SEBft
Unitsd States
Environmental Protection
Agency
Office of Water Regulations
and Standards
Washington, D.C. 20460
EPA -8*^005
Feb nam 884
Water
Economic Analysis of
Proposed Effluent Limitations
and Standards for the
Nonferrous Metals Forming
Industry
QUANTITY
-------
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
DISTRIBUTION
This document is an econanic impact assessment of the effluent limit-
ations guidelines and standards recently proposed for the nonferrous metals
forming industry. The report is being distributed to EPA Regional Offices
and State pollution control agencies, directed to the staff responsible
for writing industrial discharge permits. The report includes information
on the costs and econanic impacts of various treatment technologies. It
should be helpful to permit writers in evaluating the economic impacts
on an industrial facility of complying with effluent limitations or water
quality standards.
The report is also being distributed by request to parties interested
in canmenting on the proposed regulation. A limited number of copies of
this report are available fron:
Econanic Analysis Staff (WH-586)
Environmental Protection Agency
Vfeshington, D.C. 20460
(202) 382-5397
The staff economist for this report is Joseph Yance (202/382-5379).
-------
ECONOMIC ANALYSIS OF PROPOSED
EFFLUENT LIMITATIONS AND STANDARDS
FOR THE
NONFERROUS METALS FORMING INDUSTRY
Environmental Protection Agency
Office of Analysis and Evaluation
Office of Water Regulations and Standards
Washington, D.C. 20460
February 1984
EPA 440/2-84-005
-------
PREFACE
The attached document is a contractor's study -prepared for the Office of
Water Regulations and Standards of the Environmental Protection Agency
(EPA). The purpose of the study is to analyze the economic impact which
could result fran the application of alternative BPT, BAT, BCT, PSES, NSPS
and PSNS effluent standards and limitations established under the Federal
Water Pollution Control Act, as amended.
Hie study supplements the technical study (EPA Development Document) support-
ing the proposed regulation. The Development Document surveys existing and
potential waste treatment control methods and technology within particular
subcategories in the nonferrous metals forming industry and supports certain
standards and limitations based upon an analysis of the feasibility of these
standards in accordance with the requirements of the Clean Water Act. Pre-
sented in the Development Document are the investment and operating costs
associated with various control and treatment technologies. The attached
document supplements this analysis by estimating the broader economic effects
which might result fran the application of various control methods and
technologies. Hiis study investigates the effect in terms of product price
increases, effects upon enployment and the continued viability of affected
plants, effects upon foreign trade and other conpetitive effects.
The study has been prepared with the supervision and review of the Office
of Analysis and Evaluation of EPA. The work was started under Contract
No. 68-01-6348 and conpleted under Contract No. 68-01-6426 by JRB Associates.
The report was prepared by Sidney Wblf and Ttiong Nguyen of JFB Associates
and conpleted in February 1984,
This report is being released and circulated at approximately the same time
as publication in the Federal Register of a notice of proposed rulemaking.
It will be considered along with the information contained in the Development
Document and any cements received by EPA on either document during the public
comment period to establish final regulations.
-------
TABLE OF CONTENTS
Page
PREFACE
SUMMARY S-l
INTRODUCTION S-I
METHODOLOGY S-3
INDUSTRY CHARACTERISTICS S-6
BASELINE PROJECTIONS S-7
COST OF COMPLIANCE S-7
FINDINGS S-8
1. INTRODUCTION 1-1
1.1 PURPOSE OF REPORT 1-1
1.2 INDUSTRY COVERAGE l-L
1.3 INDUSTRY SUBCATEGORIZATION 1-3
1.4 ORGANIZATION OF REPORT 1-4
2. STUDY METHODOLOGY 2-1
2.1 OVERVIEW 2-L
2.2 STEP I: DESCRIPTION OF INDUSTRY CHARACTERISTICS 2-3
2.3 STEP 2: SUPPLY-DEMAND ANALYSIS 2-4
2.4 STEP 3: COST OF COMPLIANCE ESTIMATES 2-7
2.5 STEP 4: PLANT-LEVEL PROFITABILITY ANALYSIS 2-8
2.5.1 Plant After-Compliance Return on Investment 2-8
2.5.2 Plant After-Compliance Net Present Value 2-10
2.6 STEP 5: CAPITAL REQUIREMENTS ANALYSIS 2-12
2.7 STEP 6: PLANT CLOSURE ANALYSIS 2-13
2.8 STEP 7: OTHER IMPACTS 2-14
2.9 STEP 8: NEW SOURCE IMPACTS 2-15
2.10 STEP 9: SMALL BUSINESS ANALYSIS 2-15
3. INDUSTRY DESCRIPTION 3-1
3.1 OVERVIEW 3-1
3.2 FIRM CHARACTERISTICS 3-2
3.3 FINANCIAL STATUS OF COMPANIES 3-4
3.4 PLANT CHARACTERISTICS 3-4
4. MARKET STRUCTURE 4-1
4.1 LEAD/TIN/BISMUTH FORMING 4-1
4.1.1 Lead Forming 4-2
4.1.2 Tin Forming 4-5
4.1.3 Bismuth Forming 4-10
4.2 NICKEL/COBALT FORMING 4-12
4.2.1 Nickel Forming 4-12
4.2.2 Cobalt Forming 4-12
4.3 ZINC FORMING 4-13
4.4 BERYLLIUM FORMING 4-16
4.5 PRECIOUS METALS FORMING 4-18
4.5.1 Gold 4-18
4.5.2 Silver 4-21
4.5.3 Platinum Group Metals 4-23
i
-------
TABLE OF CONTENTS (Continued)
Page
4.6 IRON AND STEEL, COPPER, AND ALUMINUM METAL POWDER 4-25
PRODUCTION AND METAL POWDER METALLURGY
4.7 TITANIUM FORMING 4-31
4.8 REFRACTORY METALS 4-33
4.9 ZIRCONIUM AND HAFNIUM FORMING 4-35
4.9.1 Zirconium 4-35
4.9.2 Hafnium 4-38
4.10 URANIUM FORMING 4-38
4.11 MAGNESIUM FORMING 4-40
5. BASELINE PROJECTIONS OF INDUSTRY CONDITIONS 5-1
5.1 DEMAND FACTORS 5-1
5.2 SUPPLY FACTORS 5-5
6. COST OF COMPLIANCE 6-1
6.1 OVERVIEW 6-2
6.2 POLLUTANT PARAMETERS 6-2
6.3 CONTROL AND TREATMENT TECHNOLOGIES 6-2
6.4 COMPLIANCE COST ESTIMATES 6-2
6.4.1 Cost Factors, Adjustments, and Assumptions 6-2
6.4.2 Compliance Cost of Existing Sources 6-3
6.5 ANALYSIS OF TREATMENT-IN-PLACE 6-10
7. ECONOMIC IMPACT ANALYSIS 7-1
7.1 PRICE AND .QUANTITY CHANGES 7-1
7.2 MAGNITUDE OF COMPLIANCE COSTS 7-3
7.3 PROFIT IMPACT ANALYSIS 7-3
7.3.1 Changes in Plant ROI 7-3
7.3.2 Plant After-Compliance Net Present Value 7-7
7.4 CAPITAL REQUIREMENT ANALYSIS 7-7
7.5 PLANT CLOSURE ANALYSIS 7-11
7.6 OTHER IMPACTS 7-11
7.6.1 Employment, Community, and Regional Effects 7-11
7.6.2 Substitution Effects 7-15
7.6.3 Foreign Trade Impacts 7-15
7.6.4 Industry Structure Effects 7-15
7.7 NEW SOURCE IMPACTS 7-16
8. SMALL BUSINESS ANALYSIS 8-1
9. LIMITATIONS OF THE ANALYSIS 9-1
9.1 DATA LIMITATIONS 9-1
9.2 METHODOLOGY LIMITATIONS 9-2
9.2.1 Price Increase Assumptions 9-2
9.2.2 Profit Impact Assumptions 9-2
9.2.3 Capital Availability Assumptions 9-3
9.3 SUMMARY OF LIMITATIONS 9-3
APPENDIX A: ESTIMATION OF PLANT ASSET VALUE, BASELINE RETURN ON A-l
SALES AND COST OF CAPITAL
i i
-------
LIST OF TABLES
Table Title Page
S-l COMPLIANCE COSTS FOR EXISTING DIRECT DISCHARGERS S-9
S-2 COMPLIANCE COSTS FOR EXISTING INDIRECT DISCHARGERS S-10
S-3 SUMMARY OF POTENTIAL CLOSURES S-l1
3-1 NUMBER OF NONFERROUS METALS FORMING FIRMS AND 3-3
NFF LINES
3-2 CONCENTRATION RATIOS FOR NONFERROUS METALS 3-5
FORMING, 1977
3-3 FINANCIAL CHARACTERISTICS OF SELECTED NONFERROUS 3-7
METAL FORMING COMPANIES
3-4 ANALYSIS OF PLANT INTEGRATION 3-9
3-5 OVERLAP OF NONFERROUS METALS FORMING SUBCATEGORIES - 3-10
DISCHARGING PLANTS
3-6 DISTRIBUTION OF PLANTS BY NONFERROUS METALS FORMING 3-11
VALUE OF SHIPMENTS
3-7 DISTRIBUTION OF NONFERROUS METALS FORMING ESTABLISH- 3-13
MENTS BY EMPLOYMENT CATEGORIES, 1981
3-8 NUMBER OF PRODUCTION FACILITIES, AND VALUE OF SHIP- 3-14
MENTS BY PRODUCT GROUP, 1981
3-9 GEOGRAPHIC DISTRIBUTION OF NONFERROUS METALS 3-15
FORMING PLANTS
4-1 CONSUMPTION OF LEAD 4-3
4-2 NEW YORK PRODUCER LEAD PRICES 4-4
4-3 U.S. EXPORTS AND IMPORTS OF LEAD PRODUCTS BY YEAR 4-6
4-4 TIN FORMING PRODUCTS END-USE MARKETS, 1982 4-8
4-5 TIN PRICE TRENDS (1970-1982) 4-9
4-6 BISMUTH METAL CONSUMED IN THE U.S., BY USE 4-11
4-7 ZINC MAJOR END-USE MARKETS, 1982 4-14
4-8 PRICE AND CONSUMPTION TRENDS FOR BERYLLIUM 4-17
4-9 PRECIOUS METAL MILL SHAPE SHIPMENTS, 1972-1981 4-19
iii
-------
LIST OF TABLES (Continued)
Table Title Page
4-10 NUMBER OF FIRMS AND VALUE OF SHIPMENTS OF PRECIOUS 4-20
METAL MILL SHAPES, BY METAL, 1977
4-11 PRICE AND INDUSTRIAL CONSUMPTION OF SILVER, 4-22
1978-1982
4-12 PLATINUM-GROUP METALS SOLD TO CONSUMING INDUSTRIES 4-24
IN THE U.S., 1977-1982
4-13 MARKETS AND USES FOR METAL POWDERS 4-27
4-14 VALUE OF SHIPMENTS OF METAL POWDERS, PASTE, AND 4-29
FLAKES, 1972-1981
4-15 U.S. METAL POWDER SHIPMENTS, 1962-1982 4-30
4-16 TITANIUM MILL SHAPE SHIPMENTS AND FOREIGN TRADE, 4-32
1977-1982
4-17 APPARENT CONSUMPTION OF REFRACTORY METALS, 1974-1982 4-34
4-18 U.S. DEMAND FOR ZIRCONIUM FORMING PRODUCTS 4-36
4-19 IMPORTS AND EXPORTS IN ZIRCONIUM METALS AND ALLOYS 4-37
4-20 U.S. HAFNIUM DEMAND 4-39
4-21 PRODUCTION, CONSUMPTION, PRICES, AND EMPLOYMENT IN 4-41
THE DEPLETED URANIUM SECTOR
4-22 NET SHIPMENTS, EXPORTS, IMPORTS, AND APPARENT CON- 4-43
SUMPTION OF MAGNESIUM MILL PRODUCTS: 1972 TO 1981
5-1 BASE CASE PRODUCTION GROWTH PROJECTIONS 5-3
6-1 NONFERROUS METALS FORMING COSTING GROUPS 6-5
6-2 TOTAL INDUSTRY COMPLIANCE COSTS FOR EXISTING SOURCES 6-7
6-3 COMPLIANCE COSTS FOR EXISTING DIRECT DISCHARGERS 6-8
6-4 COMPLIANCE COSTS FOR EXISTING INDIRECT DISCHARGERS 6-9
6-5 SUMMARY OF TREATMENT-IN-PLACE 6-11
7-1 ESTIMATED PRODUCT PRICE AND PRODUCTION CHANGES 7-2
7-2 DISTRIBUTION OF ANNUAL COMPLIANCE COST TO REVENUE 7-4
RATIOS AT TREATMENT OPTION 3
iv
-------
LIST OF TABLES (Continued)
Table Title Page
7-3 DISTRIBUTION OF COMPLIANCE CAPITAL INVESTMENT TO 7-5
REVENUE RATIOS AT TREATMENT OPTION 3
7-4 BASELINE CHARACTERISTICS OF THE NONFERROUS METALS 7-6
FORMING INDUSTRY
7-5 DISTRIBUTION OF CHANGE IN ROI AT TREATMENT OPTION 3 7-8
7-6 SUMMARY OF NET PRESENT VALUE ANALYSIS 7-9
7-7 SUMMARY OF CAPITAL REQUIREMENT ANALYSIS 7-10
7-8 SUMMARY OF PLANT CLOSURE ANALYSIS 7-12
7-9 SUMMARY OF POTENTIAL CLOSURES 7-14
8-1 DISTRIBUTION OF NONFERROUS METALS FORMING PLANTS 8-3
BY PRODUCTION VOLUME
8-3 DISTRIBUTION OF COMPLIANCE COSTS BY PRODUCTION VOLUME 8-5
A-l ESTIMATION OF PLANT ASSETS VALUE A-3
A-2 ETIMATION OF SALVAGE VALUE OF PLANT ASSETS A-4
A-3 ESTIMATION OF NONFERROUS METALS FORMING BASELINE A-6
RETURN ON ASSETS
A-4 ESTIMATION OF NONFERROUS METALS FORMING BASELINE A-7
RETURN ON SALES
LIST OF FIGURES
Figure Title Page
2-1 ECONOMIC ANALYSIS STUDY OVERVIEW 2-2
2-2 PRICE AND MARKET SHARE ADJUSTMENTS 2-6
v
-------
SUMMARY
INTRODUCTION
Purpose
jjhis report identifies and analyzes the economic impacts which are likely
to result from the effluent limitations guidelines and standards on the^non-
ferrous metals forming and iron and steel/copper/aluminum metal powder produc-
tion and powder metallurgy point source category, - referred to here for
simplicity as the[nonferrous forming industry or category^J These regulations
include effluent limitations guidelines and standards based on Best Practicable
Control Technology Currently Available (BPT), Best Available Technology Economi-
cally Achievable (BAT), Best Conventional Pollutant Control Technology (BCT),
New Source Performance Standards (NSPS), and Pretreatment Standards for New
and Existing Sources (PSNS and PSES, respectively) which are being proposed
under authority of Sections 301, 304, 306, 307, 308, and 501 of the Clean
Water Act (the Federal Water Pollution Control Act Amendments of 1972, as
amended by the Clean Water Act of 1977, P.L. 95-217). [The primary economic
impact variables assessed]in this studyjjinclude the costs of the regulations
and potential for these regulations to cause plant closures, price changes,
unemployment, changes in industry profitability, structure and competition,
shifts in the balance of foreign trade, industry growth, and impacts on small
businesses."]
