,00000
271,00
1 8 1 " , S
55U.90
, ooooo
,00000
296,00
1 8 I 2 , >i
559.74
,0000')
,00000
296, '10
2"1 3,n
56U.6?
,U(I(III(|
,00000
313,So
20 17,5
569,54
, 0 0 0 0 II
,00000
313,50
2027.5
57U.51
,0 till 01)
,00000
317,50
2o|6,s
579,52
,00000
.ooooo
317,50
2016.S
584,57 "
,?4?92+10
,00000
317,50
20 16,5
569,67
•uuouo
,00000
317,50
2102,5
594.81
.UUI100
,00000
J14, 1)0
21 12,5
6 0(1.00
,ooo o o
,oonoo
319,00
22 0 8,0
605.42
,000 00
,00000
304,1)0
2159,it
694.28
,00000
,?090 0+U8
3 0 4 , 0 0
2372,0
746.84
, 0 U 0 (I 0
,30 0 00+08
3 u 4, n 0
2372,0
803.36
,00(100
,t 4640 + 09
3 0 a , 0 0
2 4 H 9 , ()
864.20
,00000
,20'l6o + 09
30 4,00
2U19.il
9?0.62
,00 00 0
,22600+09
30 4,00
2546,0
1 600 ,0
,43000+ I 0
,?4PH0+09
10 li , 'Ml
b ,0 II ODD
1 6 0 0 , U
,00001)
, 1 560t) + o9
450,1)0
v , 0 0 0 (I 0
1 600 ,0
,U II (<0 0
,90000 + 118
35 0,00
* ,0000 0
1 61)0,0
•ouooo
.60000+06
350.00
*,0000 |)
1600,0
,000 00
,40000 + 1)8
350,00
*, (Ml 0(1 II
1 61)0 . 0
•ooooo
,400 0 0+o8
350.110
•.,11(111 1)1)
1 61)0 . 0
,00000
,60000 + 118
3b",no
-.onooo
16(10.0
, 0 o o 0 0
, 1 0000 + U9
350,00
*.ooooo
16(10,0
,00000
, 1000 0 + 09
350,00
*,0000 0
I 6(1(1 ,0
,00000
,60000+06
35'), 00
*.(10 00 0
161)0,0
,00000
,40000+0 6
350,00
• ,1111(1 0 0
1 600,0
,001100
,00000
35'', oo
-,00000
1600,0
,0011(10
,00000
350,00
* .ooonn
J 6
n
c
o
EJ
o
3D
>
X
•o
a
o
T1
H
CD
CO
3
3D
5
3
TT
o
fn
"O
o
a
CD
<3
o
3D
cd m
X -O
re >
3
"O
^ H
I
O =
-i w
< *+
5 O
o u
d 2;
Q. 8
c r*
3 -
" E
s ®
< ^
5 3-
S "
Q.
• - O
O
c
3
o
c H
3 ?
§ 3
° 2
« 8
3 §
S o
5 3
5T CL
o
S §
n
=r
-------
YEAR
fccoem
Fccorr?
rccopf3
FCC0LF4
19"54
izpieo
,22120
,22120
.22120
1955
.22120
.22120
,22120
.22120
| 956
.22120
,22120
.22120
.22120
1957
,2?1?0
.22120
,22120
.22120
(9SA
i22120
.22120
,22120
.22120
\Q
.22120
.22120
,22120
.22120
I960
.22120
.22120
,22120
.22120
1961
.22120
.22120
,22120
.22120
196?
,22120
.22120
,22120
.22120
196 3
.22120
.22120
,22120
.22120
1964
,19460
. |9'J60
, I9-i60
.19«60
t 96S
;22120
,22120
,22120
.22120
I 966
110000*00
. t nooo*00
,10000400
• 1 0000*00
1967
,25000*01
,2'jO00»0l
,25000*0 1
.25000-01
(968
fI7«h(l
.17"60
, 1 7/160
. !7'i60
| 969
,25690
,25690
,2'>690
.25690
1970
;27$10
.27110
,27110
,27310
1971
, 1 0000*00
, tooootoo
, 10000+00
,10000*00
197?
,16850
,16OS0
, 16850
.16850
1975
',20180
.20180
,20180
.20J30
1974
,2 4280
.17000
,26280
.21200
1975
,16280
.17000
, 16650
,16280
J 976
,16280
.17000
,17650
.16280
1977
,16280
.17000
,18650
.16280
| 97 8
,18280
,17000
,21280
,23280
1979
,18280
.J 7000
,21280
,23280
1980
,20280
, 1 71)00
,21280
,21280
1981
,20280
,17000
,23280
.23280
*982
,2)280
,I 7000
,26280
,21280
1 98 J
,21280
,17000
,26260
,21280
t 984
,21280
,17000
,26280
*,00000
J 985
,21280
,17000
,26280
•*,00000
1 986
,24280
,17000
,26280
¦,00000
1987
,2 4280
,t 7000
,26?80
¦ .(10000
1988
,24280
,17000
,26280
*,00000
1989
,24280
,17000
,26?80
*,00000
1 990
,21280
,17000
,26^80
••00000
1 991
,24280
,17000
,26280
n.OOUOO
1 992
,24280
.17000
,26280
*.00000
199 J
,24280
.17000
,26280
¦,00000
FCC0EP5
FCC0LF6
OF P1
0FP2
REP