Industry Coverage and Segmentation
Facilities covered under this study include all establishments engaged
in the forming of one or more of the pure metals or alloys of the metals
listed below:
S-l
-------
Beryllium (Be)
Bismuth (Bi)
Cobalt (Co)
Columbium (Niobium)
Gold (Au)
Hafnium (Hf)
Lead (Pb)
(Cb)(Nb)
Magnesium (Mg)
Molybdenum (Mo)
Nickel (Ni)
Palladium (Pd)
Platinum (Pt)
Rhenium (Re)
Silver (Ag)
Tantalum (Ta)
Tin (Sn)
Titanium (Ti)
Tungsten (W)
Uranium (U)
Vanadium (V)
Zinc (Zn)
Zirconium (Zr)
Formers of other nonferrous metals were excluded from regulation because
the survey results indicated either that the forming operations for those
metals do not generate process wastewater or that the metal is not formed.
The manufacturing operations covered by the proposed regulations include
rolling, drawing, extruding, forging, cladding (including biraetal1ics), and
other operations necessary to transform the nonferrous metals into formed pro-
ducts .
Also included in this industry are powder metallurgical (P/M) operations
involving iron and steel, aluminum, and copper. These operations include the
production of metal powders and the forming of products from the powders .U
For brevity, all of the above will be referred to as nonferrous metals forming
operations, even though the P/M operations include ferrous metals.
For the purpose of developing effluent limitations guidelines and stan-
dards, EPA organized the nonferrous metals forming category into the following
11 metalbased technical subcategories:
Lead/tin/bismuth forming
Nickel/cobalt forming
U Other forming operations involving iron and steel, copper, and aluminum
were the subject of previous regulations. However, powder metallurgy
operations for those metals were not included, and hence are covered here
for regulatory completeness. Powder metallurgy operations for the 22
nonferrous metals covered in this regulation are regulated in the subcate-
gories for the specific metals.
S-2
-------
Zinc forming
Beryllium forming
Precious metals forming (includes gold, silver,
platinum, and palladium)
Iron, copper, and aluminum metal powder production
and powder metallurgy (to be referred to as powder
metallurgy)
Titanium forming
Refractory metals forming (includes tungsten,
molybdenum, tantalum, columbium, rhenium, and
vanadium)
Zirconium/hafnium forming
Magnesium forming
Uranium forming.
Plants producing in each of these subcategories generally have similar forming
and ancillary operations, and generate similar wastewaters.
METHODOLOGY
The approach used to assess the economic impacts likely to occur as a
result of the costs of each regulatory option is to (1) develop an operational
description of the price and output behavior of the industry and (2) assess
the likely plant-specific responses to the incurrence of the compliance costs
enumerated in the body of this report. Thus, industry conditions before and
after compliance with the regulations are compared. These analyses were
performed for three regulatory options considered by EPA. Specifically, the
methodology can be divided into nine major steps. Although each step is
described independently, there is considerable interdependence among them.
The nine steps are described in the following paragraphs.
S-3
-------
Step 1: Description of Industry Characteri3tics
The first step in the analysis is to develop a description of basic indus-
try characteristics such as the determinants of demand, market structure, the
degree of intra-industry competition, and financial performance. The result-
ing observations indicated the type of analysis needed for the industry. The
sources for this information include Government reports, trade association
data, discussions with various trade associations and industry personnel, and
an EPA survey of firms in the industry.
Step 2: Supply - Demand Analysis
The second step in the analysis is a determination of the likely changes
in market prices and industry production levels resulting from each regulatory
option. The estimates of post-compliance price and output levels are used in
the plant-level analysis (Steps 4, 5, and 6) to determine post-compliance
revenue and profit levels for specific plants in each group.
A pricing strategy that would maintain the industry-wide initial return
on sales is assumed as an approximation of industry-wide price increases.
The post-compliance market price levels are used, in a later step, to assess
the financial condition of individual nonferrous metals forming facilities.
Step 3: Compliance Cost Estimates
Engineering estimates of investment and annual compliance costs for
three alternative treatment technologies were developed for 23 model plants.
These cost estimates were extrapolated to obtain compliance cost estimates
for the remaining plants in the industry to carry out the impact analysis.
S-4
-------
Step 4: Plant-Level Profitability Analysis
Two basic measures of financial performance are used to assess the impact
of the regulations on the profitability of individual plants: (1) plant after-
compliance return on investment (ROI), and (2) plant after-compliance net pre-
sent value (NPV). Due to the unavailability of plant-specific baseline
financial characteristics for the nonferrous metals forming industry, average
industry financial and operating ratios were applied to each plant.
Step 5: Capital Requirements Analysis
In addition to analyzing the potential for plant closures from a profita-
bility perspective, it is also necessary to assess the ability of firms to
make the initial capital investment needed to construct and install the
required treatment systems. The analysis of capital availability was based
on the "fixed charge coverage" ratio which is defined as the ratio of earnings
before interest and taxes to interest payments. This ratio was calculated
for each plant and compared to a threshold value to help determine the potential
for significant plant-level impacts.
Step 6: Plant Closure Analysis
The decision to close a plant, like most major investment decisions, is
largely based on financial performance but is ultimately judgmental. This is
because the decision involves a wide variety of considerations, many of which
cannot be quantified. Assessments of the degree of impacts on individual
plants were made by evaluating the above financial variables in conjunction
with nonfinancial and nonquantifiable factors, such as substitutability of
products, plant and firm integration, the existence of specialty markets, and
expected market growth rates.
S-5
-------
Step 7: Other Impacts
"Other impacts" which result from the assessment of basic price, produc-
tion, and plant-level profitability changes include impacts on employment,
communities, industry structure, and balance of trade. These impacts are
estimated via supplementary analyses that are explained where the results are
reported in appropriate portions of the report.
Step 8: New Source Impacts
This step analyzes the effects of NSPS/PSNS guidelines upon new plant
construction and substantial modification to existing facilities in the
nonferrous metals forming industry. The analysis is based on the incremental
compliance costs of the new source treatment technologies relative to those
of the selected BAT and PSES treatment options.
Step 9: Small Business Analysis
The Regulatory Flexibility Act requires Federal regulatory agencies to
evaluate small entities throughout the regulatory process. This analysis
identifies the economic impacts which are likely to result from the proposed
effluent regulations on small businesses in the nonferrous metals forming
industry.
For purposes of regulation development, a small business definition based
on plant output volume was selected. The impacts on small plants were assessed
by examining the distribution by plant size of the number of nonferrous metals
forming plants, plant revenues, compliance costs, and potential closures
resulting from the regulations.
INDUSTRY CHARACTERISTICS
The EPA identified 294 nonferrous metals forming plants in operation in
1983. Total nonferrous metals forming employment of these 294 plants is
approximately 35,500 people.
S-6
-------
The industry is fairly concentrated. For most nonferrous metal formed
products, over 90 percent of production is accounted for by the eight largest
firms producing that type of product. A good deal of this concentration is
explained by the special izad r.atjre of the products manjf&ctired ia this
industry,
Most of Che nonferrous metals forming plants are small plants with less
than 510 million in annual nonferrous metals forming revenues. Furthermore,
half of the plants have 1«3S than 50 nonferrous metals forming workers. There
is a substantial degree of product diversification in the industry, especially
among the smaller plants (nonferrous metals forming operations account foe
less than 10 percent of total revenues of plants with nonferrous metals
E-orming shipments less Elian $5 million).
Nonferrous metals products are used in a wide variety of end-use markets.
For most of the metaLs,. their uses depertd on particular pro-parties of the
metals and are quite specialized.
BASELINE PROJECTIONS
The growth rate of the demand for nonferrous metals forming products is
projected to vary from a fairly stable growth through 1990 for magnesium to
4.5 percent annually for zirconium/hafnium. As a result of existing over-
capacity * a significant portion of the increased demand during the 1980s can
be met by increasing operating levels at existing facilities.
COST OF COMPLIANCE
EPA identified three alternative technologies that are mast applicable
for the reduction of the pollutants found in the nonferrous metals forming
industry. These treatment technologies are described in detail in the
Development Document and are listed below:
S-7
-------
Treatment Option 1: Hexavalent chromium reduction,
cyanide removal and chemical emulsion breaking (where
applicable); oil skimming; chemical precipitation and
sedimentation ("lime and settle")
Treatment Option 2: Option 1 plus flow reduction by
recycle, and countercurrent cascade rinsing
Treatment Option 3: Option 2 plus filtration
Tables S-l and S-2 present the estimated investment and annual compliance
costs for the existing direct and indirect discharging sources, respectively.
FINDINGS
Plant Closure Impact
Four indirect dischargers (1 nickel, 1 titanium, 1 refractory metals,
and 1 zinc plant) are projected to close at each treatment option. The
plant closure findings are summarized in Table S-3.
Employment, Community, and Regional Effects
As shown in Table S-3, there is potential for 4 plant closures involving
a loss of about 340 jobs. None of these plants accounts for a significant
portion of community employment, hence the community and regional impacts
appear to be insignificant.
Substitution Effects
The effects of the regulations on substitution potential are insignifi-
cant, since the price increases associated with the compliance costs and the
corresponding quantity reductions are small.
S-8
-------
TABLE S-l. COMPLIANCE COSTS FOR EXISTING DIRECT DISCHARGERS
(in thousands of 1982 dollars)
NO. OF
CAPITAL INVESTMENT
ANNUAL
COMPLIANCE
COSTS
TECHNICAL SUBCATEGORY
LINES
option n
OPTION 2
OPTION 3
OPTION I
OPTION 2
OPTION 3
Lead/Tin/Bismuth
3
165.5
174.1
225.8
11.0
12.4
35.6
Nickel/Cobalt
14
390.6
429.6
483.5
73.1
84.0
103.9
Zinc
1
13.3
72.1
72.1
27.3
36.8
36.8
Beryl1iura
1
0
0.4
0.4
15.7
16.0
16.0
Precious Metals
7
95.5
219.9
298.8
93.4
130.7
163.7
Powder Metallurgy
3
189.5
189.5
227.1
122.5
122.5
165.5
Titanium
12
1,385.9
1,420.8
1,535.5
876.0
894.0
948.9
Refractory Metals
8
14.5
89.5
105.5
23.1
41.7
50.1
Zirconium/Hafnium
4
228.1
271.7
289.9
114.0
J 25.7
132.9
Magnesium
i
71.0
71.0
71.0
44.8
44.8
44.8
Uranium
2
356.3
356.3
356.3
189.9
189.9
189.9
TOTAL NO. OF PLANTS
a
39
2,910.2
3,294.9
3,665.9
1,590.8
1 ,698.5
1,888.1
a Total is lower Chan the sum of all subcategories because many plants produce mare than one type of metal.
SOURCE: JRB Assoc i-ates estimates.
-------
TA9LE. S-2. COMPLIANCE COSTS FOR EXISTING ISDISECT DISCHARGERS
fin thousands of 1982 dollars)
NO. OF
CAPITAL INVESTMENT
ANNUAL
COMPLIANCE
COSTS
TECHNICAL SUBCATEGORY
LIKES
OPTION 1
OPTION 2
OPTION 3
OPTION 1
OPTION 2
OPTION 3
Lead/T in/Bismuth
18
417.1
442.1
547.4
131.9
139.6
193.5
Nickel/Cobalt
26
1,94(3.1
2,323.8
2.55L.8
968.3
1,091.2
1,197.5
Zinc
H
87.&
89.2
104. 7
41. 1
46.9
50.2
Beryl 1 itun
0
-
-
-
-
-
-
Precious Metals
28
240.6
374.7
716.0
3&T.8
429.9
562.7
Powder Metallurgy
30
337 .8
3P7.6
440.4
413.5
413.9
450,-8
Titaaium
16
6BQ.6
833.0
937 .5
468.6
529.a
582.1
Refractory Metals
25
963.1
1,304.2
1,417.6
545.2
635.4
636.2
Zirconium/Hafnium
*
19.9
20.3
23.3
2. 7
2.8
3.9
Magnesium
2
4.0
4.3
5.3
5.0
5.4
6.1
Uranium
1
118.7
118.7
11&.7
63.3
63.3
63. 3
TOTAL HO. OF PLANTS
a
114
4,867.5
5.902.9
6,862.7
3,027.8
3,357.4
3,796.3
a Total is lower than the sun of all subcategories because many plants produce more than one type of metal.
SOURCE: JRB Associates estimates.
-------
TABLE S-3. SUMMARY OF POTENTIAL CLOSURES
(all treatment options)
Wumber of Plants
Number of closures
Employment Losses
Annual Production of
Closed Facilities
- Million lbs.
- % of Industry Total
DIRECT
DISCHARGERS
39a
0
0
0
0
INDIRECT
DISCHARGERS
114a
4
340
6.3
0.9
a Includes 7 plants which discharge both directly and indirectly.
SOURCE: JRB Associates estimates.
S-ll
-------
Foreign Trade Impacts
Sincejthe price increases estimated to result from the regulations are
small, such price increases would not alter the trading pattern substantially.
Industry Structure Effects
The impact of the regulations on the industry structure is negligible,
since only a small proportion of industry output is accounted for by the
plants projected to close.
New Source Impacts
The proposed effluent standards and associated technologies for new
sources are identical to those for existing sources. Consequently, the
economic impacts for new sources will be similar to those of existing sources
and the proposed regulations are not expected to cause barriers to entry.
Impact on Small Entities
The regulations seem to have relatively higher impact on small nonfer-
rous metals forming facilities; the projected closures each have less than 3
million pounds of production annually. Furthermore, annual compliance costs
per unit of production for plants with less than 1 million pounds of annual
production are substantially higher than those of larger plants.
S-12
-------
1. INTRODUCTION
1.1 PURPOSE OF REPORT
This report identifies and analyzes the economic impacts of water pollu-
tion control regulations on the nonferrous metals forming and iron and steel/
copper/aluminum metal powder production and powder metallurgy point source
category - referred to hereafter as the nonferrous forming industry or cate-
gory. These regulations include effluent limitations and standards based on
Best Practicable Control Technology Currently Available (BPT), Best Available
Technology Economically Achievable (BAT), Best Conventional Pollutant Control
Technology (BCT), New Source Performance Standards (NSPS), and Pretreatraent
Standards for New and Existing Sources (PSNS and PSES, respectively) which
are being proposed under authority of Sections 301, 304, 306, 307, 308, and
501 of the Clean Water Act (the Federal Water Pollution Control Act Amendments
of 1972, as amended by the Clean Water Act of 1977, P.L. 95-217). The primary
economic impacts assessed in this study include the costs of the regulations
and potential for these regulations to cause plant closures, price changes,
unemployment, changes in industry profitability, structure and competition,
shifts in the balance of foreign trade, and impacts on small businesses.
1.2 INDUSTRY COVERAGE
Facilities covered under this study include all establishments engaged
in the forming of one or more of the pure metals or alloys of the metals
listed below:
Beryllium (Be)
Bismuth (Bi)
Cobalt (Co)
Columbium (Niobium) (Cb)(Nb)
Gold (Au)
Hafnium (Hf)
Lead (Pb)
Magnesium (Mg)
Molybdenum (Mo)
Nickel (Ni)
Palladium (Pd)
Platinum (Pt)
Rhenium (Re)
Silver (Ag)
Tantalum (Ta)
Tin (Sn)
Titanium (Ti)
Tungsten (W)
Uranium (U)
Vanadium (V)
Zinc (Zn)
Zirconium (Zr)
1-1
-------
Formers of these as well as other nonferrous metals were surveyed by EPA to
determine production levels, manufacturing processes, economic characteristics,
water use, wastewater chatacteristics, and treatment-in-place. Following
completion of the survey, however, the other nonferrous metals were excluded
from regulation because the survey results indicated either that the forming
operations for those metals do not generate process wastewater or that the
metal is not formed.
For brevity, the 22 metals listed above and their alloys will be referred
to hereafter as nonferrous metals.U The manufacturing operations covered by
the proposed regulations include rolling, drawing, extruding, forging, cladding
(including bimetal 1ics), and other operations necessary to transform the non-
ferrous metals into formed products. These operations are referred to here
as nonferrous metals forming operations. The products formed through these
operations include:
Plate
Sheet and strip
Foil and leaf
Tubing, bar, and rod
Wire and cable
Irregular shapes
Powders
Others.
Also included in this industry are powder metallurgical (P/M) operations
involving iron and steel, aluminum, and copper. These operations include the
2/ An alloy is classified under EPA regulations according to its major metal;
e.g., an alloy that is 40 percent nickel 30 percent iron, and smaller
percentages of other metals is considered a nickel alloy.
1-2
-------
production of metal powders and the forming of products from the powders..?/
For brevity, all of the above will be referred to as nonferrous metals forming
operations, even though the P/M operations include ferrous metals.
1.3 INDUSTRY SUBCATEGORY AT ION
For the purpose of developing effluent limitations guidelines and stan-
dards, EPA organized the nonferrous metals forming category into the following
11 metal-based technical subcategories:
Lead/tin/bismuth forming
Nickel/cobalt forming
Zinc forming
Beryllium forming
Precious metals forming (includes gold, silver, platinum,
and palladium)
Iron and steel, copper, and aluminum powder production and
powder metallurgy (to be referred to as powder metallurgy)
Titanium forming
Refractory metals forming (includes tungsten, molybdenum,
tantalum, columbium, rhenium, and vanadium)
Zirconium/hafnium forming
Magnesium forming
Uranium forming.
Plants in each of these subcategories generally have similar forming and
ancillary operations, and generate similar wastewaters.
2/ Other forming operations involving iron and steel, copper, and aluminum
were the subject of previous regulations. However, powder metallurgy
operations for those metals were not included, and hence are covered here
for regulatory completeness. Powder metallurgy operations for the 22
nonferrous metals covered in this regulation are regulated in the subcate-
gories for the specific metals.
1-3
-------
1.4 ORGANIZATION OF REPORT
The remainder of this report consists of eight additional chapters.
Chapter 2 presents an overview of the methodology used in the study. Chap-
ters 3 and 4 describe the basic industry characteristics and the markets for
nonferrous metal formed products. Chapter 5 projects some of the critical
parameters into the future to provide an understanding of the expected charac-
teristics of the industry during the 1985 to 1990 time period, when the pri-
mary economic impacts of the proposed regulations will be felt. Chapter 6
describes the pollution control technologies considered by EPA and their
associated costs. The information in this chapter is derived primarily from
the companion technical study prepared by EPA's Effluent Guidelines Division..5/
Chapter 7 presents the economic impacts estimated to result from incurring
the costs described in Chapter 6. Chapter 8 presents an analysis of the
effects of the proposed regulations on small businesses. Finally, Chapter 9
outlines the major limitations of the analysis.
U Development Document for Proposed Effluent Limitations Guidelines and
Standards for the Nonferrous Metals Forming and Iron and Steel/Copper/
Aluminum Metal Powder Production and Powder Metallurgy Point Source
Category (EPA 440/1-84/019-B), February 1984.
1-4
-------
2. STUDY METHODOLOGY
2.1 OVERVIEW
Figure 2-1 shows an overview of the analytical approach used to assess
the economic impacts likely to occur as a result of the costs of each regula-
tory option. The approach used in this study is to (1) develop an operational
description of the price and output behavior of the industry, and (2) assess
the likely plant-specific responses resulting from the compliance costs
estimated for each of the three regulatory options enumerated in Chapter 6.
The operational description of the price and output behavior is used, in
conjunction with compliance costs estimated by EPA, to determine post-compli-
ance industry price and production levels for each regulatory option and for
each of the nonferrous metals forming product groups. Each plant is then
subjected to a financial analysis that uses capital budgeting techniques to
determine potential closures. If necessary, the industry description is then
revised, for each regulatory option, to incorporate the reduced supply into
the analysis. Finally, other effects that flow from the basic price, produc-
tion, and industry structure changes are determined. These include employment,
community, and foreign trade impacts. Specifically, the study proceeded in
the following nine steps:
1. Description of industry characteristics
2. Industry supply and demand analysis
3. Analysis of compliance cost estimates
A. Plant-level profitability analysis
5. Plant-level capital requirements analysis
6. Assessment of plant closure potential
7. Assessment of other impacts
8. New source impacts
9. Small business analysis.
2-1
-------
FIGURE 2-1. ECONOMIC ANALYSIS STUDY OVERVIEW
-------
Although each of these steps is described in this section, it is important to
realize that there are significant interactions among them, as shown in
Figure 2-1.
The major sources of data used in this study are listed below:
U.S. Environmental Protection Agency: EPA industry survey
conducted in 1983 under Section 308 (of particular impor-
tance for this study are data on plant production volume and
value of shipments); EPA estimates of compliance costs; and
the Development Document.
U.S. Department of Commerce: 1977 Census of Manufactures;
Annual Survey of Manufactures (1978-1982).
U.S. Bureau of Mines: Mineral Facts and Problems; Minerals
Yearbook; Mineral Commodity Summaries.
Federal Trade Commission: Quarterly Financial Report for
Manufacturing, Mining and Trade Corporations (1978-1983);
Annual Line of Business Report (1974-1976).
Trade publications such as American Metal Market, Metal
Statistics and Modern Metals (various issues, 1978-1983).
Interviews with industry representatives.
Corporate annual reports (1982).
2.2 STEP 1: DESCRIPTION OF INDUSTRY CHARACTERISTICS
The first step in this analysis is to describe the basic industry
characteristics. These characteristics, which include the determinants of
demand, market structure, the degree of intra-industry competition, and
financial performance, are described in Chapters 3 and 4 of this report. The
sources for this information include those listed above, such as Government
reports, trade association data, and discussions with various trade associa-
tion representatives and individuals associated with the industry.
2-3
-------
2.3 STEP 2: SUPPLY-DEMAND ANALYSIS
The purpose of the supply-demand analysis is Co determine the l'ikely
changes in market prices and industry production levels resulting from each
regulatory option. The estimates of post-compliance price and output levels
are used in the plant-level analysis to determine post-compliance revenue
and profit levels for specific plants in each product group. If prices are
raised without significantly reducing product demand and companies are able
to maintain their current financial status, the potential for plant closings
will be minimal. If prices cannot be raised to fully recover compliance
costs because of the potential for a significant decline in product demand
or because of significant intra-industry competition, the firms may attempt
to maintain their financial status by closing higher-cost/less-efficient
plants. The supply-demand analysis was divided into four basic components:
determination of industry structure, projection of possible changes in indus-
try structure during the 1980s and 1990s, determination of plant- and firm-
specific operational parameters (e.g., production costs, profit rates, etc.),
and development of price-quantity algorithms. A separate supply-demand
analysis was developed for each of the 11 subcategories.
As described in Chapter 3, the U.S. nonferrous metals forming industry
exhibits some characteristics of non-competitive markets such as high concen-
tration ratios, high capital intensity, and high degree of integration. On
the other hand, the industry also exhibits some characteristics that are
indicative of competitive markets such as generally "normal" profitability
and periodic overcapacity resulting from cyclical fluctuations in the economy.
Because of the conflicting information regarding the industry's market struc-
ture, no single conclusion is drawn regarding an underlying principle or model
which could precisely describe the industry's pricing behavior in all market
situations. Instead, the magnitude of the price increase is assumed to be at
a level which would maintain the industry-wide initial return on sales, i.e.,
it is assumed that the average price increase in an industry subcategory will
2-4
-------
equal the ratio of total compliance costs to total production cost of both
the discharging and nondischarging plants..!^ This price behavior is incor-
porated in the following algorithm:
n
Z ACCi
dP = i=l
P n
(Equation 1)
n
Z TCi
i=l
where
TCi = Rli d-PMl)
(Equation 2)
and
dP = industry-wide price increase
P
ACC^ = annual compliance cost of plant i
TCi = total cost of goods sold for plant i
^li = pre-compliance sales revenue of plant i
PMi = industry average pre-compliance profit margin
n = total number of plants in the product group
The values of R^i were collected in the EPA industry survey, and PM^ repre-
sents an industry average estimate based on a review of corporate annual
reports and analysis of industry level data from the Census of Manufactures and
the Federal Trade Commission. The methodology for estimating PM^ is explained
in detail in Appendix A.
This price change algorithm implies some important dynamics in the inter-
action of competing firms in determining prices. Figure 2-2 illustrates how
I Because of variation of unit compliance costs among plants in the industry
some plants will be affected more than others by the regulations, as
described in Figure 2-2.
2-5
-------
Price/
Unit
EQUILIBRIUM BEFORE COMPLIANCE
<
CO
u
Q
4-1
JJ
4-1
u
c
c
c
C
eg
(0
flj
jH
Pl>
Ou
a.
PL.
Market
'Shares
Price/
Unit
2D
?2C
P2B
P2A
INITIAL PRICE REACTIONS TO COMPLIANCE COSTS
Demand Shift
from Plants
C & D
to Plants A & 3
CQ
u
Q
u
4-1
4-1
C
c
c
CO
to
CO
rH
0*
Pm
O-
Compliance
Costs
Market
'Shares
Price/
Unit
EQUILIBRIUM PRICE AFTER COMPLIANCE
Portion of
Compliance Costs
which must be
absorbed by the
plants
Market
Shares
FIGURE 2-2. PRICE AND MARKET SHARE ADJUSTMENTS
2-6
-------
the model assimilates the differential compliance costs of four plants pro-
ducing a similar product. Assume initially that each plant will raise its
price from Pj_ by an amount equal to its compliance cost per unit of production.
Demand would then tend to shift from plants C and D to plants A and B because
their prices are now substantially less. As a result of this shift, plants C
and D would be under pressure to lower their prices while plants A and B would
be able to raise their prices. An equilibrium price, ?2, will be established,
with plants C and D absorbing part of their compliance costs. In this manner,
the model serves as the basis for estimating the price and production impacts
for each product group as well as the basis for identifying plants that may
have to absorb a significant portion of their cost of compliance.
Using the definition of price elasticity and the dP/P ratios calculated
above, the rate of change in quantity demanded dQ/Q for each product group is
determined as follows:
where E = Coefficient of price elasticity of demand.
Since all plants in an industry group would raise their prices by the
group-wide price increase dP/P, it is initially assumed that each plant in a
product group would experience the same proportionate reduction in quantity
dQ/Q.
2.4 STEP 3: COST OF COMPLIANCE ESTIMATES
Engineering estimates of investment and annual compliance costs for three
alternative treatment technologies were provided for 23 model plants by EPA.
These cost estimates were used to estimate compliance costs for the remaining
E = dQ x dP,
Q P
(Equation 3)
dQ = dP x E
Q P
(Equation 4)
2-7
-------
discharging plants in Che industry to carry out the impact analysis. A sum-
mary description of the control and treatment technologies and assumptions
for these compliance cost estimates appears in Chapter 6.
2.5 STEP 4: PLANT-LEVEL PROFITABILITY ANALYSIS
The assessment of the impact of the costs of the regulations on the
profitability of individual plants is based on the two following measures:
Plant after-compliance return on investment (ROI)
Plant after-compliance net present value (NPV).
The following paragraphs refer to the plant as the decision unit. In fact,
the later analyses use the nonferrous forming operations of a plant as a
decision unit, since it is assumed that the wastewater from all of the plant's
nonferrous metals forming operations will be cotreated in a single system, and
therefore the company's assessment of profit impact or closure will relate
to the plant's nonferrous metals forming operations. Similarly, instead of
plant assets and plant profits, the specific analyses refer to estimated
assets used in, and profits of, nonferrous metals forming operations.
2.5.1 Plant After-Compliance Return on Investment
Return on investment is defined as the ratio of annual profits before
taxes to the total assets of a plant. This ratio is based on accounting
income rather than cash flows and it does not account for the timing of cash
flows, thereby ignoring the time value of money. However, this technique ^s
the virtues of simplicity and common usage in comparative profitability
analyses of financial entities. Because of lack of data on individual plant
profits, and lack of evidence on the difference in profit rate among product
groups, a single baseline rate of return on assets is assumed for all plants.
Appendix A explains in detail the methodology for estimating the industry
baseline profit.
2-8
-------
The after-compliance ROI (ROI2£) is estimated for each plant using the
following equations:
PROFIT2i
R0Io = (Equation 5)
Zl Ai + CCIi
PROFIT^ = PROFIT^ + DPROFIT£ (Equation 6)
where PROFIT^ = Pre-compliance before-tax profit of plant i
PROFIT2£ = After-compliance before-tax profit of plant i
DPROFIT^ = Change in before-tax profit of plant i
Ai = Pre-corapliance asset value of plant i
CCIi = Compliance capital investment for plant i
The variables in Equation (6) are further defined as follows:
PROFITi£ = R^{ x PM]^ (Equation 7)
DPROFITi = (R2i ~ ai?liQ2i " FCi " ACC^) - (R^ - aj^^i - FC^)
= (R2i - Rii) - (ai x E x d£ x R^i) - ACC^ (Equation 8)
P
R2i = Rli (1 + dP) (1 + d£ E) (Equation 9)
P P
where Rj^ = Pre-compliance revenue of plant i
R2i = *After-compliance revenue of plant i
PMii = Pre-compliance return on sales of plant i
P1i = Pre-compliance price of plant i
Qli ° Pre-corapliance production of plant i
Q2i = After-compliance production of plant i
2-9
-------
= Variable cost to pre-compliance price ratio of plant i
FCj[ = Fixed cost of production of plant i
ACCj = Annual compliance cost of plant i
dP = Product group price increase
P
E = Product group price elasticity coefficient of demand.