ocu
,22120
.22120
.15700*01
. 1 5700-01
.26600
01
815.50
,22120
.22120
. 15700*0)
. 1 570(1*0 1
.26600
01
998.60
,22120
• 22120
.15700*01
. 15700-01
,?66D 0
01
11 00,?
.22120
.22120
,15700*01
.1570 0-0 1
.26600
01
1U86.9
.22120
.22120
, 15700*01
. 1 570.1-0 1
.<>6600
01
979,10
.22120
.22120
.15700*01
, 15700-01
.26600
01
824,80
.22120
.22120
.157 00-01
. 1 570 0-111
.26600
01
lUPO.?
.22120
.22120
.15700*01
. 1 5700*01
0
01
1165.?
.22120
.22120
. 15700*U)
. 15700-01
.2660')
0 1
1228.<1
.22120
.22120
. 157"0*01
. 15700*0 1
,2h6ll'J
0 1
1211.2
• 1 9/460
.19U60
.15700*01
. 15700-01
.2660 0
Ul
1246.8
.22120
.22120
.15700*01
.15700-0 I
.26600
01
1151 . 7
.10000*00
.1ooon*oo
.15 700*01
. 15700-01
.26600
01
1"29,?
.25000*01
.25000.01
. 1 57 '>0*0 1
. 15700-01
,?fc6l> 0
0 1
954.10
.17460
.17«60
.157O0-0)
.15700-0|
.26600
01
I 2o4,6
.25690
.25690
.15700*01
.15700-0 1
,?66iU)
ul
150 0.6
.2711U
.27110
. 15700*01
.I57uo-o1
.26600
0 1
1719.7
.10000*00
.1OOOO+OO
.15/00*01
.15700-01
.2661)0
01
15??.?
.1685(1
.16850
. 157(10-01
, 1 5700-0 t
,2h6l) 0
0 1
1664.8
,20180
.20380
,15700-ul
. 1 5700*0 1
.2660»
ul
1717.9
,21280
.2 4280
.109 40.01
. 1 5700-0 I
.5 4200
0 1
1591.6
,1628(1
.16280
.19100-02
. 15700-0 I
. 5 4 21)')
01
• 0II0 U 0
,16280
.16280
.1(1000*11 1
.15700-0 I
.5 421)0
0 1
.uuooo
,lfc28o
.16280
.50000*01
. 15700*0 1
.54200
0 1
,00000
,21280
.21280
. snooo-oi
.15700-01
.51200
ul
,0 0000
,21280
.21280
, 5'>0 oo*o 1
, 15700-1) |
.5 4200
0 1
,00000
,21280
.21280
,30000*01
,15700-01
.54200
0 1
(UUOOU
,212^0
,25280
,10000*01
. 1 5700*01
.5 42i)')
0 1
,uoooo
,21280
,21280
.10000*01
, 1 5700*01
.54200
01
.00000
,21280
.24280
.10000*01
. 1 5700*01
.54200
Ul
,00000
¦•00000
*»O0P0O
,10000*01
, 15700.0 1
.51200
01
.00000
¦.00000
*.00000
,10000*01
.15700-01
.54200
01
• uoooo
• . 0 n 0 0 0
*.00000
,300011.01
, 1 ¦j7oo-o 1
.5 42it0
Ul
. uoouo
¦.onooo
*.00000
,loo«o*oi
, 1 5700*01
.51200
Ul
.00000
¦,00000
* . 0 0 0 0 0
,10000.01
, 1 5700-01
,542(10
01
. 0 0 0 0 0
•,00000
¦.onooo
,30000.01
, 1 5700.01
,51200
01
.Ul)0 00
• ,00000
*.0001)0
,10000.(11
. 1 570 0-01
.51201)
01
.00001)
•.onooo
• .onooo
,10000-01
, 1 5 700-0 1
.542110
01
, U 0 0 0 0
•.00000
*,00000
,1000(1-0 1
. 1 5700-01
.5 420 0
0 1
.000(1 0
¦.00000
•.noooo
,i"Ooo*oi
. 1570 0-01
.542(10
Ul
,00000
5 I
x a
1 J
CD
= =T
2 <®
(D
(D m
x -o
5? >
3
Ul
I o.
s «
< ^
o
0 3:
3 —
o. 8
C ,T
5* £
(O 3
3 8
< ^
5 ST
5 ®
Q.
— O
o
c
3
CD
— 3
C °
§ 2
sr £
-n
o* H
3 3D
o ni
X TJ
, o
® 30
"5 H
li,
3 i"
§ 1
a 8-
m" 2
3 §
" 3
5 3
£ CL
< 5
3- 8
2 §
3
-H «
c
£ £
-------
YM«
*E TV
CC«IM
f IPOfc
VARC0S1
19-54
,18549*06
.I9b20
fl'l ,00 0
•,00000
195S
,13J79»06
.16990
85,90 0
1,00000
1956
.«;>30U»06
.25100
91,800
*,00000
1957
.2261If 06
• .8 88 0 0« 01
97,500
•.ooooo
195*
.17079,06
,o>isoo»ol
100.00
• .1)0000
JOS')
.2 0223,06
.17250
102.00
-.1100 0 0
*960
a 2250 8~0 6
• .227OO-O1
102.20
•.00000
I 96 1
,2os'»3f06
. 11*3 '10
102.10
-.00000
1962
,21 7H2+06
. 62000-01
102.30
-.0 (1000
1963
,2204ri» 06
,154So
102.30
V , 0 0 0') 0
1964
,276?h»06
, 19830
103,00
36,000
1965
. 37756*06
• 1?170
103,90
37,000
t 966
.49100+06
,90400*01
106.00
36,000
\9kl
.33791»06
,61000-01
109.30
39,000
t 968
,42o22*o6
.16590
112.00
4II . o 0 0
I960
,551
.91100-01
130,00
45,000
t 974
.88136»U6
.76400-01
I'll,50
43,000
I97«j
•.00000
.15180
150,00
43,000
1976
•.00000
,16160
155.00
45.500
1977
•.00000
.16440
160,00
45,500
t 978
•.UOOOO
,17600
165,00
45,500
1979
.,00000
,17*70
170,00
45,51)0
1980
-.00000
.16890
175,00
4 5 , S 0 0
1981
•.00000
,15810.
180,00
45,500
1*8?
•.00000
,15280
185,00
15,500
1 9B J
•.00000
,15410
190,00
45,500
1 9B4
-.00000
.15410
*,00000
45.500
t 9RS
•,00000
,15410
-.ooooo
4 , "5 0 0
>986
•.00000
,15410
-.00000
45,50 0
19B7
•,00000
,15«I0
»¦,ooooo
45,500
1 988
•,00000
,15410
-,00000
45,500
1 9R9
• •1)0000
,15410
9,00000
45.500
1990
-.00000
.15410
-.00000
45.500
1 991
-.00000
,15410
*,00000
45,500
t 99p
-.00000
.15410
-,00000
45.500
199 J
•,00000
,154)0
-,00000
45,500
VARC0S2
VAHC0S3
VARCOSO
(JO
RPIMJ
NE
.00000
-.ooonn
-.ooooo
1916,5
55.568
l?4.70
.OOOOU
• ,ooooo
-.oonoo
2418,7
67.769
4 0,Moo
.ooooo
-.0 00(10
••onooo
2165,1)
71.026
8 J , 30(1
,00000
•,"0000
••onooo
210 6,4
48,357
2 7 4,00
.ooooo
¦ . ft 0 01) (>
¦ .OOP no
1974,6
«l.203
287,40
.onooo
•.00000
-•OOOOO
2318,6
49,289
•3?,900
.00000
-.00000
•.00000
2079, 3
50.616
438.00
,00000
• . 0 0 ft 0 0
- , 0 o 0 '10
21 70.0
47,500
4 8 0 . 5 0
.000on
-.00000
-.OOOOO
23M .1
4 8.633
269.80
,0(1000
•.OOIOO
•, o o r o o
2^*5.7
1 ft , 6 1 3
228.40
. 0 0 U 0 0
•.oonoo
• , 0 " 0 0 0
2775,0
50 ,2o4
267.70
,00000
« . 0 0 01) 0
•,00000
299S.4
54,320
256. 1 0
.ooono
• .nnivjo
••ooooo
3368.6
54.90 3
135.10
.onooo
*, r> oo on
-.onooo
2 « 5 0 , fl
5b.8|4
•123.60
.01)000
•.oonoo
•,00000
2«l 4.5
60,08 6
- 7 ? . 7 0 0
.01101)0
• . 0 0 ft 0 0
-.ooooo
3lbu .2
6S.577
I So.7u
.1)110 0 0
•, ooooo
••ooooo
29 So ,5
76.556
168.90
.onooo
¦,00000
>, onooo
2956,0
6S. 124
74.400
.onooo
• , It 0 000
••UOOOO
3P66.2
62. 118
29.S00
,onooo
t.ftOOOO
••OOOOO
3«M ,7
6 8,669
7 ?.6 00
,00000
•,00000
••OOOOO
3106,2
- ,()0,00000
•.00 000
• .(lllOOU
• , U U 0 0 0
•ooooo
¦,00000
>,00000
>,110000
• . 0 (1 0 0 0
• , U u 0 0 0
.onooo
•.00000
•.onooo
-.»() 00(1
• , 0 III) IX)
>,001)00
•onooo
•.ooooo
-.onooo
-.00000
- .0(10 00
•,00000
•onooo
•. ft o n o o
•.00000
•, o o o o o
• .oiio no
• , UOOOO
•oooou
•,00000
- . 0 ft 0 0 0
iioooii
— .(Mi o oo
••OUODO
•onooo
•.00000
•.onooo
•.ooooo
• .(III 0 0 u
-.uuooo
•oooou
o.OOOOO
•,00000
¦ • Odd (11)
-,00000
- , U 0 0 U 0
•ooooo
•>,00000
••oooou
>,0 0 o (III
•,0000 0
-,00000
, o o o o o
•.oonoo
••onooo
•, oooou
•,oonoo
«,UOU')0
. 0 01) 0 0
w,oonoo
• , 0 ft 0 ') 0
-.000 01)
• ,00(10 0
•,00000
• 01) 0 0 0
•.ooooo
• •0(1000
-.00 0 (1II
-.0 (1(1 0 0
-,00000
•onooo
•.oonoo
-.0/100 0
• . 00 001)
•.OoOOO
-,00000
-------
YEA*
OK
otLjr
DfLIRR
OELIRS
1950
1118.0
*26,000
•00,600
*25,000
1955
156? t8
20,000
10,500
21,000
1956
1667.8
7,0000
59,000
3,0000
1957
<676.1
*2,0000
60,(100
• to,000
|95R
1579.5
(1,0000
•100,30
6,0000
IPSO
1551.5
*59,000
¦75,V00
22,000
I 960
1 794,6
6,0000
70,500
•9.0000
1961
1«1 J,9
1,0000
•59,500
•19,000
196?
1664.5
¦>,0000
1/.6U0
1 6 , 0 0 7
1965
1 664,0
*6,0000
*00,500
* 12.000
I960
1990,1
10,000
*51,500
6,0000
I 965
2214,8
9,0000
I 'I,t'00
•0,0000
1 966
2165^3
6 5,000
0,9000
5,0000
196 7
1526,6
*09,000
•10,500
•0,0000
1968
1639.0
*10,000
1,2000
•6,0000
1 969
22 \'1,9
10,000
•10,700
15,000
1970
22*2.1
oO,000
I 10,70
11.UOO
1971
196?.o
*15,000
• 5 7 , 6 0 0
•17,000
1972
22S8.5
•to?,000
5'l,<100
*5,0000
1975
251?.b
.00000
•106,30
•0.0000
1 97fl
2136.5
7S.O00
I 05,80
1.oouo
1975
•.ooooo
50.0 0 0
70,000
20,1)00
1976
*,oouoo
9,0000
10,000
,00000
J 9 77
*.00000
•26,000
*55,500
•11,000
1978
*.00000
•26,000
-55,500
• 11,000
1979
*,00000
25,500
52,000
10,000
1 980
*,00000
? 5 , bOO
52,000
I 11,01)0
1 9B |
*.00000
• 2 o , 0 0 0
-•55,000
¦tl,000
196?
*.00000
*26,0 0 0'
*53,000
• 1 1 ,000
1965
*.00000
25,500
52,000
10,000
19B4
*.00000
•,00000
•,00000
*,(10000
198S
*.00000
*.00000
*,00000
*.00000
1966
•.ooooo
* . U 0 0 0 o
*,00000
*,00000
1967
*.00000
*.00000
*,00000
*.00000
1966
•,00000
•.oonoo
•,00000
•,ooooo
1969
*.00000
•,00000
•,00000
•,00000
1990
*.00000
•.ooooo
*,00000
*,00000
1991
*.00000
•,00000
•,00000
•.00000
199?
*.00000
•,00000
*,00000
•,00000
1995
*.00000
••ooooo
•,00000
•,00000
9PR
RP3R
03R
RPS
QSNK
RPFUT1
12?0,t
60,645
198,50
05,929
74?.00
46.753
1320,7
77,043
202.10
60 ,770
956,6U
57.575
1067,2
69,905
220,60
53.617
655,00
76.868
10?2 . 1
50,095
t!50, DO
3?.6a l
6 0 8.70
52.575
1375, 1
46,91?
i»06,<>7
6 0(1 . 1 0
48,061
1659,7
!»3 , 5oo
200,70
35.267
849,00
45.343
1700,7
5*•519
209.70
0 0 , 6 | II
989,70
48.?7?
1860,0
73,66?
276,60
53,498
j 0?5,6
55.669
1896,5
87,523
266.60
67,79(1
1015,1
8?.559
1251,0
66,584
?t5,20
0 9 , {¦ b 0
952,10
77.o ai
lb«6,3
67,136
29?.70
0 7,0 45
98?,60
75.85S
1957,0
76,« 77
277.90
59,161
1 0»«?.9
67,?60
1975,1
70,917
£b7,60
52,54?
976.50
69,935
1755.3
60,U2?
2?9,to
35,0(8
971 .9(1
60 ,<185
201 1.0
7?,026
2U 7 . 1 0
07.R63
1 Oh?.?
60 .U66
20?7,2
8
3
vi "O
I' 1
3 S
£.
5' O
o 3
3 -
Q. 8
c r1
5' 2.

-n
o* H
3 3D
o W
^ -o
.. o
3 3D
^ H
a g-
8 i
° t
? 5
w s
3 §
3 o
3 3
5 CL
— o
* §
3-
g
3
5
=;• c
-------

SUMMARY FOR VEARSl 1974 • 1965
MOST PROBABLE
PARAMETRIC SOLUTIONS FOR THE ENOnCFNOUS
VARIABLES

'
1 971
1979
1976
1977
1978
no • TOTAL C(WSIIMPTIUN TN US
- 3398,077
2982,701
3548.950
3935.761
3981,446
HPEMJ • OEFL. AVE HEF. PRICE
66,740
59,177
69.235
68,400
78.748
1 ne • nlt exports scrap t RtF,
i
•28,102
43,134
•146.355
• 2l>«>, 047
• 22'>,944
1 OR • TOTAL PRODUCTION REFIKEO
' 23|4,769
2044,503
2211.288
2463,667
^S6*> ,5 1 S
DEL TF • 8TOCK CHANUC FA1RICAT,
• ,180
•40.166
•37.371
-51,430
•31.817
' DEL t kR • STUCK CHANGE RCMNER,
36, fib
•77,145
•156,764
• 1 A3,880
•99,746
DEI TRS • STUCK CHANGE SCRAP
" 13,65B
5.282
•3.843
•4,132
7.S98
OPR • TOTAL PROO, PRIMARY REF i
2015,238
1824,807
1990.742
2247,769
2315.001
! HPSH * PRICE SECMrtUAKY RfcFI*ED
i
81,794
58,591
67.550
74,264
80,966
PSR • PRO') REFINER FROM SCRAP
299,S32
219,697
220.547
255,878
25(1 ,512
HPS - KfcAL PRICE UK SCRAP
61,243
41,097
51.164
56,406
64,622
OSNH • SCRAP RECEIPTS NO! SEC*
1122,661
869,299
993.337
1 U 6 0 , 6 0 4
1166.025
RPFUTt t OEFL FtIT PRICE C.IAN)
70,665
48,689
51.553
60,711
58.992
o
3
E>
x 3
3
to
q'
3 =r
O CD
1?
©
X "O
ff >
3
«/» TJ
I' fi.
3 S
< **
s; o
O 3;
a 8
c r1
5 —•
» 3
3
c °
§ 5
Ef >
T1
O* H
3 3
o w
" "tj
„ o
a 3D
"D -I
OUANTITY F3TIMATES TN lOOO'S OP SHORT TONS
Pf ICt LtlTlMA^lS [W Cl»rs Pt9 "OIINO
li
3 o
§ S
° 2
5- S
3 §.
s q
•* n
5 Q.
<. r+ —
CD
a.
- g«
1 —
5 «» 5C
o
* §
3 3
3^
5'