The values of Qn and Rn were collected in the EPA industry survey, while
dP/P is calculated by Equation (1) presented in Section 2.3. In the absence of
plant-specific data, the values of A^, PM]_i and a^ are product group averages
estimated from the Census of Manufactures, Federal Trade Commission reports,
company published financial data, and various inputs from industry sources.
The methodology for estimating A^ and PM^^ is explained in detail in
Appendix A. Finally, the demand price elasticity E is estimated in Chapter 4.
The estimated after-compliance ROI for a given plant does not, by itself,
determine whether this plant is a viable operation and will continue operation
or not. However, a plant's change in ROI due to regulation provides a measure
of the relative impact and magnitude of the required pollution control expendi-
tures .
2.5.2 Plant After-Compliance Net Present Value
The major measure of profit impact of the regulations is the after-com-
pliance net present value (NPV). The NPV is defined as the plant discounted
annual cash flows .over a selected period of time less the initial capital
investment and can be expressed by the following equation:
n
NPV = Z At (1 + k)-t + In (1 + k)-*1 - IQ (Equation 10)
t=l
where
At = Annual cash flow in year t
2-10
-------
IQ = Initial capital investment
In = Salvage value of investment at end of discounting period n
k = Discount rate (i.e., cost of capital)
n = Selected discounting period.
The plant NPV represents the excess of the discounted value (i.e., present
value) of the projected cash flows from operating the plant over the liquida-
tion value of the plant. A positive NPV indicates that the plant is earning
a rate of return greater than its cost of capital and is considered a profit-
able and viable operation. On the other hand, a negative NPV means that the
plant is not earning its cost of capital and should be liquidated.
Plant NPVs are calculated based on the following assumptions:
Baseline initial capital investment is the liquidation
value of plant assets (plant assets defined as net book
value of fixed assets plus working capital). Appendix A
explains the methodology for estimating the average
liquidation value of plant assets.
Annual cash flows At are constant and defined as
At = PROFITt x (1 - TAX) + DEPt + INTt - CEt (Equation 11)
where:
PROFITt = Before-tax profit in year t
DEPt = Annual depreciation (a non-cash expense) in year t
INTt = Interest expenses in year t
CEt = Annual capital Expenditures in year t
TAX = Tax rate.
Annual capital expenditures for replacement of produc-
tive assets are equal to annual depreciation charges.
Thus, the salvage value of productive assets at the end
of year n will approximate the initial liquidation value.
2-11
-------
There are no annual investment expenditures for pollution
control and the salvage value of the pollution control
equipment will be zero at the end of year n.
Pollution control equipment is financed with debt.
Interest rate on debt is 12 percent.
The cost of capital k is defined as the weighted average
of cost of equity and cost of debt (before-tax). Assuming
the cost of equity is 14 percent and interest rate is 12
percent, the average cost of capital of the nonferrous
metals forming industry is estimated to be 12.6 percent
(Appendix A).
The selected discounting period is 10 years.
2.6 STEP 5: CAPITAL REQUIREMENTS ANALYSIS
In addition to analyzing the potential for plant closures from a profit-
ability perspective, it is also necessary to assess the ability of firms to
make the initial capital investment needed to construct and install the
required treatment systems. Some plants which are not initially identified
as potential closures in the profitability analysis may encounter problems
raising the amount of capital required to install the necessary treatment
equipment. The limit on a given firm's ability to raise capital to finance
investment expenditures at a given plant is quite variable, depending upon
factors such as the firm's capital structure, profitability, future business
prospects, the industry's business climate, the characteristics of the finan-
cial markets and the aggregate economy, and the firm management's relation-
ships with the financial community. The precise limit, considering all these
factors, is ultimately judgmental. Even given firm-specific data, a limit on
a firm's ability (or willingness) to raise funds for capital investment would
be difficult to estimate.
In this study, the analysis of capital availability is based on the
"fixed charge coverage" ratio which is defined as the ratio of earnings before
interest and taxes to interest payments. The assumptions here are the same
as those used in the profit impact analysis. The "fixed charge coverage" ratio
does not provide precise or universal conclusions regarding a firm's ability
2-12
-------
to make the investments. However, this ratio provides a good indication of
the relative burden created by the compliance requirement, and is often used
by lenders to evaluate firm's ability to incur additional debt. Firms with
after-compliance fixed charge coverage ratios greater than 2 are generally
considered solvent and worthwhile credit risks. While this ratio is generally
applied at the firm level, it is applied to individual plants in this study.
2.7 STEP 6: PLANT CLOSURE ANALYSIS
The plant level analysis examined the individual production units in
each product group to determine the potential for plant closures and profit-
ability changes. The decision to close a plant, like most major investment
decisions, is ultimately judgmental. This is because the decision involves a
wide variety of considerations, many of which cannot be quantified. Some of
the most important factors are:
Profitability before and after compliance
Ability to raise capital
Market and technological integration
Market growth rate
Other pending Federal, state, and local regulations
Ease of entry into market
Market share
Foreign competition
Substitutability of the product
Existence of speciality markets.
Many of these factors are highly uncertain,' even for the owners of the
plants. However, this analysis is structured to make quantitative estimates
of the first two factors, as described above, and to qualitatively consider
the importance of some others. In this analysis, the first two factors are
given the greatest amount of weight while the importance accorded the other
factors varies from plant to plant.
2-13
-------
2.8 STEP 7: OTHER IMPACTS
"Other impacts" include economic impacts which flow from the basic price,
production, and plant level profitability changes. These impacts include
impacts on employment, communities, industry structure, and balance of trade.
The estimate of employment effects follows directly from the outputs of
the industry level analysis and the plant closure analysis. Employment data
for production facilities projected to close are available from the EPA 308
Survey.
The community impacts considered are primarily those resulting from
projected employment impacts. The critical variable is the ratio of projected
unemployment in the nonferrous metals forming industry caused by the regula-
tions to total employment in the community. Data on community employment are
available through the Bureau of the Census and the Bureau of Labor Statistics.
The assessment of changes in industry structure is based on examination
of the following, before and after compliance with the regulation:
Numbers of firms and plants
Industry concentration ratios
Effects of plant closures on specialty markets.
A decrease in the first factor and an increase in the second would indicate
an increase in industry concentration and could change the pricing behavior
of the industry. Such potential changes were qualitatively evaluated.
Imports and exports can be important factors of pricing behavior in the
nonferrous metals forming industry. The role of these variables is qualita-
tively evaluated in Chapter 4 of this report. Basically, impacts on imports
and exports are a function of the change in the relative prices charged by
domestic versus foreign producers. Therefore, the assessment of foreign
trade impacts is based on the relative price effects.
2-14
-------
2.9 STEP 8: NEW SOURCE IMPACTS
Newly constructed plants and plants undergoing substantial modifications
will be subject to NSPS/PSNS guidelines. The effects these guidelines will
have upon new plant construction in. the nonferrous metals forming category
are analyzed in this step.
For the purpose of evaluating new source impacts, compliance costs of
new source standards are defined as incremental costs over the costs of the
standards for existing sources. The impacts of new source regulations are
then determined by comparing the incremental compliance costs of a model plant
to its revenues and profit.
2.10 STEP 9: SMALL BUSINESS ANALYSIS
The Regulatory Flexibility Act (RFA) of 1980, (P.L. 96-354} which amends
the Administrative Procedures Act, requires Federal regulatory agencies to
consider "small entities" throughout the regulatory process. The RFA requires
an initial screening analysis to be performed to determine if a substantial
number of small entities will be significantly impacted. If so, regulatory
alternatives that eliminate or mitigate the impacts must be considered.
These objectives are addressed in this step by identifying the economic
impacts which are likely to result from the promulgation of BPT, BAT, BCT,
NSPS, PSES, and PSNS regulations on small businesses in the nonferrous metals
forming category. The primary economic variables covered are those analyzed
in the general economic impact analysis such as plant financial performance,
plant closures, and unemployment and community impacts. Most of the informa-
tion and analytical techniques in the small business analysis Jfre drawn from
the general economic impact analysis which is described above and in the
remainder of this report. The specific conditions of small firms are evaluated
against the background of general conditions in the nonferrous metals forming
markets.
2-15
-------
A specific problem in the methodology is the development of an acceptable
definition of small entities. The Small Susiness Administration"s standard
definition of small entities is based oiv company size, and size is measured
by the number of employees. However, alternative definitions can be used if
they would be more appropriate. This report uses a definition of small busi-
ness which is more consistent with the overall economic impact analysis of
pollution control requirements, and which uses more readily available data;
plants are used as the entities of analysis, rather than companies, and size
is measured by production, rather than employees.
More specifically, because of economies of scaLe in pollution control
technologies, unit compliance costs generally increase significantly as plant
sise decreases. Because the impacts of control requirements are more closely
related to plants than companies ac.d closure decisions are generally based or
the profitability of a plant a*id information is ccIl-eetec on a place, basisj.
the basic analysis of impacts is done on the plant as a unit. In addition,
pollutant loadings and the cost of waste treatment facilities tend to be mora
closely related to production than employment; hence, production is used as a
measure of size.
For che nonferrous metals forming industry, several alternative size
definitions for plants based on plant output volume are selected for examina-
tion. These are: plants with production less than 500,000 pounds, 1 million
pounds, 2 million, pounds, 3 Billion pounds, 5 million pounds, and 10 million
pounds annually. The use of several different size definitions provides EPA
with alternatives in defining small plants for purposes of regulation develop-
ment .
The impacts on small plants under each definition are assessed by
examining Che distribution by plant size of the number of tumferrous metals
forning plants, plant revenues, compliance costs arid potential closures from
regulations.
2-16
-------
3. INDUSTRY DESCRIPTION
3.1 OVERVIEW
This chapter describes the operational characteristics of plants and
firms in the nonferrous metals forming industry which are pertinent to
determining behavior when faced with additional pollution control require-
ments. In subsequent chapters of this report this information is used to
project general trends in the industry (Chapter 5) and to assess the poten-
tial economic impacts of the proposed regulations (Chapter 7).
The primary economic unit considered in this study is the individual
nonferrous metals forming establishment or nonferrous metals forming product
lines in a plant. This is the basic unit around which capital budgeting
decisions are made. That is, a firm' will make decisions regarding opening,
closing, or modifying operations on a plant or product line level. In addi-
tion, financial and economic characteristics at the company and industry
levels must be examined because they affect investment decisions at the
plant level. By examining some basic industry parameters such as number,
size, and location of plants and firms, employment, and financial charac-
teristics, this chapter provides the basic descriptive information to be
used to model the pertinent behavior characteristics which lead to plant
closings and other economic impacts.
Nonferrous metals forming operations, as defined by EPA,_L/ are included
in the following Standard Industrial Classification (SIC) codes:
3356 Rolling, Drawing, and Extruding of Nonferrous
Metals, Except Copper and Aluminum,
U See Section 1.2 for definition of the category.
3-1
-------
3357 Drawing and Insulating of Nonferrous Wire,
3463 Nonferrous Forgings
3497 Metal Foil and Leaf, and
33991 Metal Powders, Paste and Flakes.
With the exception of SIC 3356 and 33991, these Census groupings also include
substantial amounts of economic activity not covered under EPA's definition
of nonferrous metals forming. SIC 3357, for example, consists primarily of
establishments engaged in the production of copper and aluminum wire, which
is covered under other EPA categories. SIC 3463 includes aluminum forgings
and SIC 3497 consists primarily of products made of aluminum foil; neither
of these is covered by the proposed nonferrous metals forming regulations.
3.2 FIRM CHARACTERISTICS
According to the 1977 Census of Manufactures, there are approximately 800
establishments in the five SIC codes of interest. However, the Census data
include copper and aluminum forming plants which are not part of this regula-
tion. The EPA Industry Survey (conducted in 1983) identified 294 nonferrous
product metals production facilities. Table 3-1 lists the number of firms,
and nonferrous forming lines.?/ by technical subcategory and by discharge status.
Firms that perform nonferrous metals forming operations fall into one of
three general groups:
Diversified manufacturing companies such as Allegheny
International, Litton Industries, and DuPont where metal
forming for own use or sale to others is a small part
of the total manufacturing process
Large metal manufacturing companies such as Alcoa, Reynolds,
Inco, Amax, and Asarco that form nonferrous metals as part
of a broad line of processed or manufactured metal products
offered for sale
2J For the purpose of this study, a plant's forming operations in each nonferrous
metal forming subcategory are considered a product line.
3-2
-------
TABLE 3-1. NUMBER OF NONFERROUS METALS FORMING FIRMS AND NFF* LINES
NUMBER OF DISCHARGING NFF LINES
OJ
I
u>
NUMBER
TECHNICAL SUBCATEGORY OF FIRMS
Lead/Tin/Bismuth 54
Nickel/Cobalt 56
Zinc 10
Beryllium 1
Precious Metals 44
Powder Metallurgy 54
Titanium 40
Refractory Metals 28
Zirconium/Hafnium 10
Magnesium 8
Uranium 2
TOTAL NO. OF NFF LINES
TOTAL NO. OF PLANTS3
* NFF = Nonferrous Metals Forming
NUMBER OF
NFF LINES
63
73
10
1
50
60
41
52
10
8
2
370
294
TOTAL
21
40c
3
1
34 b
23
27b
35c
7^
4b
2b
197d
146e
DIRECT
3
14c
1
1
7b
3
12b
8C
4b
3b
2b
58d
39e
INDIRECT
18
28c
2
0
28b
20
16b
29c
4b
2b
lb
148d
114e
a Because of the existence of multi-product plants, the total number of plants is lower than the sum of a
subcategories.
b One NFF line discharges both directly and indirectly.
c Two NFF lines discharge both directly and indirectly.
d A total of nine NFF lines discharge both directly and indirectly.
e Seven plants discharge both directly and indirectly.
SOURCE: EPA Industry Survey
-------
Specialized metals forming operations such as Kennametal,
Driver-Harris, and Handy & Harman that produce a limited
number of products, specializing either by metal or by
type of product.
As shown in Table 3-2, production of nonferrous metals formed products
does not appear highly concentrated at the 4-digit SIC level. At the 5-digit
level, however, where products are more narrowly defined, the industry appears
highly concentrated, with four-firm concentration ratios of 65 percent or
greater in eight of the ten subcategories for which data are available. Eight-
firm concentration ratios confirm this observation. In most of the 5-digit
categories, over 90 percent of production is accounted for by eight firms. A
good deal of this concentration is explained by the specialized nature of the
products manufactured in this industry, a point discussed at greater length in
Chapter 4.
3.3 FINANCIAL STATUS OF COMPANIES
To assess the financial status of the nonferrous metals forming companies,
financial data were obtained for 31 firms whose financial statements are
publicly available. Table 3-3 lists these companies, their equity to assets,
return on equity and return on assets ratios for the 1980-1982 period. This
table shows that firms in the nonferrous metals industry seem to be more debt
leveraged than other firms as the majority of the 31 firms have lower equity
investment than the all manufacturing average. Also, most of the producers of
nonferrous metals forming products appear to be more profitable than other
manufacturing companies during 1980-1982.