3
:r
c
-i
o
cr
{L
3
O
-------
SUMMARY FOR YEAR8I »974 • 1 <»e5
MUST PROHABLi
PARAMETRIC SOLUTIONS FOR THE ENDOGFNOU3 VARIABLES
1
197?
1980
19fl |
1982
1983
' 00 • TOTAL CONSUMPTION TN IIS
1966,996
'11 24,006
4362.317
4594,132
4821,554
RPCM.J • DEFL. AVf KEF-.* PPICE
SI ,982
78,819
84.560
104,754
120,596
NE - NLT EXPERTS 8CRAP ~ REF,
• 26'l,323
•276,064
-243.780
¦314.573
•39 4,920
OR . T0T4L PRU01ICTI0N REFINED ~
2582,211
2570,004
26U9.722
2656.0 26
2685,944
DEL TF • STOCK CHANUE FA0RICAT.
-18,570
• J1» 958
-20.051
-3.147
-%,5?6
| DEIIkH • STUCK CHAUbL REFI*FR,
• 3*, <17*
-115,404
*196.654
-132,307
-77,975
DELIAS • STUCK CHANGE SCRAP
10,190
9,609
5.979
22.U97
37,521
DPR « TOTAL PWllO, PRIMARY REF,
2323,929
2301,150
2317,457
234 J,202
2355.0H0
o> HP$r » KRICf 3ECHNIJAKY ULFINEO
SI,790
83,707
91,967
10 7,681
121,406
¦••J
— OSR - PROD PEFJNFO FROM SCRAP
258,282
268,854
292.265
312.824
330.864
RPS - RML PRICE UF SCRAP
67,645
66.504
74.073
91 ,a(l4
105,982
U8UR * SCRAP RECEIPTS Nl)T 8tC.
120't,A|0
1190,166
1287,290
1510.175
1696,711
""" RPFUT1 . DEFL FUT PRICE (JAN)
59.902
63,015
67.632
71.269
77,535
UUAtJT TTY ESTIMATfcB IN 1U00
S 2
2 n ~
x a
* <1
-»
3
(A TJ
I 2.
3 O
£.
5! o
O 3
3 ^
Q. 8
c r*
c °
o 2
Sf >
o
3 3D
o f
¥ 'V
O
3 jo
¦Q -I
I
* 8
3 &
S o
5 3
S Q.
— o
i. §
8 i.
-H «°
s
>
-n
rr
c
-t
Q
C
r—*
nT
3
o
-------
SUMMARY FOR VEARS1 197« • 1985
MOST PPOHABie
PARAMETRIC SOLUTIONS FOR THE ENDOGPNPWS VABIAbLtS

198/J
1983
DO • TOTA'l CONSUMPTION TN 113
" " 1960(707
SI 09,982
RPEM.I • OEPl. AVE P£f, PBICF
116,510
1 16,055
N£ • NtT EXPORTS SCRAP * Rfc F ,
•576,301
•387,769
OP • TOTAL PRODUCTION REFINED
?858,lfr0
3046,500
DEI IF • STOCK CWANUI FAfWIC A T ,
•2,200
8,931
OEtTNH « STUCK CHANUt REFIMR,
•101,900
•92,420
OE1.1N9 • STOCK ChAUCfc SCRAP
£7,807
27,413
RPR « TOTAL PHOD, PRIMARY RtF.
2S30.553
2715,472
HPSh r HRTCf SECHNIJANY REFINED
110,130
1 19,348
Q8R « PROO REFINE.!) FROM SCRAP
527,607
341,028
RPS • KtAl PRICF IIF SCRAP
102,538
103,092
OSHR T 8CHAP HtCtlPTS NOT SFC,
1 b'J9 ,9'S 5
1659,638
RPFUT4 • DEFL FUT PRICE (JAM)
7r>.ll2
76,726
QUANTITY eSTJMATfS IN tUOO'8 Of SHORT IONS
PHICL L8TIMAUS JN ciUTS PEP POUND
-------
PRODUCTION
SUGARY FOR VEARSl 1970 - 198S
HOST PROBABLE
PARAMETRIC 8niUTIOWS FOX TMF ENOOCFNOUS VARIABLES
l*Ti|
197D
1976
1977
I 978
PHIMAMV REFINtO .
SECONDARY REPINED
NON,RtrtNEO SCRAP
2770550,300
089990
1507023.9I10
8AI f S
*»~»*
PHIHAHY RIFINED
St CONI) I W Y RFPINCO
HUH.KEFINEO SCRAP
2720017,900
<167651 ,560
|175096,70 0
2251 025,100
?5l?S6,600
721063.680
2973631.7O0
303151,100
1016058.080
3326522.70U
356082.280
t196095.000
380 3117.300
39i35M,O80
I5U7023.900
EMPL0YMfNT(M*N«YEAR3)
PR I M AH T Ht f I Klf D
9E CDNOAHY RFF IMFD
MINI NR AND MULING
17009,387
253<»,108
30238,2H
15038,296
1858,687
30240,659
16802,108
1 t)6S, 87 7
32707.609
19(116.831
19V5.5B0
36736.tM2
19585.060
2119,391
37907.021
POLL, A 0AT t ME N f INVLSTHfNT
• MMMMM
M TN [ Nli AND M 11 L I NR
8MLLTIHC ANO HPF1NING
,000
226000,000
,000
207801,170
.000
126315,787
.000
66910,097
,000
10863,58 3
PHYSICAL Rm*fcHr CAPACITY
*»«•***» MMMM »««**~~~
DEC INN INC or TEAK
NET CHANCE
2546,000
*,000
2506,000
59,000
2605,000
*.000
2605.000
«..O0U
26H'>,0it0
* , 0 I) 0
CAPACITY (IT |l T ?A I ION
***••«»* •••*»**»»••
PRIMARY R£F ' ~"ED
SECONOARY REFINED
• 792
,985
.717
.723
,760
,630
,863
,670
,889
,716
OOANTITY E8TI*ATtB IN 1 000'S OF SH0F11 TONS
MONETARY E8TIMATE8 IN 1000'S OF DOLLARS
-------
8UNMARY FOR VEARSi 1970 • 1985
MOST probable
PARAMETRIC SOLUTIONS FOR THt ENOOGFNOUS VARIABLES
PRODUCTION
1979
1980
1981
1962
J 98}
PRIMARY R£F|NfO ,
SECONDARY RFFINED
NON.REFINEO SCRAP
38 I0387,100
032830,330
1629987,700
3626399,300
150100,110
1563011,000
3919278.400
537*7*.260
1907073.100
<19 09191 .SOU
673704.420
2761923,400
S68028'(. 1 00
803375.650
359640 1,100
BALES
*»»»»
PRIMARY REFINE"
SECONDARY REFINEO
NUN.REFINED SCRAP
386S273,100
<105363,1 10
1629987,700
3810365,000
434012.480
1593011,000
4255241,500
526574.880
1907073.100
5186386.200
626116.?80
2761923.400
5A6M53.400
71<»270.650
3596401.100
EMPLOYMENT*MAN.YEARS)
PR J H AM V REFINED
SECONDARY REFTKCD
MINING AND "|| (.INC
19660,992
2185,125
38193,999
19468,275
2274,570
38013,449
19606.234
2472.630
38600.915
19824.OUT
2646.562
39285.fl10
1992>4. 536
2799,188
49728.338
POtl, ABATfMlNT INVESTMENT
»«MI *•~~»~»** *»»»*****«
HTNING ANO RULING
SMLLTtNG ANO REFINING
,000
25730,091
,000
23923.445
,000
33774,275
,000
53199,978
,000
50243.682
PHY6ICAL REFINERY CAPACITY
**»»»•*• MMMM »~»~~~*«
BtGINNlNG OF YFAR
NET CHANGE
2605,000
*,000
2605,000
w,000
2605,000
*.000
2605,000
• .000
2605,000
2110,000
CAPACITY llfll 17 Al I ON
PRIMARY REFINED
SECONDARY REFINED
,892
.738
,ees
,768
,890
.835
.900
,894
,904
,945
OUAMTTY E8TIMAH3 IN 1000*3 OF SHORT TONS
MONETARY ESTIMATES IN I000IS OF OOLlARS
-------
PRODUCTION
9U*MARY FOR VEAHSl 1974 • 1985
MOST PROBA0LF
PARAHtTRIC SOLUTIONS fOH THE ENDOGENOUS VAR1ABLbS
'1984 196S
PRIMAHY REPINED
SFCONQARY RFPtNCO
HUN»H6F IIIEO SCRAP
8AIF3
**»•*
PRIMAWY REFT NED
SfcCDNDAHY BEFI NED
IJON.REFINEO SCRAP
EMPLOYMENT!MAN.YEARS)
«»«**»*•**
PRIMARY REFINED
SECONDARY REFINE')
MINING AND MjllING
Pott, abatement INVESTMENT
*•»*« »»»~~~~~~~
MINING AND H|l i [NT.
SMELT I NG ANO KiRFININC
PHYSICAL REFINERY CAPACITY
BEMN^INC Of YPAR
MET CHANCE
•Jft86*566,300
771001,730
' 3177041 ,300
6(236011600
70fl JOSi 790
337/1)41,300
'21409.076
277i;632
422 75,612
,000
26 710,802
*805,000
200,000
6302876,300
790151,"20
3121917,900
6917391 ,900
7 S
3 S
S o
? 3
S a.
— o
* §
S 3
8 I
>-+ 3
-K «0
h' C
» 8
CAPACITY IiTIL I7AT ion
HRJMAUT REFINED
SECONDARY REFINED
,902
.936
OUaMiTY FSVimImeS' in' loOo'S 'OF 'SHOhT' T0N9
monetary eSTIM4TE8 tN 1 000 '8 OF DDL L AR8
,900
,946
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX C
"REDUCED CAPACITY" ENVIRONMENTAL POLICY SCENARIO
MODEL RESULTS
(1976-1985)
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX C—"REDUCED CAPACITY" ENVIRONMENTAL POLICY SCENARIO
MODEL RESULTS
Presented in this appendix are the following:
1. Historical and projected values of all independent (exogenous)
variables, along with historical values of all dependent
(endogenous) variables;
2. Summary of year-by-year model solutions for the nonlinear ver-
sion of the model; and,
3. Summary of year-by-year subsidiary calculations (e.g. sales,
production, employment, capacity, capacity utilization, etc.).
General Notes;
(1) Listing of variables/values: refer to Appendix D for
a "dictionary" of the variables;
(2) Three "parametric" model solutions have been obtained
for each year:
one: AVE = AR (Average variable cost = net demand
schedule for primary producers)
two: ATC = AR (Average total cost = net demand
schedule for primary producers)
three: AVE = MC = MR (Implicit monopolistic solution).
The solution used in our analysis (and also listed here)
refers to Solution Two (ATC = AR). Refer to the technical
Appendix for more detail.
i
Arthur D Little Inc.
-------
EXOGENOUS AND ENOuUCNOUS VARIABLES LISTED BElO*
1
YEAR
CONST
RPAL
vuo
PPLME
YUO/YGR