3.4 PLANT CHARACTERISTICS
EPA identified 294 nonferrous metals forming plants. Total employment
for these nonferrous forming operations is estimated to be about 35,500 people..^/
EPA survey data reported total nonferrous forming employment of 201 responding
plants to be about 24,300 people.
3-4
-------
77
(D)
100
100
73
(X)
74
100
(X)
90
95
100
100
TABLE 3-2. CONCENTRATION RATIOS FOR
NONFERROUS METALS FORMING, 1977
PRODUCT
Nonferrous rolling
& drawing, n.e.c.
TOTAL VALUE
OF SHIPMENTS
($ million)
$2,552.2
PERCENT ACCOUNTED
4 LARGEST 8 LARGEST
COMPANIES COMPANIES
Nickel and nickel- 87-3.2
base alloy mill
shapes
Titanium mill shapes 250.7
Precious metal mill 686.9
shapes
Other nonferrous 662.1
metal mill shapes
Nonferrous rolling 78.8
& drawing, n.e.c.,
n. s . k.
Nonferrous wire 6,460.3a
drawing & insulating
Other bare nonferrous 117.9
metal wire
Nonferrous wire 50.3
drawing & insulating,
n.s,k.
Nonferrous forgings 540.4^
Hot impression die 468. I*5
impact nonferrous
forgings
Cold impression die 8.5^
impact nonferrous
forgings
Seamless rolled ring 15.9^
nonferrous forgings
43
86
82
79
27
(X)
37
82
(X)
61
65
88
95
56
97
96
92
43
(X)
52
93
(X)
77
82
(D)
(D)
3-5
-------
TABLE 3-2. CONCENTRATION RATIOS FOR
NONFERROUS METALS FORMING, L977 (Continued)
SIC PRODUCT
34638 Open die or smith
nonferrous forgings
34630 Nonferrous forgings,
n.s.k.
3497 Metal foil & leaf
34970 Metal foil & leaf,
n. s . k.
3399 Primary Metal
Products, n.e.c.
33991 Metal powders, paste,
and flakes
TOTAL VALUE
OF SHIPMENTS
($ million)
36.8b
PERCENT ACCOUNTED FOR BY
11.1°
1,089.5C
21.6
967.5
702.2
4 LARGEST
COMPANIES
74
(X)
43
(X)
25
34
8 LARGEST
COMPANIES
90
(X)
58
(X)
39
52
20 LARGEST
COMPANIES
100
(X)
78
(X)
58
76
(D) Withheld to avoid disclosing operations of individual companies.
(X) Not applicable.
n.e.c. Not elsewhere classified.
n.s.k. Not specified by kind.
a Most of the $6.4 billion in shipments by this industry are copper or
aluminum wire products not covered by this EPA category.
k May include aluminum and copper forgings or alloys of aluminum and copper,
c Most of the $1.08 billion in shipments by this industry are aluminum foil
products not covered by this EPA category.
SOURCE: Concentration Ratios in Manufacturing, 1977 Census of Manufactures,
Volume 1.
3-6
-------
TABLE 3-3. FINANCIAL CHARACTERISTICS OF SELECTED NONFERROUS METAL FORMING COMPANIES
AFTER
-TAX RETURN
AFTER
-TAX RETURN
EQUITY
TO ASSETS
RATIO
ON
EQUITY
(%)
ON
ASSETS
(%)
1982
1981
1980
1982
1981
1980
1982
1981
1980
1. Alcoa
.52
.55
.57
(2.0)
6.6
13.1
(1.0)
4.2
7.5
2. Allegheny International
.34
.32
.35
7.3
10.8
13.9
2.5
3.5
4.9
3. Amax, Inc .
.47
.51
.52
(16.3)
8.2
17.3
(7.7)
4.2
9.0
4. Amsted Industries
.78
.77
.78
4.8
13.4
20.1
3.7
10.3
15.7
5. Asarco, Inc.
.45
.49
.64
(7.7)
4.9
18.1
(3.5)
2.4
11.6
6. Ball Corp.
.45
.42
.42
14.8
14.3
13.6
6.7
6.0
5.7
7. Cabot Corp.
.49
.48
.45
13.7
18.2
29.4
6.7
14.1
13.2
8. Carlisle Corp.
.64
.59
.53
18.2
26.7
24.7
11.6
15.8
13.1
9. Copperweld Corp.
.44
.46
.46
(2.6)
19.6
11.7
(1.1)
9.0
5.4
10. Curtiss-Wright Corj>.
.70
.69
.69
9.5
25.2
14.1
6.7
17.4
9.8
11. Dow Chemical Co.
.43
.39
.38
6.8
11.5
18.1
2.9
4.5
6.9
12. Driver-Harris Co.
.15
.17
.34
(16.0)
(80.6)
(8.4)
(2.4)
(13.7)
(2.9)
13. DuPont
.46
.43
.61
8.4
13.7
12.8
3.9
5.9
7.8
14. Engelhard Corp.
.53
.53
.37
15.7
17.7
19.2
8.3
9.4
7.1
15. Federal-Mogul Corp.
.48
.45
.44
10.5
13.6
14.8
5.0
6.1
6.5
16. Handy & Harman
.35
.37
.28
6.6
18.2
24.9
2.3
6.7
6.9
17. Inco
.44
.43
.47
(13.5)
1.2
11.5
(6.0)
.5
5.4
18. Kennametal
.64
.65
.65
13.6
15.7
19.7
8.7
10.2
12.8
19. Litton Industries, Inc.
.44
.39
.36
18.8
21.9
24.9
8.3
8.5
9.0
20. Martin Marietta Corp.
.15
.47
.53
21.0
16.7
17.1
3.2
7.8
9.1
21. The Maytag Co.
.72
.83
.83
17.5
18.3
18.2
12.6
15.2
15.1
22. Olin Corp.
.58
.53
.48
6.6
11.7
4.6
3.8
6.2
2.2
23. Pfizer, Inc.
.53
.47
.46
16.9
7.8
16.2
9.0
3.7
7.5
24. Phelps Dodge Corp.
.49
.51
.49
(7.6)
6.4
8.9
(3.7)
3.3
4.4
25. Pitney Bowes, Inc.
.41
.42
.40
15.2
13.8
16.4
6.2
5.8
6.6
26. H.K. Porter Co., Inc.
.16
.24
.28
(12.4)
10.7
13.3
(2.0)
2.6
3.7
27. Quanex
.27
.47
.43
(38.8)
24.2
20.9
(10.5)
11.4
9.0
28. Reynolds Metals Co.
.41
.41
.42
.6
6.4
13.6
.2
2.6
5.7
29. Roper Corp.
.42
.40
.47
3.8
8.1
8.5
1.6
3.2
4.0
30. Teledyne, Inc.
.64
.59
.55
12.5
24.2
24.5
8.0
14.2
13.5
31. Texas Instruments, Inc.
.52
.55
.48
10.6
8.6
18.2
5.5
4.7
8.7
All Manufacturing Average
.48
.49
.49
(6.2)
10.4
14.0
(3.0)
5.1
6.9
No. of Firms Above All
13
12
11
24
21
19
26
18
17
Manufacturing Average
SOURCES: Corporate Annual Reports and Federal Trade Commission, Quarterly Financial Report.
-------
Survey response data obtained from 242 plants as presented in Table 3-4 show
that many nonferrous plants (63) produced more than one type of nonferrous
metal. The plants with most integration across the subcategories are the
nickel/cobalt, titanium, and zirconium/hafnium plants, e.g., of the 66 nickel/
cobalt production lines, most (42) are in plants with two or more nonferrous
metals forming lines.
Table 3-5 examines the pattern of integration of the discharging nonfer-
rous metals forming plants. For costing purposes, as discussed in Chapter 6,
four of the subcategories are grouped together (nickel/cobalt, titanium, refrac-
tory metals, and zirconium/hafnium). This table shows that there is a sub-
stantial degree of overlap among these categories; a relatively large number
of plants produce a combination of metals from these subcategories. Plants
in two other major subcategorieslead/tin/bismuth and powder metallurgy
tend to specialize in the products of a single subcategory.
Table 3-5 also shows the degree of integration of the nonferrous metals
forming plants with operations being regulated by other regulations such as
iron and steel, copper forming, aluminum forming and nonferrous metals manu-
facturing. There is a substantial overlap of the nickel/cobalt, titanium,
refractory metals and lead/tin/bismuth forming operations with the iron and
steel manufacturing, nonferrous metals manufacturing, and copper forming
operat ions.
Plants engaged in forming nonferrous metals range from very small to
very large. Table 3-6 presents the distribution of 1981 nonferrous metals
forming value of shipments data for 194 plants which responded to the EPA
industry survey. At the low end of the range, 31 plants with less than
$1 million each in nonferrous forming shipments contributed 0.3 percent of
the industry's total. At the other extreme, eight plants with shipments
above $100 million provided 39.7 percent of the industry total. The large
nonferrous forming plants also tend to be more specialized in the production
of nonferrous formed products than the small plants: over 95 percent of the
3-8
-------
TABLE 3-4. ANALYSIS OF PLANT INTEGRATION
NUMBER OF LINES IN
NUMBER OF
SAMPLE NFFa PLANTS WITH
LINES IN
1 NFF
2 NFF
3 OR MORE
TECHNICAL SUBCATEGORY
SAMPLE
LINE
LINES
NFF LINES
Lead/Tin/Bismuth
50
40
6
4
Nickel/Cobalt
66
24
28
14
Zinc
7
5
0
2
Beryl 1ium
1
0
1
0
Precious Metals
45
25
12
8
Powder Metallurgy
47
37
8
2
Titanium
38
8
21
9
Refractory Metals
52
33
8
11
Zirconium/Hafnium
10
1
4
5
Magnesium
8
5
2
1
Uranium
2
1
0
1
TOTAL LINES IN SAMPLE
326
179
90
57
TOTAL PLANTS IN SAMPLE
24 2b
179
45b
18b
a NFF = Nonferrous Metals Forming.
b Because of Che existence of multi-product plants, the total number of plants
is lower than the sum of all categories.
SOURCE: EPA Industry Survey.
3-9
-------
TABLE 3-5. OVERLAP OF NONFERROUS METALS FORMING SUBCATEGORIES - DISCHARGING PLANTS
NUMBER OF LINES
NICKEL/
COBALT
TITANIUM
REFRAC-
TORY
METALS
ZIRCONIUM/
HAFNIUM
LEAD/
TIN/
BISMUTH
PRECIOUS
METALS
POWDER
METAL
ZINC
MAGNESIUM
URANIUM
BERYLLIUM
Number of Lines
40
27
35
7
21
34
23
3
4
2
1
Overlap with other
NFF Subcategories:
Nickel/Cobalt
14
10
3
1
6
4
1
1
0
1
Titanium
14
-
6
6
0
1
0
0
3
1
0
Refractory Metals
10
6
-
3
0
8
0
0
1
1
0
Zirconium/Hafnium
3
6
3
-
0
0
0
0
0
0
0
Lead/Tin/Bismuth
1
0
0
0
-
4
0
1
0
0
0
Precious Metals
6
1
8
0
4
-
1
1
0
0
0
Powder Metallurgy
4
0
0
0
0
1
-
0
0
0
0
Zinc
1
0
0
0
1
1
0
-
0
0
0
Magnes iura
1
3
1
0
0
0
0
0
-
0
0
Uranium
0
1
1
0
0
0
0
0
0
-
0
Beryl 1ium
1
0
0
0
0
0
0
0
0
0
Overlap with Other
Categories:
Iron & Steel
26
12
8
0
3
4
1
1
2
0
0
Copper Forming
9
2
0
1
6
2
0
1
0
1
1
Aluminum Forming
2
3
1
0
2
3
1
0
2
0
1
NFM*
3
4
9
2
6
5
0
0
0
1
1
* NFM - Nonferrous Metals Manufacturing, Phase I and Phase II.
SOURCE: EPA Industry Surveys.
-------
TABLE 3-6. DISTRIBUTION OF PLANTS BY NONFERROUS
METALS FORMING VALUE OF SHIPMENTS
NFF* TO
PLANTS WITH
TOTAL PLANT
TOTAL PLANT
NFF* VALUE
NFF* VALUE
VALUE OF
VALUE OF
OF SHIPMENTS
NUMBER OF
PLANTS
OF SHIPMENTS
SHIPMENTS
SHIPMENTS
($ million)
(NUMBER)
(%)
($ MILLION)
(%)
($ MILLION)
(%)
1 or less
31
16.0
10.3
0.3
301.9
3.4
1 - 2
25
12.9
34.1
0.9
340.3
10.0
2 - 5
31
16.0
109.5
3.0
488.2
7.6
5-10
31
16.0
225.0
6.2
672.0
33.5
10 - 20
34
17.5
495.4
13.6
1,077.6
46.0
20 - 50
26
13.4
681.1
18.7
1,469.9
46.3
50 - 100
8
4.1
641.7
17.6
964.3
66.5
100 - more
8
4.1
1,449.3
39.7
1,507.3
96.2
TOTAL
194
100.0
3,646.3
100.0
6,821.5
53.5
*NFF = Nonferrous Metals Forming.
SOURCE: EPA Industry Survey.
3-11
-------
revenues of plants with over $100 million in shipments are nonferrous pro-
ducts while nonferrous forming operations account for less than 10 percent
of total revenues of plants with nonferrous shipments less than $5 million.
Data showing the distribution of plants by employment categories are
presented in Table 3-7. Most of the industry's plants have relatively few
employees: of 201 plants with survey response data, 98 (49 percent) and 141
(70 percent) had fewer than 50 and 100 nonferrous metals workers, respectively.
Table 3-8 shows the value of shipments by type of nonferrous product for
179 plants that reported this information in the EPA industry survey.it/ Titanium,
nickel/cobalt, precious metals, and refractory metals are the largest subcate-
gories. They accounted for approximately 80 percent of total value of ship-
ments .
Finally, Table 3-9 presents the geographic distribution of the nonferrous
metals forming plants. Production is heavily concentrated in the New England,
Middle Atlantic, and East North Central regions where approximately 70 percent
of the establishments are located. Furthermore, almost all of the plants in
these 3 regions are concentrated in 7 states: Connecticut, Massachusetts,
New Jersey, New York, Pennsylvania, Illinois and Ohio. Significant concentra-
tion of production facilities is also found in California, where 27 plants are
located.
ft! An additional 15 plants reported plant total nonferrous forming value
of shipments; data for these plants are shown in Table 3-6. However,
value of shipments for each type of metal produced at these plants was
not submitted and these 15 plants are not included in Table 3-8.
3-12
-------
TABLE 3-7. DISTRIBUTION OF NONFERROUS METALS FORMING
ESTABLISHMENTS BY EMPLOYMENT CATEGORIES, 1981
PLANTS WITH
NUMBER
OF
NFF* VALUE
GIVEN NO.