*951
1.0000
24.5SS
13,082
9B,S2S
1,3548

t"»5S
1 ,0000
32.111
49,?96
79,356
1.3469

19S6
1,0000
pb.bss
SO,953
69,752
1,?867

1957
1 .0000
21,002
51,2B4
44,777
1.2298
1
t '58
1,0000
20,70S
44,905
39,699
1.0395

195"
1 ,0000
22,765
51,533
17,139
1.1130

1 '60
l.oooo
21,120
52 , '101
48,689
1.0144

1961
1,0000
1ft,92a
SI ,<450
45,612
.93716

196?
1 ,0000
17.-562
57,166
46.631
.997^7

196 1
1 ,0000
1«, 172
60.R95
16 , 6 '16
1.03?l
!
i960
1,0000
19,106
65 , <451
69,101
1.0132

1965
1,0000
22,770
73,322
90,972
1.0751

1966
1,0000
19,169
62,021
1 0 '4 , 9 3
1.1853

1967
1 ,0000
IS,™*
8?,HS0
76, 1<48
1 .2311
f
1 968
1,0000
10,172
B 7, '10 7
6 0,116
1.1621
I
i
1969
1,0000
17,9<>|
91,135
V1,ioo
1.0659

1970
1,00 00
1 « . S 1 S
8't , 0 9 3
81.T68
.9*33 J

1 971
1,0000
10, 593
82,353
62, 5(11
.89 709

J972
1 ,0000
9,2261
89,flo9
59, btfi
«9U1<40

197?
1 ,0000
13,018
101,08
91,261
.99387
~o
197«
1,0000
lb,ISO
100,00
93,000
1 ,(1000
*-»
1
1975
1,0000
22,412
78,000
5l)•3"0
,97*400
1
1976
1,0000
30,091
98 g 524
56,640
1 ,0360
~
1977
1,0000
29,129
107,88
73,000
1,0250

1 9 78
1,0000
29,OS 1
106,85
73,000
1 ,0258

1979
1,0000
28,874
t 01,3'
75,000
1 .02P7

1 V«0
i,ouou
2W,352
1 1 1 , ') i
PO.U00
1 ,0208

1981
1,0000
28,528
123,35
92,000
1,0101

1 98?
1,0000
28,717
132,71
100,00
1.0030

1 9B 3
1,0000
?B,9 J ft
1'10,25
110,00
.99810

1 9B4
1,0000
28,9|fl
1 '14 , 74
115,00
,99550

19BS
1,0000
28,9)8
1 '19,37
120,0 0
, 992B9

1 986
1,0000
28,918
154,IS
125,00
,99036

1967
1,0000
28,9)8
159,08
130,00
,98600

1988
1,0000
28,9)8
10« , 1 7
130,00
,98570

1989
1,0000
28.918
169,43
130,00
,9B346

1990
1,0000
28.918
174,65
130,00
,97695

1991
1 ,0000
28.918
•,00000
130,00
•.00000
-3
199?
1,0000
28,918
•,00000
130,00
•.OMOOO
rt
ZT
1 99 J
1,0000
26.918
*,00000
130,00
•,00000
C
O
r~
n>
3
o
DUMST 2
DI CO V
jRR(-n
QPAB
DSTE2
,sonoo
199.30
87.70 0
2113.0
I ,5000
1,5000
23,600
47. 1 0(1
2565,0
,OOOOO
,00100
49,SO 0
61 .60(1
2415,5
• 0 0 0 0 0
,00000
79,000
120,60
22(4,0
. o o o o o
,00000
12«.70
1 8 1 ,0(1
2021.5
4,6700
4,6700
1,50"0
80,70(1
2 381,0
,750 0 0
,75000
6 , 0 0'»0
64,BOO
2119,5
.ooooo
,00000
*5,000o
139,30
221 1,0
,00000
.00000
-7,1000
79,HO 0
2123.0
, 0 u 0 o 0
,00000
¦ 1 1 . u0 0
1 1 7. Mil
2 5 a o , 5
2,0000
2,0000
*27 . SOU
76 , 9(10
2863,0
, U 0 0 0 0
,00000
-122,50
<45,600
30 52,5
,00000
.00000
"4145,00
60,Boo
3396,S
5 , 5 0 0 0
5,5000
•17f.20
65,700
?9i.3.0
3. OOOO
3.0000
- 1 4 , 8 0 0
5 5 . 0 0 0
291 1 ,0
.OOOOO
,00100
pP.OOOO
5*,60 0
J271,0
, 0 0 0 u 0
.00000
•oonoo
a5.9oo
2820,0
I .0000
1,0000
*1,8000
160.60
29(19,5
,00 00 0
,00000
,00000
10 3,00
3234,0
.00 00 0
,00000
•3 3,80 0
157,40
3596,5
2,2500
2.2SO0
-1H2.50
49.t 00
3097,0
,00(100
,ooooo
,00000
1 91 .9(1
2315,0
,00 000
,00000
, 0 {< 0 o o
261,9(1
26o2 , I
I,5000
1.5000
50.000
271,90
2849,3
,00000
.00000
100,00
221,40
2822,1
fooooo
,00000
10 0,00
167,90
2757,2
,75000
,75000
5u . 01)0
2 1 9 . ') 0
2 K5,b
,000 00
•oonoo
,00900
27J,90
3258,0
,00000
,00000
.ooooo
218,40
35o5,3
1 .5000
1 ,5000
.00000
164,90
3 7o4 , 4
•Ooooo
,00000
,00000
20 0,00
3822,9
.ooooo
.00000
,00000
20 0.00
39U5.3
1,5000
1.5000
,00000
200,00
4071 ,5
*00000
,00000
,0001)0
2 0 0,00
420 1.8
,00000
.ooooo
•onooo
2 0 0,00
4136.3
,75(100
,75000
•ooooo
2oo.oo
4475.0
.00000
,00000
,00000
20 0.00
4618.2
,00000
.ooooo
. onono
20 0.00
>.00000
1,5000
1 .5000
.ooooo
2 00.00
• .Oil 00 0
,00000
.ooooo
.00000
2 o o. o o
-,.01)000
,00000
3 °
" I
5 a
US 5
o w
¦§ °
° 5
E? >
r* n
§ ^
Q
3
v) "O
1 s.
3 o
< ^
5 o
o 3*
3 ~
a 8
c r1
O
3 a
"5 h
a 3"
§ £
CD
- s-
7»* 8
3 §
5 5- 3 2
3
s
5
3
CD
a

o
zr
CD
5
o
3
Q.
3"
s
o
o
o
c
3
c
F*
3
3

CO
CD
3
r*
n*
vt
r*
c
16
-------
YEAR
IM-I1
irs(»o
QD(«1)
IP0UM*M
IPROOM+M
t«S4
17?.00
60,000
2267,0
,00000
•ooooo
195S
146(00
35,000
I9]6,5
,00000
•ooooo
1956
170,00
56,000
2416,7
•ooooo
•ooooo
1957
177,00
59,000
2365,0
,00000
.0000(1
1956
17S,00
43,000
2106,4
,00000
•ooooo
t9$0
179,00
49,000
1974,6
,00000
•ooooo
I960
140.00
71,000'
2316,6
.ooooo
.ooooo
1961
1'ia.oo
62,000
207V,3
.ooooo
.ooooo
196?
IS?,00
43,000
2170,0
,00000
•ooooo
1963
157.00
59,000
2361,1
,00000
•ooooo
I9fc4
14V,00
47,000
2565,7
•ooooo
• 14600*09
196*5
159,00
5*,000
2775,0'
,00000
• 15600 + 09
1966
166,00
49,000
299s,4
•OOOOO
•17100+09
1967
231,00
52,000
3366,6
•OOOOO
• 1 A 4 0 0 ~ 0 9
|96A
IB?,00
46,000
2850,4
,00000
.19700+09
1964
166.00
42.000
2811,5
•ooooo
,21100+09
1970
176,00
57,000
3«6o,2
•ooooo
,22500+09
1971
242,00
b6,000
29 Jo,5
•noooo
,24000+09
t 97?
229,00
51,000
2956,0
•ooooo
,25700+09
t 97 i
167,00
46,000
3266,2
•ooooo
, 115450 + 09
t97a
16 7,01)
42.000
3't 61 , 7
•ooooo
,46500+09
1975
242,00
43,000
3106.2
,00000
,3710(1 + 09
|976
272,00
63,000
•,ooooo
,00000
,25000+09
197 7
2H|,00
oS,000
•,00000
,00000
,25000+09
197B
255.00
52,000
•,00000
,00000
,25000+09
1979
229,00
41,000
•,00000
,00000
,25000+09
198o
252,60
5!,400
V.OOOOO
•ooooo
,25000+09
1961
276,00
61,000
-.00000'
•orooo
,25000+09
196?
250,00
50,800
•.OOOOO
•ooooo
,25000+09
1961
2
rr
c
-t
O
{L
3
o
IPOLIS+R
KAP3R
KAPPR
DPIKAP
CAPAC

,00000
200,00
1696,0
535,76
,00000

,00000
206,00
1656,0
540,64
,00000

,00000
271,00
1799,0
545,35
,00000

,00000
2 M ,00
17V3.0
S50.11
,00000

•ooooo
271 ,00
1610,5
554,90
,00000

.ooooo
296,00
161?,5
559.74
,00000

.00000
2V6.no
20)3,0
564,6?
,00000

.ooooo
313.SO
2oj7,5
569,S4
,00000

•ooooo
313,50
2027,5
574,51
,00000
3
o
,00000
317,50
2016,5
579,5?
,00000
03
o
3
.nonoo
317,50
20)6,5
564,57
,?4?9?+ | 0
CD
0>
•ooooo
317,50
2016.5
569,67
,00000
X
3
,00000
31 7,50
2102,5
594,61
,00000
<0
3
CD
,00000
3 14,'10
211?,5
600,00
.ooooo
D*
r+
.ooooo
319,oo-
2?oH.d
645,4?
, 0 0 0 0 0
3
s
3"
CD
.ooooo
304,00
23J9,o
694,26
, o o ooo
©
m
.(>0900 + 0 8
304,00
2 3 72,0
746,64
• 0 0 0 0 0
X
«•+
"U
Vw
.30000+06
304,00
2372,0
603,36
,00000
CD
3

.14640+09
304,00
2"69,0
664,20
• 00(100

"T3
.20060+09
304,00
2419,0
929,62
,00ooo
CD
o
CD*
•22600+09
304,00
2546,0
1 611(1,0
*43000+10
3
o
.24080+09
304,00
«,ooooo
1600,0
,00000
<
CA
o
, 15*00 + 09
350,00
•,00000
160 0,0
*000 00
o'

,90000+06
350,00
-•OOOOO
)600,0
•ooooo
3
8
,60000+06
350,00
>,00000
1600,0
•ooooo
u
c
-n
,40000 + 06
350,00
• , 0 01) 0 0
160 0,0
•00000
3*
CA
,40000+0 6
350,0 0
-,00000
1600.0
,00000
CO
3*
o
,40000+06
350,00
-, ooooo
1600.0
,00000
I
CD
,40000+06
35o,oo
•.ooooo
1600.0
, 0 o 0 0 0
5*
3"
, '10000 + 08
35o,oo
• ,0000 0
16o0.0
,00000
s
CD
,40000+08
350,00
¦.ooooo
1600.0
,00000

Q.
o
,40000+08
350,oo
- , 110000
160 0.0
,00000

o
c
,000 00
350,0 0
-.00 0 0 0
1600.0
•OOOOD

3
,00000
350,00
«,ooooo
1600.0
,00000

CD
3
,00000
350,no
-,00 00 0
I 6(10 ,0
•ooooo

.OOOOO
350,00
-,00000
1 6()0 , 0
,ooooo

.00000
350,00
>,00000
)600 ,0
• 0 0 0 0 0

,00000
350,00
•,00000
1600,0
,00000

.00000
350,00
-,00 0 00
1600,0
,01)000

,00000
350,00
>, ooooo
16(10.0
,00000

£ °
o 5
E? >
r* II
o' H
3 3D
o 2
n w
3 o
3 3D
^ H
o ^
A ®
O 3
3 £
09
o §•
w* 2
3 §.
00 o
0 3
—i <0
5* CL
— o
1 §
3- 3
8 1.
¦"» 3
?C
» 8
-------
TEAR
FCCUEF1
PCC0ET2
rccoEF3
FCCOEFfl
FCC0FP5
I96fl
.22120
.22120
.22120
.22120
.22120
I 955
.22120
.22120
.22120
,22120
.22120
1956
.22120
.22120
.22120
.22120
.22120
1957
,22120
.22120
.22120
.22120
.22120
l95«
.22t 20
.22120
.22120
.22120
.22120
195"
.22120
.22120
.22120
.22120
.22120
t '60
.22120
,22120
.22120
.22120
.22120
1961
.22120
.22120
,22120
.22120
.22120
1 96?
.22120
,22120
.22120
.22120
.22120
1 96 J
.22120
,22120
.22120
.22120
.22120
1964
,19460
,19A60
, 1 9/160
. 194160
.19460
196?
.22120
,22120
.22120
.22120
.22120
t 966
. 10000*00
,(OOOOtOO
,10000*00
. 1 0 (100*00
,111110 0*00
t 967
.25UOO-01
,25000-01
,25000*01
,25(100*0 i
.250(10-0 f
t96fl
. 1 f'lhO
.17460
, 1 7'160
. 1 71160
. 1 7
,256'JO
,2*5690
,25690
.25690
1970
.27)I 0
,27110
.27110
,27310
,27110
1971
,10000*00
,10000*00
,10000*00
,1 0000*00
. inoou*oo
1972
. 16890
.16«50
,16850
,16850
.16850 '
1971
.20180
,20180
,20180
.20380
.20180
197fl
.21280
.1 1000
, 2fa0-01
.1570
-0 1
• 2 6 6 0 0 • (11
11 (ia,2

.22120
. 1570 0-01
. 1 57(1
-0 1
.26600-01
1086.9

.22120
.15700-01
. 1 57(1
-01
.2660 (1-0 1
979.10

.22120
. 15700-01
.157(1
— 0 I
.2660(1-0 1
824 ,80

.22120
.15700-01
.1570
-0 1
.2660(1-01
108(1.2

.22120
.15700*01
.157(1
-111
.2660 (1-0 1
1165,2
3
03
o
.O
C
o
.22120
.15700-01
.157(1
- (11
,26600-01
1228.«
<
3
r-¥
o
S»
>
.22120
, IWuo-OI
. 1 570
— 0 1
.26600-01
1211,2
CO
X
3

-n
ai
,19460
, 15700-0 J
. 1 570
— (1 I
.2660(|«0 1
1246,8
"8
3
o
3
35
.22120
, 15700-01
,1570
— (1 1
,2 660 0—01
1151 .7
CD*
(0
o
m
.10000*00
,15700-01
,1570
-0 1
,26600-01
1«29.2
3
o
3"
o>

¦o
o
.25000*01
, 157'iU-OI
a 1 57(1
- (11
,266(1-1-0 1
954 . IH
CD

3
3D
.17060
, 157 0 0-01
.1570
-0 1
, 2660'1-U 1
1 2d o,6

X
m tj
T? 2

.25690
,15700-01
a 1 5 7 I)
-II1
,26600-U1
154 4,6
rt
CD
>
u
a.
i
.27110
, 1570(1-01
a 157(1
— II 1
,2^600—01
17|9,7
3
u

c
3
3*
,10000*00
,157(10*01
,157(1
-0 1
,2660 0-1)1
1522,2
<*
a>
O
o"
CP
,16850
,15700-01
,1571'
— (1 1
,2660 (1-U 1
1660,8
3
CD*
O
3
ffl
03
.20380
,157H0-U1
. 1 570
— II 1
,26600-01
17)7,9

O
a.
CD
, 2S?rtij
. lOPlii-ul
, 1570
-(11
,5l2u01100

CO
5T
a.
,21280
,10000-01
.1570
-0 1
,5 !20<)-ul *,00000
<
CD*
3*

o
o
,23280
, 3001)0-0 J
.1570
— (] 1
.5 5200-0 1 -.1)0(100
5
CD
$
3
A
,21280
,30000-01
,1570
-
-------
YEAR
Nt T Y
CCAP1

ripoe
VARC031
1954
,18549*06
19620

61,000
-.noooo
1955
•33379*06
46990
"