NUMBER OF
PLANTS
NFF* EMPLOYEES
OF SHIPMENTS
OF NFF* EMPLOYEES
(NUMBER)
(%)
(NUMBER)
(%)
($ MILLION)
(%)
1-9
31
15.4
132
0.5
50.0
1.4
10-19
19
9.5
280
1.2
82.6
2.4
20-49
48
23.9
1,558
6.4
334.5
9.6
50-99
43
21.4
3,002
12.3
421.8
12.2
100-199
28
13.9
4,189
17.2
379.4
10.9
200-499
21
10.4
6,213
25.6
647.0
18.6
500 or more
11
5.5
8,943
36.8
1,555.2
44.8
TOTAL
201
100.0
24,317
100.0
3,470.5
100.0
*NFF = Nonferrous Metals Forming.
SOURCE: EPA Industry Survey.
3-13
-------
TABLE 3-8. NUMBER OF PRODUCTION FACILITIES,
AND VALUE OF SHIPMENTS BY PRODUCT GROUP, 1981
PRODUCT
NUMBER OF PRODUCTION
FACILITIES WITH VALUE
OF SHIPMENTS DATA3
VALUE OF
PRODUCT
SHIPMENTS3
($ mil1 ion)
Lead/Tin/Bismuth
38
$289.9
Nicke1/Cobalt
51
681.1
Zinc
6
33.5
Beryl 1ium
1
(a)
Precious Metals
29
648.5
Powder Metallurgy
35
212.1
Titanium
30
884.1
Refractory Metals
33
480.2
Zirconium/Hafnium
10
126.5
Magnes ium
9
44.0
Uranium
1_
(a)
17 9b
$3,429.1
(a) Withheld to avoid disclosure of confidential data.
3 Includes only plants for which value of shipments are reported by type
of metal produced. Hence, the total value of shipments here is less
than that reported in Table 3-6.
k Because of the existence of multi-products plants, the total number of
plants is lower than the sum of all categories.
SOURCE: EPA Industry Survey.
3-14
-------
TABLE 3-9. GEOGRAPHIC DISTRIBUTION OF NONFERROUS METALS FORMING PLANTS
NO. OF % OF
GEOGRAPHIC AREA PLANTS TOTAL
New England
Connecticut 19 6.5
Maine 1 0.3
Massachusetts 18 6.1
Rhode Island 6 2.0
Middle Atlantic
New Jersey 29 9.9
New York 23 7.8
Pennsylvania 40 13.6
East North Central
Illinois 23 7.8
Indiana 5 1.7
Michigan 13 4.4
Ohio 20 6.8
Wisconsin 6 2.0
West North Central
Missouri 4 1.4
Other* 3 1.0
South Atlantic
Georgia 4 1.4
North Carolina 7 2.4.
Other* 6 2.0
East South Central
Alabama 3 1.0
Kentucky 7 2.4
Mississippi 1 0.3
Tennessee 5 1.7
West South Central
Arkansas 3 1.0
Texas 7 2.4
Other* 3 1.0
Mountain 4 1.4
Pacific
California 27 9.2
Washington 4 1.4
Oregon 2 0.7
Puerto Rico 1 0.3
TOTAL 294 100.0
* Indicates states with one or two plants each.
SOURCE: EPA 308 Industry Survey.
3-15
-------
4. MARKET STRUCTURE
The primary determinants influencing the demand for nonferrous metals
formed products are described in this chapter. These determinants include the
end-use markets, prices, competitive products, price elasticity, and imports
and exports. Data are presented in this chapter for each of the eleven sub-
categories into which the industry has been divided. This information is
used in Chapter 5 to project the demand for nonferrous metals formed products
and to describe the expected characteristics of the industry in the 1985-1990
period, and in Chapter 7 to estimate the potential economic impacts of the
proposed regulation.
Production data for recent years presented below for the individual sub-
categories show that the downturn in 1981-1982 in the economy had a significant
effect on the demand for most of the individual metals. Because this effect
was common to so many of the product subcategories, the main emphasis is on
examining the end-use markets and making inferences about price elasticity.
For most of the metals, their uses depend on particular properties of the
metals and are quite specialized; hence, the price elasticities are judged
generally to be quite low.
4.1 LEAD/TIN/BISMUTH FORMING
This subcategory includes lead, tin, and bismuth forming. Three major
products are formed from these metals: ammunition, solder, and insulated
copper cable. Ammunition is made by extrusion and swaging; solder is formed
by extrusion and drawing; and insulated cable is made by extruding lead,
tin, and bismuth over copper cable. According to the EPA industry survey
there are 63 plants owned by 54 companies that produce lead, tin, and
bismuth formed products.
4-1
-------
4.1.1 Lead Forming
Lead is soft, heavy, malleable, and corrosion-resistant. Lead is pro-
duced in several forms, including ingots, pigs, sheet, foil, powder, wool,
shot, coatings, pigments, laminates, extrusions, and castings. About 20
percent of the total consumption of lead in 1980 and 1981 was accounted for
by lead formed products (see Table 4-1).
Transportation. Lead is used to balance automobile and trailer wheels.
Lead alloys are also used for bearings, where their qualities of lubrication
and resistance to wear are important.
Construction. This industry segment consumes lead in roofing, flashing,
piping, and caulking. Lead sheets are used as a sound barrier in partitions
and ceilings of office, school, and hotel buildings. Lead sheets are also used
for radiation shielding and vibration dampening. Sheet lead is also used in
the chemical industry.to provide corrosion protection for process vessels
and transportation equipment.
Communication. This industry segment has long used lead cable coverings
to protect underground and underwater cables from corrosion or moisture.
Ammunition. Lead ammunition is used in military ordnance and it is a
major metal used for sporting ammunition in the form of shot and small-
caliber bullets.
Packaging and Canning. Lead foil and sheet are used to package radio-
active materials for shipment and storage. The canning industry also uses
lead-tin solder for sealing tin-coated steel cans.
The U.S. producer price of lead, which influences the price of lead
forming products, has been declining since 1979. Table 4-2 summarizes the
trend in the price of lead. The decline in the price of lead from 52.6
cents per pound in 1979 to 27.0 cents per pound in 1982 is the result of
4-2
-------
TABLE 4-1. CONSUMPTION OF LEAD
(metric tons)
PRODUCT 1980 1981
Lead Forming Products
Ammunition 48,662 49,514
Solder 41,366 29,705
Bearing metals 7,808 6,922
Casting metals 19,021 18,582
Extruded products 8,597 8,829
Sheet lead 19,796 19,355
Brass and bronze 13,981 13,306
Cable covering 13,408 12,072
Caulking lead 5,684 5,522
Subtotal 178,323 163,807
Other Lead Products3 667,721 789,900
Total Lead Products 846,044 953,707
a Products that are not covered in this industry subcategory such as lead
storage batteries, leaded gasoline, and lead-based paint.
SOURCE: Compiled from the U.S. Department of Interior, Bureau of Mines,
Minerals Yearbook-Lead, 1981.
4-3
-------
TABLE 4-2. NEW YORK PRODUCER LEAD PRICES
(cents per pound)
YEAR
PRICE
1975
21.53
1976
23.10
1977
30.70
1978
33.65
1979
52.64
1980
42.46
1981
36.53
1982
27.00
SOURCE: Charles River Associates, Economic and Environmental Analysis of
Current OSHA Lead Standards, CRA Project No. 536.60.
4-4
-------
the fall in the -dena-ad for lead because of tfee lJSi-1932 tecassion. Prices
Jar l^ac! products ace expected tc remain Low Ear some tuse becaase large
i^Enttstiei of le^ad-sxis* ar.c s; tine fall ia dasend for laad", result-
ing from Governsest regulations wfcicJi curtail the usas of ieazvi i:v tufc-£.s and
coatitnats .
T^e price elasticity of demand for lead forming prsdticia is expectad to
ire ijiftlasLLc f^in the shatt raai tlis ugh a^tscitjtas for lead products
M-iat.
4.1,2 Ttn Forming
tn lecent years, the consumption of tin has ieen about 50,GOD tons per
jear. the annual cixisctEsptian. it* 1982 decreased about 2 percent from the
1931. level c-f 34,457 tans. The 3ureau ni Mines estimated the apaarsnt "r-
9us»?£iMi of tin to be
-------
TABLE 4-3. U.S. EXPORTS AND IMPORTS OF LEAD PRODUCTS BY YEAR
(metric tons)
1979
1980
1981
Exports:
Unwrought lead
Unwrought alloys
Sheet, plates, rods,
other forms
Foil, powder, flakes
Scrap
Total Exports
Imports:
6,585
795
2,349
917
119,748
130,394
147,356
9,144
7,522
436
119,651
284,109
14,484
2,320
5,966
550
59,419
82,739
Ore
44,401
29,615
27,206
Base bullion
1,681
296
449
Pigs and bars
182,550
81,300
100,108
Sheet, pipe, and shot
215
950
474
Reclaimed scrap
4,006
2,868
2,661
Total Imports
232,853
' 115,029
' 130,898
SOURCE: U.S. Department of Interior, Bureau of Mines, Minerals Yearbook-Lead,
1981.
4-6
-------
manufactured product in extremely small amounts. Some of the more important
uses of tin forming products include:
Worked and Other Forms. Tin is worked into several forms such as foil,
wire, sheet, and tubes. Tin foil is used for electrical condensers, bottle
cap liners, gun charges, and wrappings for food. Tin wire is used for fuses
and safety plugs. Extruded tin pipe and tin-lined brass pipe are used for
conveying drinking water and carbonated beverages. Collapsible tubes, extruded
from slugs of tin, are used for packaging pharmaceutical products, food, and
artist paints.
Solder. This is generally a tin-lead alloy (or tin-lead-bismuth alloy).
The tin composition varies from 2 percent tin and 98 percent lead in container
seaming to 63 percent tin and 37 percent lead for most electrical connections.
The major uses of solder are in auto radiators, air conditioners, heat exchangers,
plumbing and sheet joining, container seaming, and electrical connections in
radio and televisions, generating equipment, telephone wiring, electronic equip-
ment, computers, and aerospace equipment. This product group uses substantial
amounts of secondary tin and primary tin.
Other major uses of tin are in cans and containers, electrical equipment,
construction, and transportation equipment. Table 4-4 summarizes the propor-
tion of tin used by the major end-use markets in 1982.
Table 4-5 shows the trends in the price of tin over the 1970-1982 period.
The average New York market price for tin in 1982 was $6.20 per pound, which
was down from the 1980 high of $7.86. This price decline was due to the
oversupply of tin relative to demand.
Substitutes for tin include steel, plastics, aluminum, lead, bismuth,
and nickel. Aluminum has made significant inroads into container markets
which traditionally used large amounts of tin. In 1976, tinplated steel cans
accounted for 73 percent and aluminum for 27 percent of the total shipments of
83 billion metal cans. However, by 1982, of a total of 89.3 billion cans
4-7
-------
TABLE 4-4. TIN FORMING PRODUCTS END-USE MARKETS, 1982
Can and containers 25%
Electrical 17%
Construction 13%
Transportation 13%
Other 32%
100%
SOURCE: Bureau of Mines, Mineral Commodity Summaries 1983.
4-8
-------
TABLE 4-5. TIN PRICE TRENDS
(1970-1982)
YEAR
PRICE
N.Y.
U! lb)
1970
174.14
1971
167.37
1972
177.46
1973
227.22
1974
396.26
1975
339.57
1976
374.68
1977
533.26
1978
589.24
1979
707.29
1980
785.73
1981
680.43
1982
620.43
SOURCE: American Metal Market, Metal Statistics 1983, New York.
4-9
-------
shipped, tinplated steel cans accounted for only 41 percent and aluminum
accounted for 59 percent.
The demand for tin forming products is thought to be price-inelastic.
This results even though there are many substitutes for tin, because the price
of tin is small relative to the price of the final products. For example, as
little as 2 percent tin (98 percent .lead) is used in container seaming. Tin
alloyed tubes in packaging toothpaste and artist paints also represent a
small portion of the cost of the final product. As a result, modest changes
in the price of tin would have a very small impact on the total costs of tin
alloyed products.
4.1.3 Bismuth Forming
In recent years, the total annual consumption of bismuth has ranged from
1.8 to 2.7 million pounds. The Bureau of Mines estimated that the 1983 con-
sumption of bismuth would be about 2.2 million pounds. The main use in formed
products is in fusible alloys (solder) and as a metallurgical additive; these
formed products account for one-third to one-half the total consumption (see
Table 4-6).
The price of bismuth has continued to remain low. The average price in
1982, according to American Metal Market, was $1.74 per pound and this price
fell to $1.33 by December of 1983. Prices are expected to remain low because
of the slack demand for bismuth products.
Lead, tin, and bismuth substitute for each other, to some degree, in
solder and other alloyed products. Plastics substitute for bismuth alloys
in some applications. Tellurium can replace bismuth as a steel additive,
and iron, phosphorous, and potassium can be used for bismuth as a catalyst
for production of acrylonitrile. However, in general, the demand for bismuth
forming products is expected to be price-inelastic because bismuth represents
a small portion and cost of the final product.
4-10
-------
TABLE 4-6. BISMUTH METAL CONSUMED IN THE U.S., BY USE
(pounds)
USE
1978
1979
1980
1981
1982a
Fusible alloys
836,021
721,043
650,895
656,956
470,751
Metallurgical additives
485,284
703,770
467,939
307,028
113,108
Other alloys
. 21,774
22,029
26,484
25,953
21,384
Pharmaceuticals'5
1,149,683
1,248,656
1,115,615
1,387,554
1,204,680
Experimental
558
3,153
1,197
214
200
Other
18,556
28,502
26,677
15,004
10,000
Total
2,511,876
2,727,153
2,288,807
2,392,709
1,820,123
a Preliminary estimates.
k Includes industrial and laboratory chemicals and cosmetics.
SOURCE: American Metal Market, Metal Statistics 1983.
4-11
-------
4.2 NICKEL/COBALT FORMING
EPA identified 73 plants owned by 56 companies that produce nickel and
cobalt formed products. Nickel and cobalt have similar appearances and both
are used in the production of high-temperature alloys and hard alloys resistant
to abrasion. Both metals are generally formed at the same plants (19 of the
20 known cobalt plants also form nickel) using identical processes and, very
often, the same equiraent.
4.2.1 Nickel Forming
The domestic consumption of nickel declined from 197,000 tons in 1981 to
174,000 tons in 1982. This was the third consecutive year that the consump-
tion declined because of depressed end-use markets. The major consumption of
nickel is in the production of stainless and alloy steel and nonferrous alloys.
The major end-uses of alloys containing nickel are in the transportation,
chemical, electrical equipment, and construction industries. Nickel forming
products include alloys in ingot, bars, plates, sheets, and tubes. The price
of nickel has been falling because of the depressed markets for these products
during the 1980 and 1982 recessions. The output and prices of nickel forming
products are highly cyclical because nickel formed products are used in highly
cyclical industries.
Substitutes for nickel include cobalt, aluminum, coated steel, titanium,
and plastics. However, substitution of these products results in increased
costs or some sacrifice in the performance of the product. For these reasons,
the price elasticity of demand for nickel is fairly low.
4.2.2 Cobalt Forming
In 1981, the value of shipments of cobalt formed products was $30.7 mil-
lion, and employment totaled 2,777 workers. Since 1979 the domestic consump-
tion of cobalt has been falling. The apparent consumption (i.e., production
plus net imports) of cobalt (including alloying applications) dropped to a
4-12
-------
low of 5,500 tons in 1982, from a high of 9,403 tons in 1979. Domestic con-
sumption decreased, especially in superalloys (i.e., extremely hard alloys)
and cutting and wear-resistant materials.
Superalloys, which are used by the aircraft industry, accounted for
about 37 percent of the reported cobalt consumption in 1982. Other major end-
use markets include the electrical industry sector which accounted for about
16 percent, and the machinery industry sector which consumed about 16 percent
of cobalt.
The price of cobalt products has been falling in recent years mainly
because of depressed markets. The cobalt cathode price dropped from a high
of $25 per pound in 1980 to $12.50 in 1982.
Nickel may be substituted for cobalt in several applications but only
with a loss of effectiveness. Other substitutes for cobalt include platinum,
tungsten, copper, and chromium. The demand for cobalt is price-inelastic for
these reasons.
4.3 ZINC FORMING
According to the EPA industry survey there are 10 zinc forming plants in
the U.S. In 1981, the value of shipments of zinc forming products was $33.5
million and these plants employed 424 workers.
Zinc products are used extensively in the transportation and construction
industries. Zinc consumption decreased significantly in 1982, because of
the decline in construction activity and the lowest level of automobile pro-
duction in the U.S. in 20 years. Table 4-7 shows the major end-use markets
for zinc in 1982.
Construction. This industry is the major market for galvanized steel
that is used for structural steel, roofing, siding, guttering, and reinforcing
bars. Galvanized sheet is the standard duct material for air conditioning,
4-13
-------
TABLE 4-7. ZINC MAJOR END-USE MARKETS, 1982
Construction 40%
Transportation 20%
Machinery 12%
Electrical and Chemical 15%
Other 13%
100%
SOURCE: Bureau of Mines, Mineral Commodity Summaries 1983.
4-14
-------
ventilation, and heating systems, and is used for channels and conduits for
electrical and telephone wires in larger buildings. Zinc oxide is used in
the production of oil-based paints, and in some latex paints to prevent
mildew. Among products that fall under the forming category, zinc dust
paints are growing in importance for primers and for structural steel.
Transportation. This industry, which includes automobiles, aircraft,
ships, buses, trucks, trailers, motor scooters, bicycles, railway roofing
equipment, and massive belt conveyor systems, is an important consumer of
zinc products for galvanized steel sheet, zinc oxide, and die-casting alloys.
In recent years there has been significant growth in the use of galvanized
automobile underbody parts to overcome corrosion problems caused by deicing
salts used in winter. About one-half of the total consumption of zinc oxide
is for rubber manufacture, which is used in automobile tires. The largest
single use of zinc is in die-casting for automobile components, which falls
into the forming category.
The machinery, electrical, and chemical industries also are important
consumers of zinc forming products. Rolled zinc serves small but important
markets for dry cell battery uses, weatherstripping, and lithographic plates.
Zinc products are also used as protective coatings for ship hulls, offshore
oil drilling and production platforms, and submerged steel work and pipes.
The demand and prices for zinc products correlate with economic activity
in the economy. As a result, during periods of economic decline such as the
recession of 1981-1982, demand and price for zinc products fell. According
to the U.S. Bureau of Mines, the demand for zinc products was expected to
increase to about 1 million tons in 1983.
Aluminum and magnesium are the major substitutes for zinc. Plastic
coating, paints, electroplated cadmium, and special zinc-aluminum coatings
can replace zinc for corrosion protection in some areas. The price of zinc
relative to that of aluminum and plastics and the public preference for metal
parts because of their durability are major factors affecting the continued
4-15
-------
use of zinc. The demand for zinc forming products is fairly price-elastic,
because several good substitutes exist for this product.
4.4 BERYLLIUM FORMING
Beryllium products are formed by only two firms in the United States:
Brush Wellman, Inc., which controls -the only domestic deposits from which
beryllium-bearing ores are currently mined, and the Cabot Berylco Division
of the Cabot Corp., which uses imported beryl ores for its production.
Beryllium is the third lightest metal, with a density two-thirds that of
aluminum. Only magnesium and lithium are lighter. Other properties of
beryllium include high strength, high thermal conductivity, and neutron moderat-
ing and reflecting capability. According to the U.S. Bureau of Mines, major
markets for beryllium are:
Metal in nuclear reactors and aerospace applications 38%
Alloy and oxide in electrical equipment 36%
Alloy and oxide in electronic components 17%
Other (compounds and metal) 9%.
Specific uses include military aircraft brake systems, missile re-entry body
structures, missile guidance systems, mirrors and optical systems, satellite
structures, and X-ray windows.
The total tonnage of beryllium used is quite small; the Bureau of Mines
estimates that 325 tons of beryllium oxide, alloy, and metal will be consumed
in the United States in 1983. Consumption declined from 1971 to 1976 because
of reductions in defense and aerospace demand, but since 1976, consumption
has returned to the levels of the late 1960s and early 1970s (see Table 4-8).
Prices have also increased since 1976, from $75 to $194 per pound.
Because of beryllium's high price, it tends to be used in products where
adequate substitutes are not available. According to the Bureau of Mines,
4-16
-------
TABLE 4-8. PRICE AND CONSUMPTION TRENDS FOR BERYLLIUM
APPARENT
PRICE CONSUMPTION
YEAR ($/lb, domestic, metal) (tons)
1969 60 339
1970 60 380
1971 60 415
1972 60 311
1973 70 348
1974 75 209
1975 75 176
1976 75 51
1977 109 67
1978 120 271
1979 120 303
1980 140 321
1981 173 303
1982 194 328
SOURCE: U.S. Bureau of Mines, Mineral Commodity Summaries.
4-17
-------
"Steel, titanium, or graphite composites may be substituted for beryllium-
copper alloys, but with substantial loss of performance." International
trade occurs primarily in beryllium-bearing ores rather than in formed pro-
ducts. Thus, price elasticity of demand is thought to be low.
4.5 PRECIOUS METALS FORMING
The precious metals subcategory includes the forming of gold, silver,
and the platinum group metals, all of which are usually formed at any single
plant. Precious metal mill shapes were produced by 44 firms at 50 establish-
ments. As Table 4-9 shows, shipments rose from $687 million in 1977 to
$1,042 million in 198L, a 52 percent increase. Of the 1977 total, 46 percent
was accounted for by gold, 36 percent by silver, and 18 percent by other
(Table 4-10).
Most precious metals are easily worked, and are available in a variety
of shapes and forms (sheet, foil, wire, gauze, discs, and salts or solutions
for plating and coating). They are almost completely resistant to corrosion
and are also excellent conductors of electricity.
Because they have a variety of end-uses that differ from one metal to
the next, this section will discuss each precious metal (gold, silver, and
the platinum group) separately.
4.5.1 Gold
Gold is fabricated by about 3,000 U.S. firms, according to the U.S.
Bureau of Mines. Most of these fabricators produce articles for jewelry, art,
and dental applications using methods that are not covered by this regulation;
it is estimated that only 16 firms carry out gold forming operations covered
by the regulation.
4-18
-------
TABLE 4-9. PRECIOUS METAL MILL SHAPE SHIPMENTS, 1972-1981
YEAR
VALUE OF
SHIPMENTS
($ million)
1972
364.0
1973
487.2
1974
531.7
1975
474.8
1976
529.9
1977
686.9
1978
737.8
1979
959.6
1980
894.7
1981
1,042.3
SOURCES: 1981 Annual Survey of Manufactures and 1977 Census of Manufactures.
4-19
-------
TABLE 4-10. NUMBER OF FIRMS AND VALUE OF SHIPMENTS
OF PRECIOUS METAL MILL SHAPES, BY METAL, 1977
METAL TYPE
Gold
Silver
Plat inura
Other
n.3.k.k
NO. OFa
FIRMS
16
15
8
9
NA
VALUE OF
SHIPMENTS
$343.7
273.6
123.9
10.5
a Data not available for firms with shipments below $100,000.
k n.s.k. = Not specified by kind.
NA = Not available.
SOURCE: 1977 Census of Manufactures.
4-20
-------
Apparent consumption for all uses in 1982 was 3.80 million ounces (237,500
pounds) with a value of $1.5 billion. Major uses were:
Gold is an extremely soft metal. Because of its softness, it is gener-
ally alloyed with other metals or used in linings or electrodeposits. The
high price of gold encourages its sparing use, and the metal's ability to be
worked into extremely thin layers makes economical use of the metal possible
(one gram of gold can be worked into leaf covering six square feet).
Gold products have several substitutes, including palladium, platinum
and silver. Base metals clad with gold alloys are increasingly used in
electrical and electronic applications. Nevertheless, the good substitutes
for gold virtually all use gold itself in lesser quantities or some other mem-
ber of the precious metals group. As a result, producers of formed gold pro-
ducts face low price elasticity of demand.
4.5.2 Silver
Silver is the least expensive of the precious metals. It has the highest
thermal and electrical conductivity of all metals. Like other precious metals,
it is easily formed and corrosion-resistant.
Reported U.S. industrial consumption of silver in 1982 totaled 125.0
million ounces (7.8 million pounds), valued at $1.0 billion. As Table 4-11
shows, industrial consumption of silver, has declined fairly consistently
since 1973. End-uses of silver, according to the U.S. Bureau of Mines, are:
i/ Source: Mineral Commodity Summaries, 1983.
Jewelry and arts
Industry (mainly electronics)
Dental
Small bars, etc., mainly for
investment
61%
29%
9%
mil
4-21
-------
TABLE 4-11. PRICE AND INDUSTRIAL CONSUMPTION OF SILVER, 1978-1982
REPORTED
INDUSTRIAL
PRICE CONSUMPTION
YEAR ($ per oz.) (mil 1 ion oz.)
1969 $ 1.79 141.5
1970 1.77 128.4
1971 1.54 129.1
1972 1.68 151.1
1973 2.56 195.9
1974 4.72 177.0
1975 4.42 157.7
1976 4.35 170.6
1977 4.62 153.6
1978 5.50 160.2
1979 11.09 157.3
1980 20.63 124.7
1981 10.52 116.6
1982 8.00 125.0
SOURCE: Mineral Commodity Summaries.
4-22
-------
Photography
Electrical and electronic products
Silverware and jewelry
Brazing alloys and solders
Other
39%
29%
14%
7%
11%.
Silver products have many substitutes but silver demand "appears rela-
tively price inelastic" according to the U.S. Bureau of Mines. To a large
extent, the low elasticity may be accounted for by two factors: (1) a scar-
city of substitutes for most silver uses in photography; and (2) the high
value of final products compared to the value of the silver content. Substi-
tutes in forming uses include aluminum and rhodium for reflecting surfaces,
tantalum in surgical applications, stainless steel for flatware, and various
other metals in batteries and other electrical and electronic applications.
4.5.3 Platinum Group Metals
Six metals make up the platinum group: iridium, osmium, palladium,
platinum, rhodium, and ruthenium. These metals are grouped because they
occur naturally in the same ore. As shown in Table 4-12, two of the metals
(platinum and palladium) account for over 90 percent of U.S. consumption of
the group. Only these two will be regulated under the nonferrous metals
forming category.
For the group as a whole, the major markets are:
Automot ive
Electrical
Dental and Medical
Chemical
Petroleum
Jewelry and Decorative
Glass
Miscellaneous
32%
26%
14%
12%
2%
2%
6%.!/
6%
1983 U.S. Industrial Outlook.
4-23
-------
TABLE 4-12. PLATINUM-GROUP METALS SOLD TO
CONSUMING INDUSTRIES IN THE U.S., 1977-1982
(000 troy ounces)
YEAR
PLATINUM
PALLADIUM
RHODIUM
RUTHENIUM
IRIDIUM
OSMIUM
1977
790
700
55
32
13
0.9
1978
1,196
918
70
58
17
0.8
1979
1,409
1,133
83
113
17
0.9
1980
1,118
912
74
78
24
0.8
1981
873
889
62
88
8
0.7
1982
NA
NA
NA
NA
NA
NA
1,592
2,260
2,756
2,206
1,921
1,510
NA - Not available
SOURCE: U.S. Industrial Outlook 1983.
4-24
-------
Platinum and palladium are both silver-white metals that are corrosion-
resistant and have applications in electrical or electronics equipment. Of
the two, platinum is the most easily worked and is generally the more widely
used. In the form of gauze, it is used as a catalyst in air pollution control
systems, a use that accounts for more than half of total consumption. It is
also used for electrical contacts, resistance wire, and in various chemical
and petroleum refining applications, primarily as a catalyst.
Palladium, the other major platinum group raetal, resembles and behaves
like platinum, but is more difficult to work. Its most important use is in
electrical applications: it is easily applied to printed circuit boards as
an electrically conductive coating.
Demand for the platinum group metals responds more to the demand for pro-
ducts in which they are used (e.g., automobiles or electronic products) than
to the price of the metals. Potential substitutes include other precious
metals in most electrical applications. Major changes in automobile engines
(e.g., diesel, or CVCC2/ engines) could reduce the need for platinum as an
emission control catalyst.
4.6 IRON AND STEEL, COPPER, AND ALUMINUM METAL POWDER PRODUCTION AND METAL
POWDER METALLURGY
Before focusing on the raetal powder operations covered by this subcate-
gory, some information is presented on metal powders in general. Metal powders
are produced by atomization, pulverization, or chemical decomposition. In
powder forms, metals can be used directly or combined with other powders to
produce metal parts with unique characteristics of strength, porosity, or
tailored variations in composition. Metal powders also eliminate or reduce
the necessity for machining, allow the alloying and working of metals that
cannot be alloyed or worked by other methods, and allow the mixture of metals
2J Controlled vortex combustion cylinder, an engine design capable of meeting
motor vehicle emission standards without the use of a catalytic converter.
4-25
-------
and non-metals (such as plastics), combining the properties of each. Metal
powders have hundreds of .uses, ranging from animal feed to welding. A partial
list of industries and applications is given in Table 4-13 for all types of
metal powders. The value of shipments for all types of metal powders, paste,
and flakes (Table 4-14) totaled $1,149 billion in 1981 according to the
Census Bureau. A breakdown of the value of metal powder shipments for 1977
indicates that about half are iron and steel, aluminum, and copper, which are
included in this subcategory of the regulation, and half are in the remaining
nonferrous metal categories.
The iron and steel, copper, and aluminum powder metallurgy subcategory
includes about 60 plants that produce metal powders or metal parts from powder
According to the Metal Powder Industries Federation, shipments of iron,
copper, and aluminum powders totaled 185,800 tons in 1982. As shown in Table
4-15, shipments of these metal powders showed strong growth in the 1960s and
early 1970s peaking at 329,859 tons in 1973. Since then, shipments have
declined by 44 percent. The decline has been particularly severe for producer
of aluminum powder. Shipments of aluminum powder peaked in 1968 and 1969 at
138,000 tons, and have since fallen nearly 80 percent. The main reason for
this decline is that a major use of aluminum powders in the late 1960s and
early 1970s was in explosives, pyrotechnics, and bombs, the production of
which paralleled the course of American involvement in Vietnam.