65,900
•,00000
1956
.42300+06
23100

91,BQ0
•,00000
t '57
• ??<>nto6 •
88800*
01

97,500
¦,00000
1958
.1 7079»06
US50O.
01

100.00
•.OOuOO
1959
,202?3tu6
17250

102,00
-.ooooo
1 9fco
»??50B»06 •
??' 00-
Ql

102,20
•.uoooo
1961
.20 SVitOb
i r»«o

102,10
• ,llOOOO
t 962
,21 7H2»06
6?noo»
ul

102,30
•,00000
1965
,220U5»U6
15350

102,30
•.ooooo
J 964
,27026*06
19830

103,00
36,u00
t 965
• J 7 756~06
12170

(OS,90
37.000
1966
,«•) 1 00*06
90400-
Ol

106,00
38.0 00
1967
(33791+06
63000-
ol

109.30
39.000
1968
.42022*06
1 65'>0

112,00
4(1.000
1969
,55lt>J»06
1 71'>0

115,20
41 ,000
1970
»5160 7~0 6
11750

1?0,30
42,000
1971
(6150b»06 •
'•9500*
01

1?1,50
43,000
1972
,38322»06
61700-
01

126,50
41,000
1971
.5988J*06
*M 100-
01

130,00
45,000
1971
, R8136t 06
764 00-
Ol

14 3,50
43.000
19/S
•.00000
151 BO

150.00
43.000
1976
•.00000
16360

155,00
45,500
1977
••00000
16440

160,00
45,500
1978
•,00000
1 7600

165,00
40,500
1979
-.00000
17870

170,00
45,500
1980
•.00000
| 6890

175,00
15,500
| 981
•.00000
15810

1 BO,00
45,500
198?
•.00000
15280

185,00
45,500
( 9B J
*,00000
15010

190,00
45,500
|9Ba
•.00000
15110

m
,00000
45,500
I 985
•.uoooo
15410

*
,00000
45.500
j 9Bb
•.00000
15110

m
,00000
45.500
1987
•.uoooo
15110

m
,00000
15.500
I 9B8
-.00000
15110

.00000
45,500
1980
••uoooo
15110

•
,00000
15,500
1990
•,00000
15110

m
,00000
45,500
|99|
•,00000
1 5 'J I 0

•»
,00000
45,500
199?
•,00000
15110

a
,00000
15,500
1991
•,00000
15110

9
,00000
'15,500
VAPC08?
VARC0S3
VARcnsa
QD
RPEMJ
NE
.ooooo
•,00000
•.ooooo
19)6,5
55,568
124,70
,00000
•,oonoo
•.ooooo
etui*,?
67,769
4 U , 8 0 0
,00000
¦.oonoo
•.00000
2365,0
71,026
83.3U0
,0(1000
•.00000
•.00000
2106,4
18,557
27(4.00
,00000
•.noooo
•.ooooo
1974.6
«l.203
287.40
.ooooo
•.00000
•.ooooo
2318.6
(19,289
•32.900
.ooono
•.ooooo
•. o o e it y
2079,3
50,616
138.oo
, 0110 0 0
•.00000
• .000'to
2170.0
07,500
180,50
,0000(1
• , noooo
•.ooooo
2361.1
at),633
269,80
,00000
•,00000
•.00000
256S.7
18,633
228,40
•Ooooo
•,00000
••uoooo
2775,0
50,204
267,70
,00000
•.00000
•,00000
2995,1
54.320
256,10
,00000
•.ooooo
•.ooono
3368.6
51.903
135,10
.ooooo
•.00000
•.onooo
2P50.4
56.8| 4
•1?3.60
.ooooo
•.ooooo
•.00000
281s.5
60,086
•72.700
.00000
•.ooooo
•.onooo
3161.2
65,577
130.70
•OOOOO
••ooooo
".00000
29 J() ,s
76,556
168,9U
•oooov
•.00000
•.ooooo
29^)6,0
65,424
74,100
•ooooo
•,00000
•.OOOOO
3266.2
62,118
29,son
.00000
•.00000
•.uoooo
3181.7
68,669
72,600
.onooo
•.ooooo
•.ooooo
3106.2
• .OiiOOO
•108.so
.ooooo
•.00000
•.uoooo
••00000
•.00000
•.uooun
.00000
•.ooooo
• .(inn no
• ,00 0 0 0
¦.aonoa
• ,00001)
.00000
•.oonoo
• .00000
• ,0000 0
• . 0 (i 0 0 0
••0UO00
.ooooo
•.00000
•.00000
• .<100(10
¦ .0(1000
•,OOOOO
.ooooo
•,00000
o,ooooo
• •0000 (I
¦.00000
••uoooo
.00000
•,00000
•.ooooo
• , 0 0 0 0 0
• .0(1000
••uooou
.00000
•,00000
K. ooooo
•,00000
•. ooooo
•,uoo00
.00000
•,00000
•.ooouo
¦ , 0 0 0 0 0
•.oouoo
•fuoooo
.00000
•.00000
•.OOOOO
•.oonoo
• .OllUOO
•,00000
.00000
•.ooooo
•.00000
•,00000
•.00000
••ooooo
.00000
•.ooouu
•.00000
•,0 0 000
• . t) u U 0II
^.U U 0 ou
.ooooo
-.00000
•.00000
•, o o n o o
-.00000
- , 0 0 0 0 0
.ooooo
•.00000
•.onooo
•.0 0 000
• .0 0 00 0
•,00000
•OOOOO
•.ooooo
•.00000
•. o o n (i o
• .OllUOO
-,00000
,00000
•,00000
••ooooo
• . 0 o 0 0 0
•.ooooo
",00000
,00000
•,00000
•.onooo
••OOOOO
• .0(|00()
•.ooooo
,00000
•,00000
•.ooooo
•.oonoo
-.ooooo
•.uuuoo
,00000
•,00000
•.ooooo
•.00000
•.OoOOO
•,00000
,00000
•,00000
•.ooooo
• . 0 (10 0 0
•.noooo
••uoooo
-------
YEAR
014
OFLir
DCLJR"
DEL 1^8
i 9S«
tn»;«
•26,0 00
•10,600
•25,000
195*
1562,8
21.000
11,500
71,000
l»56
1687.a
7,0000
59,000
3,0000
195 7
1670.1
•2.0000 '
60,100
• 1 It, 0 0 0
1 958
I579.5
i.oooo '
•100,30
6,0000
i p"5«>
1551.5
•39.000
•75,900
22,000
l^fco
1791.6
8,0000
71,500
•9,0000
1961
1 B 1 3 .•>
1,0000
•59,500
•19,000
196*
1884.5
5f 0000
3 ' , 6 01>
16,007
1 96 J
1 8H1./J
*8,0000
•10,500
•12,000
I960
199 0./I
10,000
•31,300
6,0000
t 96S
2211.6
9.0000
15,200
•4.0000
1966
218 1.J
65,000
1,9000
3,0000
1967
1526.6
•19,000
•10,300
•4.0000
1 968
1839.0
•11,000
1,2000
•6.0000
t 964
2211.9
10,000
•10,700
r>,ooo
1970
2212.7
61,000
1 KJ.70
11.000
1971
1962.1
•11.000
•57,600
•17,000
197?
2258.5
• t>2 a 0 00
51,100
• 5.0 0 00
197*
2512.6
.ooooo
•108,30
«4,i)0 0 0
1971
21 5o.5
75,000
1 '(5,80
1.0000
1 97S
•,00000
30.000
70,000
2l> a 00 0
I 976
•.00000
9,0000
10,000
,00000
1977
•.00000
•26,000
•5S,500
•11,000
1978
•.00000
•26,000
•53,500
•11,000
1979
>.00000
25.500
52,000
1 li, AO0
1 9By
•.ooooo
25.500
52,000
10,400
1981
•.00000
•26,000
•53,000
•11.000
198?
•.00000
•26,000
•53,000
• 11,000
1 98 J
•.00000
2 3,500
52,000
10,400
1984
¦.00000
•,00000
•,00000
•,00000
1 985
•.00000
•,00000
•,00000
••ooooo
198b
•.oooon
•,00000
•,00000
•.ooooo
198 7
•.00000
•,00000
•,00000
• , 0 0 0 0 0
1 988
• . U 0 0 0 0
•.ooooo
•,00000
•.00000
1989
•.00000
•.00000
•,00000
•,00000
I 90u
•.00000
•.00000
-,00000
•,00000
t 991
•,00000
-,00000
•,00000
•.ooooo
199?
• , 0 0 0 0 0
r.00000
-fooooo
-,00000
199)
•.ooooo
•.00000
•,00000
•.00000
QPR
RP3R
OSR
RPS
Q3NK
RPFUT1
1220.1
61.645
198,30
45,929
742,00
46,753
1320,7
77,113
212.10
60,771
938,80
57,375
1467,2
6*.903
220,60
53,617
855,40
76,868
1422,1
54,095
254,01)
32.*43
808,70
52,575
1373,1
48,912
206,40
28.119
7 15,30
18,120
1071,6
53.035
259,90
35,616
885,10
45,210
1559,6
50,790
255,00
33,417
8 11,60
49, ()? |
1609,2
52,nio
201,70
31,577
770,<111
4 1,943
1677,6
52.575
206,90
34,297
004 , 10
4 8,06)
1639,7
53,544
244,70
35,267
649,00
45,343
1710,7
56,519
249,70
40,8)0
989,70
48,272
1864,0
73,662
276,HU
53,190
1025,6
55.669
1896,9
67,523
266,«0
67,7911
1 0 t 5 . 1
02,559
1251,0
68,5£4
27S,?0
49,
932, 10
77.441
1516,3
67,136
292.70
47.H3S
98?.60
73.855
19 3 7,0
78.177
2 7 7.90
59,1fal
10 0 2.9
67.?60
1975,1
70.917
267.60
52. 11?
978.50
69.915
1733,3
60,422
229.lu
35,0 1 8
971 .9(1
60.185
201 1 .4
72.426
24 7. 1 0
47.083
1 062.2
60,486
2027.2
84.?4 t
285.10
58.S79
1119.5
60.329
183b. 8
79. MCI
29 7.70
54.flbo
1 02S.|
61.640
.ooooo
•, o n n o o
• , l)ti ri no
• , 11(1 (t (Ml
-.(III I! 1)1)
00 01)0
,00000
•,00000
•.ooooo
• ,ooo o (i
• . (Hill 0 0
-.00000
.onooo
-.ooooo
• . 0 0 0 0 0
», iioonn
• , (UK) 0 0
•,00000
.00000
•.ooooo
•.00000
•, niiiio o
•.onooo
",00000
.00000
• ,00 ft 1)0
•.00000
• , OOIK) 0
-,011(100
- , 00(100
.00000
•,00000
-,0O0i>0
•.ooooo
- , 0 (10 0 0
• ,000 00
,00000
•,00000
•. o o o u o
- , (>000(1
- , Oil 0 0 0
• f 01) (10 0
.00000
• , ooooo
-.ooooo
• ,(10 0 0 0
- , 0 (10 0 0
•,00000
.00000
-.00000
•. ooooo
•.00000
• , 0 0 0II (I
•,00 000
.00000
•.ooooo
-.ooooo
• ,0000II
•,00000
• , 0 U (1 0 0
. o n o o o
•, ooooo
•.oocoo
•, ooooo
•, o o o o o
•,00000
.00000
•,ooooo
•,00000
•,00 00 0
•,ooooo
•,00000
.00000
•,00000
•aOOOOO
• ,0000 II
• , 0(1(100
•,00000
.00000
•.ooooo
•,00000
¦,00000
• , 0 0 0 0 0
• , 0 0 0 0 0
.00000
•,ooooo
-.0O0O0
• , 0 0 II 0 0
• ,(1110 0(1
•,00000
.00000
•, ooooo
•,00 0 00
• , oooo o
• ,OHO 0 0
¦,OOOOO
.ooooo
•.ooooo
• ,OOCOO
•,00000
•,00000
• ,001100
,00000
•.ooooo
•.OOOOO
• ,0 0 0 0 II
• a 0 0 0 0 0
• , 0 0 (10 0
,00000
•.ooooo
•,00000
• ,110 00 0
• ,0 0 0 00
• , 0 0 0 0 0
*1
X 3

D
A «o
5 ^
2 3*
(D m
x -o
¦ >
c °
o 5
fit >
h -n
O H
3 3D
0 ni
1 "O
O
3 33
•O -I
3
<0 id.
_ re
3 Q
< ^ o
£ O
O Z£ ~
3 S Z
o. 8
c
I
H
D"
(D
3
Q>
^ §¦
^ -1
3
10 3
3 «
< ^
« 3*
Vt ft}
&
3 §.
" 3
5 3
s o.
< 3
? 3
8 3
•+ D
-K <°
c
a »
-------
SUMMARY FOR YlARSl 1974 • 1965
MOST PROVABLE
PARAMETRIC SOLUTIONS FOR THE ENDOGENOUS VARIABLES
n
i
»97/1 1975 1976 1977 1978
QO • TOTAL CONSUMPTION TN US 3598,477 291)2,701 3546,9S8 3900,#>75 3920,562 43,134 •146,3S5 -20ntrj*)8 »? 56,801
OR .TOTAL PRODUCTION REFINED 23|4,769 2044,503 2211,286 2493,174 2489,026
OELTF • STOCK CHANCE FADRICAt, -,380 .40,166 *37,371 «51,430 «3I,617
DEL TMH * STUCK CHANUE REFINER^ 36,f56 -77,148 .156,76a >»t8i.EFL FUT PRICC (JAN) - 70,665 <18,669 51,553 60,711 58,992
QUANTITY CSMMATE8 IN lOOOtS OF SHORT TONS
PRICE tST1M*T{s IN CENTS Pf» POUND
% O
O 3)
T?
a ?
i4 T1
3
=! 50
I-
Q
D
vi "O
1' o.
3 S
5
52 O
o 3
3 —
Q 8
c r1
s
<
3 °
S H
f i
a y
§ a
Q)
2» ®
^ -I
-------
SUHMAHY FOR YEARSl 197a • 1985
MOST PPOflAflLE
PARAMETRIC SOLUTIONS FOR THE ENOOGFNOU8 VARIABLES

1979
I960
1981
196?
1983
OD . TOTAL CONSUMPTION IN U8
39fl6,109
4058,380
1291,672
152 t .751
0719,037
RPCMJ • OfFI,. AVE RE*".' PRICE
8') # 391
83.009
89,603
108,826
121,612
HE • NET EXPORTS SCRAP ~ BEF.
•273.875
-292.615
•259,815
-530, 713
•110,837
OR • TOTAl PRllUIICTION REFINED
2503,622
2139,274
217S.326
2519,281
?•>¦>(),(> 11
OELIP • 8TUCK CHANGE FABRICAT,
-18,"570
• 31.958
-28,851
-3,117
-3.526
OELTRH • STUCK CHANttt RTFIn£ R t
'•39,305
-121,916
• 21)8,*30
¦ 112,JSU
-87.916
DELIRS » STUCK CHANCE SCRAP
17,676
11.710
7.909
24.US9
39.39a
CPR - TOTAL Pkl)D, primary PFF,
22fl3,181
2168.213
2181.150
221)5,176
2?18,229
HPBR * PRICl SECONDARY RLFINtl)
8*1,500
86,317
91,522
110.^56
12^.955
PUR - PROD REFINED FROM SCRAP
260,139
271.061
293.875
411,10 7
311.781
HPS • NML PRICE UF SCRAP
69,/ifl5
69.712
77,177
91,571
1 ll 9 , 0 « 5
UHNrt « 8CHAP HECtlPTS N01 SIC,
1226,116
1231.327
1327.110
155ft,296
1716.508
RPFUT1 • OEFL FtIT PRICL (JAN)
59,902
6 3.015
67,632
7 1 ,
3

r+ n
o H
3 30
o ni
^ "O
_ o
<3 30
"R -i
a 3"
§ i
° 2
QUANTITY ESTIMATtB IN 1000«S OF SHORT TONS
PRICE tSTIHAUS IN CINTS PCR POUND
CD
5
o.
r*
~
o
3"
<
o
CD
<_
3
a.
zr
s
o
o
£
3^
c

3*
3
—K
(O
CD

c
3
«*4

r*
$
>
3
ZT
C
—I
a
d
3
o
-------
SUMMARY FOR YEARS| 1974 • 1985
HOST PROBABLF
PARAMETRIC SOLUTIONS FOR THE ENDOGENOUS VARIABLES

1984

1985
DO * TOTAL CONSUMPTION TN IIS
' 18] 6«960

'1915,009
RPEM.) • DEFl. AVE REF. PRICE
125,806

131.042
NE • NET EXPORTS SCRAP ~ RfcF.
•387,978

•015,466
OR • TOTAL PRODUCTION REFINFO
2555,958

2565,883
DE(.TF - STOCK CHANCE FADRICAT".'
-2,200

8,931
DEITRW « STUCK CHANGE RCFIhtR,
• 13 7,897

*1 «4,54fc
"DELTRS » STOCK CHANGE SCRAP ~
51,859
¦ -
33,996
OPK • TOTAL PROO. PRIMARY REF.
2216,710

2221,879
RP9R «• PRICE SECONUARY RLF1NED
126,623

131,808
D8R • PROD REFJNEO FROM SCRAP
337.248

344,004
RPS - REAL PRICE UF SCRAP
111,287

116,529
HSNR r 3CKAP RECEIPTS NOT SEC*
1 /6't ,789

1632,041
RPFUTt « DEFL Fin PRICE (JAN)
78,090

80,364
< X
S a
* J§
c °
o 5
E? >
k -n
[JUAMITY E8TJMATE8 TN 10UO»S OF SHORT TONS
PR ICt tSTlMATfcS |N CtNTS PER POUND
§ -
2 ®
CD

3
V) "u
I' I
s S
< *+
<2 O
O z*
3
Q. 8
C C
3 2.
CO 3
o
CD
< ^
* ?
Q.
O
o
c
3
CD
3
o m
^ "D
3 O
3 39
* H
O I
c H
a y
§ 3
Q)
a ®
t7>" 2
3 5
3 3
5 3
S O-
— o
3
<
§ ® £. 3
Q. * 3
" 8 3
3
-------
SALES
EMPLOYMt NT(MAN.YF ARS)
•«»»»»••«*
POLL, ARATEMEMf INVESTMENT
PMYSIC*L HfFJNfWY CAPACITY
«»«»,««* «~~~»~*»
CA»*CTTY UTILIZATION
«»*•»••• IMMMMH
9UMMAKY FDR VEAR9I 1974 • 19B5
MOST PROBA«Lt
PARAMETRIC SOLUTIONS F03 THE ENDOGENOUS VARIABLt3
PRODUCTION
•***••«•**
1974
1 975
1976
1977
I 978
PR I MAN V REPINED
SECONDARY RFFTNEO
NUNwREF1Nfc 0 SCRAP
2770550,300
489994,«50
1375096,700
2159718,100
2571(15,590
721^63,680
2756*82.400
297959 , (480
1016458,080
30711 73.100
3U95MH,960
t 188673,500
3641686.?l>0
4|flJ5*,tB0
|S9<>0 76,600
PRIMARY REFTHED
86CONOARV R|FINED
NUN.REFINEO SCRAP
?7200|7,900
467651 ,560
I 375096,700
2251025,100
251256.600
721463.680
2973631.700
303151.100
1016458.0«0
332046H.500
355697,<>9o
1188674.SOO
IfllM «3,7»0
405296.470
159?(>76.600
CHI M AH Y RtFINfD
SECONOARV RFFINEO
MINING AND MULING
17049,387
2534,108
3423B.214
15438,296
1858,687
30240,659
16842,148
1865,877
32707,609
19096,193
199#*, 5d3
36879,994
189]7,856
?1 »9,B<>6
36815.684
MINING AND mjiling
SHtLTlNG AND REFINING
,000
226000,000
,000
207801,170
.000
126315.787
,000
66914,497
,000
40863.58 J
BEGINNING OF YEAR
NET CHANCE
2546,000
. ,000
2546,000
59,000
2605,000
» .000
2605,000
>.96,000
2507,000
-,000
PRIMARY REFIMD
bECUNOARY RFFINEO
,792
,985
.717
.723
.764
,630
,867
,674
,89?
• 72 J
PUAMITY ESTIMATF8 IN |000"S OF SHOPT TONS
MQNE 7 Al< Y EiTjMATtS IN |OOU»S OF DOLLARS
-------
SUMMARY fob VtARSl 1974 • 198S
HOST PRUBARLE
PARAMfcT R TC SOLUTIONS FOR THE E^DnGFNOUS VARIABLES
PRODUCTION
1979
t 980
I 98J
19(i?
19*3
PRIMARY REFINED
SEUINfjAHY KFPTNEO
NOU»REFlNfcD SCRAP
SALES
PR I HAH t R£F I ME 15
8ECONOARY RtFfKED
NOMfREFMtO SCRAP
EHPlOYMfNT{MAN*YEARS)
P H f M A k Y REFTMl;
StCllNljAHY REFINED
MINING AND MULING
3766579,700
4 4 J937,?50
1707124,200
38529)8,700
(II J6 79, 130
1707124,»!00
I 8980,$98
2200,839
37031,575
3599600.TOO
469108.3B0
1716756,000
3807024,80Q
<107886,110
1716756,000
1 83*13,595
2293,2«3
36079,793
3365647,900
SS5b5S.8
¦<
o
o
A
-i
o =
c °
§ 5
s >
«-fr -n
o ""1
3 30
„ o
"5 H
S W
a> if,
-i ®
3 Q
S2i O
S 3
§ 3
Q)
° *
POLL, AnATlMJNT INVESTMENT
***** *•****«*• **«**(*»*«
MINING A^O "III1NO
SMELTING AIJO DEFINING
PHYSICAL RtF|NEMY CAPACITY
******** *»»****• «~~~~~~~
BCMNfllNG Of YEAR
NET CHANCE
,000
25730,091
2507,000
-70,000
,000
23923,445
2437,000
«,000
,000
22516,184
2437.000
*.000
,OOU
212 79.991
2037,000
v, 000
,000
20097,473
24*7,000
• ,000
ca
r 3 S
i-» 3
0 ? 3
3 ® 2" a-
<. r* — O
! « I. §
•a?S
1 8 i.
5 ** 3
3 -h «3
» =• e
CAPACITY \'TILT7A1I0N
«****»*« UMtfMIM
PRIMARY REFfNEU
SECONDARY REFTNE0
,895
.743
,890
.774
.695
.840
.90S
.897
,910
. 94S
>
=r
c
O
CT
OUANTTTY ESTIMATES IN 100018
MONETARY ESTIMATES IN IO00IS
OF SHORT TONS
OF DOLLARS
ro_
3
O
-------
PRODUCTION
PHIHAHT REFfNfD ,
SfCONOANY REFINED
N0N.R£riN(0 3C«*P
8*1 E8
«~»»»
PRIMARY RE F I NED
SECONDARY RFFINED
Nl)N*REF!NfcO 3C«AP
EMPLOYE NT(MAN«YEARSl
PHIHAHT REFINED
SECONOAKV REFINED
MINING ANO MULING
POLL, abatement investment
M(M IIMIMM **********
MINING ANO MULING
8MLLTING ANO HEFINING
PHYSICAL REFINERY CAPACITY
(jfc ('I Nrl I NG H F YEAR
NET CHANGE
CAPACTTT t'TfL »?AI ION
*•«•***« IXMMMM
PRIMARY REFINfO
SECONDARY RfFlNEO
SUMMARY FOB VEAR9 I 19/4 • 1905
MOST PR0BA6LE
PARAMETRIC SOLUTIONS FOR THE ENDOGENOUS VARIARLFS
1981 1985
¦5 "582529,S00
8*>406 7.090
1927953,200
562J2u7,300
9Q685U *360
4269704,J 00
5929494,500
77H86.U60
3927951.200
6302040.200
817252.210
4269704.100
1B ?70,P15
2053,196
370OS.686
10 797.62J
2910.3^9
37952.195
,000
19140.588
.000
16229,048
2437.000
• ,000
2437,000
-,000
CD
X
1?
S
5 c
2. °
T* r*
is ¦
3 3D
O
3J
sr § >
n <* T1
3
^ CO
o "J
s
39
rt) m "D
* T> 2
_ w
3 2.
< ^
i£ O
o 3
3 ~
Q. 8
(O 3
n
3 ®
< ^
a> 3-
5 «
a.
o
o
c
3
CD
3
S1 ©
§ 3
09
a »
3- 55
~ 8
3 &
S o
CD 3
— n
i S
3- 3
8 i
~ 3
-k «a
=; c
.910
,96')
,912
,983
QUANTITY ESTIMATES IN 1000»9 OF SHOUT TONS
KONFTARY ESTIMATES IN I 0001S OF DOLLARS
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX D
THE ECONOMETRIC SIMULATION AND IMPACT ANALYSIS MODEL
OF THE U.S. COPPER INDUSTRY: DEFINITION OF VARIABLES
MARKET CLEARING MODULE
ENDOGENOUS VARIABLES
No.
1.
2.
3.
5.
6.
ATC*
AVC*
CAPP*
4. DIFF
ER
FIXCOS*
IF*
8. IFR
9. IFS
10. IR
Average total cost, primary producers
Average variable cost, primary producers
Capacity utilization rate for all re-
fining, primary and secondary.
(CAPP = QR/(KAPPR + KAPSR)).
Difference between the deflated IMS
price of copper and the EMJ price
(RPLME - RPEMJ = DIFF) in c/lb.
U.S. exports of refined copper.
CDA, Table 1.
Source:
Total fixed charges on fixed costs
incurred by the primary producers as a
whole in a given year.
Fabricators stocks of copper, both
scrap and refined (IF = IFS + IFR).
AIF = IF(t) - IF9t-l) = DELIF
Refined copper stocks held by wire mills,
brass mills and other fabricators and
semi-fabricators, end of year. Source:
CDA, Table 1, item 16.
Scrap stocks held by brass mills,
foundries and other fabricators and
semi-fabricators, end of year. Source:
CDA, Table 2, item 3.
U.S. imports of refined copper.
CDA, Table 1.
Source:
All quantity series in 1,000 short-tons.
-Variables in alphabetical order; variable form has {*) if it appears explicitly
in the ADL Model.
-Endogenous variable list includes those variables utilized in developing final
variable for example, net exports comes from imports and exports of refined
copper and copper scrap.
D-l
Arthur D Little Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
•APPENDIX D
(continued)
No.
11. IRR* Refined copper stocks held at re-
fineries, end of year. Source:
CDA, Table 1, item 6.
AIRR = IRR(t) - IRR(t-l) = DELIRR
12. IRS Scrap stocks held by smelters and re-
fineries, end of year. Source: CDA,
Table 2, item 3.
AIRS = IRS(t) - IRS(t-l) = DELIRS
13. MRPEMJ* Marginal revenue, primary producers.
14. NE* Net exports of copper, scrap and re-
fined) (NE = NES + NER)
15. NER Net exports of refined copper from the
U.S. (ER-IR).
16. NES Net export of scrap. Source: CDA,
Table 2.
17. PEMJ
18. PFUT1
19. PS
Metals Week (formerly E&MJ Metal and
Mining Markets) average domestic refinery
price of electrolytic copper wire bars
and ingot bars, FOB refinery; also tabu-
lated in the Yearbook of the American
Bureau of Metal Statistics (ABMS) as
monthly average prices of copper, do-
mestic refinery—New York—c/lb.
Simple average of Closing Future Price
(c/lb) of copper for all of the next 12
months reported starting in January of
the year. Source: Wall Street Journal.
From 1956 on, dealers' buying price for
il2 heavy copper scrap; before 1956,
dealer's buying price for //I heavy
copper scrap, c/lb—Metal Statistics.
D-2
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX D
(continued)
20.
QD*
21.
QPR*
22.
23.
24.
QR = QSR + QPR*
QSNR*
QSR*
25.
26.
27.
RPEMJ*
RPFUT1*
RPS*
Total consumption of refined and scrap
copper in the U.S. by ingot makers,
brass mills, wire mills, foundries,
powder plants and other industries.
Source: CDA, Table 3.
Total production of refined copper from
Primary Sources. Source: Copper Develop-
ment Association (CDA), Table 1, item 13.
Series is adjusted to include refined
copper produced from scrap and sold at
the primary producers price and to
exclude copper produced from ore yet
sold in the secondary market.
Total production of refined copper in the
U.S. in 1,000 short tons. Source: CDA,
Table 1.
Receipts of domestic scrap that are not
sent to secondary smelters and re-
finers. Source: CDA (QS-QSR).
Production of refined copper in the
United States produced from scrap.
Source: CDA, Table 1, item 13. Series
is adjusted to include copper produced
from ore and sold in the outside mar-
ket and to exclude copper produced from
scrap and sold at the primary producers'
price.
Deflated PEMJ.
PUWD or PUWD74.
Deflator is alternatively
PFUTl deflated by PUWD or PUWD74.
The real price of scrap, PS, deflated
by PUWD or PUWD74.
D-3
Arthur DLittk Inc.
-------
DRAFT REPORT—The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
•APPENDIX D
(continued)
No.
28. RPSR* A recorded price series for secondary
refined copper is not available in
the literature. Our series has been
built up using the price of scrap, PS,
and the margins characterizing the
secondary sector over the historical
period, SPRED: PSR = PS + SPRED.
RPSR is the real secondary price,
deflated by PUWD or PUWD74.
29. SPRED Average difference between the scrap
price (PS) and the price of secondary
refined copper (PSR) reflecting •
commercial costs, operating costs
and gross profits. (Arthur D.
Little, Inc. estimates).
EXOGENOUS AND PREDETERMINED VARIABLES
1. ACRO* Relative activity variable deter-
mining net exports of copper.
It is defined as the ratio of indices
of manufacturing production in the
U.S. and the Federal Republic of
Germany (ACRO = YUD/YGR). Alternative
ratios have been investigated involving
the indices of manufacturing pro-
duction in Japan, France, the U.K., EEC
and the OECD.
2. DSTE2* Dummy variable indicating whether a
strike is expected next year and how
many months it is expected to last.
For example, if a 2-1/2 month strike
is expected to affect between 75-100%
of production next year, DSTE2 = 2.5.
DSTE2 = 0 if no strike is espected.
(DSTE2(t) = DUMST2(T+1)).
D-4
Arthur D Little Inc
-------
DRAFT REPORT -The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
•APPENDIX D
(continued)
3.
DUMST2*
4.
5.
6.
IGOV*
KAPP*
KAPPR*
KAPSR*
8. PAUSC
Dummy variable for strikes affecting
the smelting and refining stages of
copper production. Dummy estimates
number of months a major strike affected
more than 75% of the production workers
in the industry; 0.0 when no strike.
Source: Interviews with Asarco, Phelps
Dodge, Kennecott and Anaconda.
Refined copper stocks held in government
stockpile, end of year. Source: CDA,
Table 1, item 16.
AIGOV = IGOV(t) - IGOV(t-l) = DIGOV
KAPPR + KAPSR
Copper refining capacity of the primary
producers beginning of the year in 1,000
short-tons per year. Source: ABMS
Yearbook. KAPPR is endogenous in the in-
vestment module.
Copper refinery capacity, secondary pro-
ducers at beginning of year in 1,000
short-tons per year. Both primary and
secondary capacity definitions are aimed
at estimating capacity utilized for pro-
ducing copper for sale at the primary
producers' price or the outside market
price. Capacity in the secondary mar-
ket has therefore been that of AMAX and
Cerro, since production of the two
companies has been predominantly sold at
competitive outside market prices.
Scrap aluminum clipping prices, monthly
averages of dealers' buying prices of new
aluminum clippings in New York, American
Metal Market, c/lb.
D-5
Arthur D Little, Inc
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
¦APPENDIX D
(continued)
9. PLME The London Metals Exchange Price of
Copper: electrolytic, delivered for 1946
to 1953; electrolytic wire bars monthly
average settlement price for 1953 to 1974.
Asked quotation for spot is converted to
c/lb by the annual average exchange rate
for sterling. Both series found in
ABMS Yearbook—"Average Prices of
Principal Metals," (p. 147 in the 1973
Yearbook).
10. QFAB*
11. RPAL*
12.
13.
14.
RPLME*
VARCOS*
YGR
15. YUD
Supply of mill, foundry and power products
to domestic market-total. Source: COA,
Table 4.
Deflated price of scrap aluminum clip-
pings (PAUSC deflated by PUWD or
PUWD74) in c/lb.
Deflated LME price of copper (PLME deflated
by PUWD or PUWD74) in c/lb.
Unit average variable cost of operating
cost of the primary producers.
Index of manufacturing production, Federal
Republic of West Germany, 1963 base year
converted to 1974 = 100. Source: IMF,
International Financial Statistics,
Washington.
Federal Reserve Board Index of Durable
Manufacturers Production, 1967 base year
converted to 1974 = 100.
D-6
Arthur D Little Inc
-------
DRAFT REPORT — The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX D
(Continued)
INVESTMENT MODULE
ENDOGENOUS VARIABLES
No.
1. QCU*
The supply primary copper in the
United States from mine production.
Source: CDA, Table 1.
2. NETY*
Net income, the calculation of earnings
after deductions for costs and taxes,
often called earnings to surplus.
The seven companies included in the com-
pilation of net income are: Phelps
Dodge, Kennecott, Anaconda, AMAX, A3arco,
Inspiration, Consolidated Copper and
Copper Range. Source: Moody's.
EXOGENOUS AND PREDETERMINED VARIABLES
1. CCAP*
DGNP74
3.
PDGNP
PDPDE
Weighted average cost of debt and equity
capital to the primary producers, the
weights being the levels of debt and
equity capitalzation. Many alternative
definitions of this cost of capital are
possible. The alternatives developed
for our analysis are discussed fully in
Appendix F.
Implicit deflator of GNP for the U.S. con-
verted to 1974 base year from 1958 base year.
Source: U.S. Department of Commerce,
Survey of Current Business.
Implicit price deflator, gross national
product. Source: Department of Commerce,
Bureau of Economic Analysis. 1972 = 100,
updated to 1974 = 100.
Implicit price deflator, fixed investment,
non-residential producers' durable equipment.
Source: Department of Commerce, Bureau of
Economic Analysis. 1972 = 100, updated to 1974
= 100.
PUWD74 Wholesale price index of durable manufacturing,
1974 = 100. Source: BLS.
D-7
Arthur D Little Inc.
-------
DRAFT REPORT —The reader is cautioned concerning use,
quotation or reproduction of this material without first
contacting the EPA Project Officer, since the document
may experience extensive revision during review.
APPENDIX D
(Continued)
6'. KAPP* KAPPR + KAPSR
7. KAPPR* Copper refining capacity of the primary
producers beginning of the year in 1,000
short-tons per year. Source: ABMS
Yearbook. KAPPR is endogenous in the
investment module.
8. KAPSR* Copper refinery capacity, secondary pro-
ducers at beginning of year in 1,000
short-tons per year. Both primary and
secondary capacity definitions are aimed at
estimating capacity utilized for producing
copper for sale at the primary producers'
price or the outside market price. Capacity
in the secondary market has therefore been
that of AMAX and Cerro, since production of
the two companies has been predominantly
sold at competitive outside market prices.
D-8
Arthur D Little Inc
-------