Sales of the other metal powders (iron and steel, and copper) have more
closely followed the general level of the economy. About 75 percent of all
iron powder produced and high percentages of most other metal powders are
used to manufacture powder metallurgy (P/M) parts. According to the Metal
Powder Industries Federation, about 50 percent of all P/M parts are used in
automobiles, primarily in engines and transmissions. The depressed state of
the auto industry since 1979 has, in turn, depressed the metal powders indus-
try. A recovery of auto sales should result in increased sales of metal powde
The cost of metal powders and P/M parts is generally a small percentage
of the total cost of the final products in which they are used. There are
4-26
-------
TABLE 4-13. MARKETS AND USES FOR METAL POWDERS
INDUSTRY
APPLICATION
TYPE OF POWDER
Agriculture
Aerospace
Animal Feed, Fertilizers
Farm Machinery
Food Enrichment
Fungic ides
Seed Coating
Soil Conditioning
Brake Linings
Hardware
Heat Shields
Rocket Fuels
Iron
Iron, Steel, Copper, Bronze
Iron, Copper, Manganese
Copper
Aluminum
Iron, Copper
Copper, Lead, Tin, High
Nickel Alloys, Graphite, Iron
Aluminum, Beryllium, Titanium,
Iron
Beryllium, Tungsten
Aluminum
Automot ive
Chemicals
Coat ings
Consumer Products
Engines and Related Parts
Transmiss ions
Truck Signal Flares
Tire Studs
Catalysts
Anti-fouling Paints
Corrosion Resistant Paints
Decorative Paints
Lacquers
Cosmetics
Enriched Foodstuffs and
Vitamins
Flash Bulbs
Floating Soap
Pen Points
Iron, Zinc, Stainless Steel,
Tool Steels, Platinum Alloy,
Copper, Lead, Tin Aluminum,
Graphite, Bronze
Iron, Copper, Steel
Aluminum
Tungsten Carbide
Platinum, Nickel, Tungsten,
Molybdenum, Rhenium, Aluminum,
Palladium, Iron, Copper
Copper
Stainless Steel, Aluminum,
Zinc, Lead
Aluminum, Brass, Bronze, Zinc,
Stainless Steel, Lead, Copper
Silver, Brass, Bronze, Aluminum
Zinc, Aluminum
Iron
Zirconium, Cerium
Aluminum
Platinum, Ruthenium, Tungsten,
Stainless Steel
Coinage
Construct ion
Caulking Compound
Linoleum and Decorative
Plastics
Pipe Joint Compounds
Waterproofing (Concrete
and Roof Coatings)
Nickel, Copper-Nickel
Aluminum
Iron, Brass, Copper, Aluminum,
Stainless Steel
Zinc, Lead, Copper
Iron, Aluminum
4-27
-------
TABLE 4-13. MARKETS AND USES FOR METAL POWDERS (Continued)
INDUSTRY
APPLICATION
TYPE OF POWDER
Electrical/
Electronic
Bat teries
Contacts
Printed Circuits
Relays
Semiconduc tors
Nickel, Zinc, Silver, Lead,
Iron, Graphite, Cadmium
Copper, Silver, Platinum,
Tungsten, Others
Copper, Silver, Palladium,
Gold, Platinum
Iron, Nickel, Molybdenum
Lead
Hardware
Lock Components
Brass, Bronze, Iron, Stain-
less Steel
Lubricants
Medical/Dental
Nuclear
Greases
High-temperature Lubricants
Dental Amalgam
Insulin Production
Pharmaceut icals
Pros thet ics
Control Rods
Fuel Elements
Shielding
Lead, Graphite
Aluminum, Graphite
Silver, Gold, Alloys
Zinc
Stainless Steel
Superalloys
Zirconium, Beryllium,
Hafnium, Uranium
Iron, Stainless Steel
Aluminum, Tungsten, Lead,
Others
Office Equipment Copiers
Recording Tape
Toner
Iron, Stainless Steel, Bronze,
Aluminum
Iron
Iron
Ordnance
Recreat ion
Ammun it ion
Anti-personnel Bombs
Fuse Parts
Solid Missile Fuel
Fishing Rod Reels
Golf Clubs
Hunting Knives
Shotguns
Graphite
Iron
Brass, Iron, Steel
Aluminum, Magnesium
Iron, Brass, Stainless Steel
Tungsten, Iron, Brass
Iron, Stainless Steel, Others
Iron, Steel
SOURCE: Metal Powder Producers Association.
4-28
-------
TABLE 4-14. VALUE OF SHIPMENTS OF METAL
POWDERS, PASTE, AND FLAKES, 1972-19813
VALUE OF SHIPMENTS
YEAR ($ million)
1972 322.7
1973 418.3
1974 502.5
1975 394.8
1976 535.1
1977 702.2
1978 813.2
1979 1,085.4
1980 1,214.0
1981 1,149.7
a Includes powders, etc., made from all metals.
SOURCES: 1981 Annual Survey of Manufactures and 1977 Census of Manufactures.
4-29
-------
TABLE 4-15. U.S. METAL POWDER SHIPMENTS, 1962-1982
(in Cons)
COPPER &
COPPER
YEAR
IRON
BASE
ALUMINUM
TOTAL
1962
51,450
23,792
21,850
97,092
1963
58,400
25,307
22,400
106,107
1964
73,100
28,300
23,100
124,500
1965
86,850
31,000
29,400
147,250
1966
100,000
33,000
60,000
193,000
1967
94,000
28,000
113,000
235,000
1968
112,500
31,100
138,000
281,600
1969
126,900
30,262
138,000
295,162
1970
114,552
23,755
110,000
248,307
1971
127,898
26,000
100,000
253,898
1972
154,355
26,500
90,543
2 71,398
1973
194,480
32,319
103,060
329,859
1974
178,893
34,183
64,068
277, 144
1975
140,375
21,153
34,310
195,838
1976
194,808
32,391
49,483
276,682
1977
199,000
30,000
45,000
274,000
1978
217,000
32,000
51,500
300,500
1979
199,000
33,000
45,500
277,500
1980
152,800
23,500
44,279
220,579
1981
174,374
24,600
39,800
238,774
1982
139,200
18,500p
28,100
185 ,800p
p - Preliminary
Source: Metal Powder Industries Federation.
4-30
-------
few good substitutes for metal powders in most applications. In general,
demand for powders is more sensitive to the demand for the final products in
which they are used than it is to price. As a result, price elasticity of
demand for this subcategory is thought to be low.
4.7 TITANIUM FORMING
Formed titanium products are manufactured at 41 plants. Titanium is
lightweight, corrosion-resistant, nonmagnetic, and resistant to metal fatigue.
According to the U.S. Bureau of Mines the markets for titanium metal are:
Jet engines, air frames, and space and 60%
missile applications
Chemical processing, power generation, and 20%
marine and ordinance applications
Steel and other alloys 20%
Titanium alloys are also used in energy and environmental control equipment,
and in race car engines and drive train components.
Shipments of titanium mill shapes, which are separately classified in
SIC 33562, totaled 25,500 tons valued at $1,052.6 million in 1981. As Table
4-16 shows, this value represented a more than four-fold increase since
1977. While much of this increase represented price increases, there were,
substantial increases in output as well: net shipments (in tons) rose 75
percent between 1977 and 1980, before declining during the economic downturn
in 1981 and 1982.
The United States is the world's third largest producer of titanium
sponge metal (the raw material for mill products), after the Soviet Union and
Japan. Tariffs on wrought titanium metal are substantial (17 percent for most
favored nations, 45 percent for others). As a result, imports of formed
products are not a significant factor in the U.S. market. In fact, the United
4-31
-------
TABLE 4-16. TITANIUM MILL SHAPE SHIPMENTS AND FOREIGN TRADE, 1977-1982
YEAR
VALUE OF
SHIPMENTS
($ million)
NET
SHIPMENTS
(tons)
IMPORTS
(tons)
EXPORTS
(tons)
AVERAGE
PRICE
($/lb)
1977
250.7
15,466
NA
NA
8.10
1978
326.7
17,648
1,286
2,029
9.26
1979
540.6
23,113
1,280
3,300
11.69
1980
838.8
27,137
946
5,123
15.45
1981
1,052.6
25,500
1,116
6,049
20.64
1982
NA
19,100
850
4,600
NA
NA - Not available
SOURCES: 1981 Annual Survey of Manufactures and 1983 U.S. Industrial Outlook.
4-32
-------
States was a net exporter of titanium mill products every year from 1978 to
1982. Furthermore, exports more than doubled during that period, while
imports declined by one-third.
Given the nature of titanium's end-use markets, price elasticity of
demand for formed products is very low. For the largest market (aircraft and
space applications) "there is essentially no substitute for titanium."it/ For
other uses, high nickel steel and superalloy metals may be substituted, but
in many cases the substitute is less desirable.
4.8 REFRACTORY METALS
Refractory metals, by definition, are metals that have high melting points.
Included in this subcategory are molybdenum, tungsten, vanadium,.!/ tantalum,
rhenium, and columbium. Of the five, vanadium has the lowest melting point
(3,452°F), tungsten the highest (6,170°F). Refractory metals and their alloys
are formed by 28 firms at 52 plants. Products include various mill forms,'
screws, bolts, studs, and tubing. The chief uses of formed refractory metals
are in high-temperature applications (e.g., electrical, electronic, and aero-
space applications), for metal-working and construction machinery, and as
alloying agents for steel and titanium.
As shown in Table 4-17, apparent consumption (production plus net
imports) of refractory metals totaled $595 million in 1982, more than a 50
percent decline from the peak level reached in 1980. The decline represented
decreases in price as well as in quantity of metal consumption. Because of
the unique characteristics of these metals, particularly the high melting
points, hardness, and resistance to thermal shock, there are few substitutes
it/ U.S. Bureau of Mines, Mineral Commodity Summaries, 1983, p. 165.
U Vanadium is not generally considered a refractory metal by the industry
but has been grouped with the other four for regulatory purposes.
4-33
-------
TABLE 4-17. APPARENT CONSUMPTION OF REFRACTORY METALS, 1974-1982
($ million)
YEAR MOLYBDENUM TANTALUM TUNGSTEN VANADIUM COLUMBIUM TOTAL
1974 176 NA 125 NA NA NA
1975 145 135 77 NA 35 NA
1976 207 95 116 NA 22 NA
1977 246 178 188 67 40 719
1978 335 85 181 57 45 703
1979 553 180 191 76 65 1,065
1980 589 320 180 64 70 1,223
1981 519 275 187 75 54 1,110
1982 264 140 91 70 30 595
NA - Not available
SOURCE: U.S. Bureau of Mines.
4-34
-------
for Chem outside of the refractory metal group. As a result price elasticities
of demand are low.
4.9 ZIRCONIUM AND HAFNIUM FORMING
According to the EPA industry survey there are 10 plants forming zirconium
and hafnium.
4.9.1 Zirconium
Zirconium is used as cladding for nuclear fuel and as a structural
material for nuclear reactors employing pressurized water heat exchanges.
This is because zirconium has a low thermal neutron absorption cross section,
low radioactivity after radiation exposure, and transparency to thermal
neutrons. A small quantity of zirconium metal and alloys is used in the
chemical industry as components in heat exchangers, acid concentrators, tank
shafts, valves, pump housings, fan wheels, high-speed agitators, electrode
assemblies, steam jet exhausts, tubing, pipes and pipe fittings, and crucibles.
Approximately 95 percent of all zirconium consumed is in the form of the
mineral (zircon), in oxides, and in other compounds ..£/ The remainder of
the zirconium is consumed as metal and zirconium-containing alloys. Table
4-18 provides the trend in the consumption of zirconium metal products over
the 1969-1979 period.
Production and shipments of zirconium forming products fell in 1981 and
1982 owing to the continued weak demand in nuclear power plant construction,
and the decline in production of jet aircraft engines. The imports of
zirconium metal and alloys have decreased from 1,000 tons in 1978 to 420 tons
in 1982. Exports have also decreased over the same period but not as signifi-
cantly as imports. Table 4-19 provides information on the import and export
of zirconium metal and alloys over the 1973-1982 period.
Jj/ Zirconium forming products are not included in these uses.
4-35
-------
TABLE 4-18. U.S. DEMAND FOR ZIRCONIUM FORMING PRODUCTS
(short tons zirconium contents)
1978 1979
70 80
40 50
2,000e NA
1,500 1,500
370 500
4N
I
ctn NA = Not available
e = Estimate
SOURCE: U.S. Department of Interior, Mineral Facts and Problems, 1980 Edition.
METAL 1969 1970 1971 1972 1973 1974 1975 1976 1977
Fabricated Metal Products 100 110 110 115 100 80 60 80 100
Photography 10 20 30 50 53 50 78 50 45
Nuclear Reactors NA NA NA NA 2,100 NA NA NA NA
Non-Zr-Base Alloys
From Zircon NA NA NA 1,500 1,700 800 1,400 900 1,500
From Zirconium Scrap 160 170 199 210 200 200 210 260 330
-------
TABLE 4-19. IMPORTS AND EXPORTS IN ZIRCONIUM METALS AND ALLOYS
(short tons zirconium contents)
YEAR
IMPORTS
EXPORTS
1973
300
500
1974
400
800
1975
500
1,300
1976
500
1,200
1977
600
1,000
1978
1,000
1,000
1979
900
900
1980
721
694
1981
513
681
1982
420
800
SOURCES: U.S. Department of Interior, Mineral Facts and Problems, 1980
Edition for data from 1973 to 1979. U.S. Department of Interior,
Mineral Commodity Summaries, 1983, for data after 1979.
4-37
-------
Stainless steel is substituted for zirconium as a structural material in
nuclear reactors. Aluminum, columbium, and vanadium are substitutes in appli-
cations such as fuel containers, tubing, and pipes. Stainless steel, titanium,
and tantalum are also substitutes for zirconium in many corrosion-resistant
industrial applications. The demand for zirconium is expected to be price-
inelastic, because of the relative low unit cost of the metal in relation to
the total cost of the final product. In addition, the demand for zirconium
would not be very responsive to price changes in the nuclear reactor use
because of the product's unique properties.
4.9.2 Hafnium
Two companies produce hafnium sponge and hafnium crystal bar. About
half of the hafnium production in 1982 was used for control rods in naval
nuclear reactors. Other uses were in alloys, refractory applications, ceramics,
and as carbide in cutting tools. According to the Bureau of Mines, the con-
sumption of hafnium in 1982 was 50 short tons. Table 4-20 shows that the U.S.
demand for hafnium has been increasing relatively slowly over the last 10 years.
There is no substitute for hafnium in major applications, nuclear reactor
control rods, and refractory metal alloys. Zirconium oxide and metal, however,
are substituted for hafnium in selected refractories and ceramics. The prices
for hafnium products have been increasing since 1979 and will continue to
remain high if the demand for hafnium products continues to grow. The price for
hafnium sponge was in range of $80-$150 a pound in 1982. There are no exports
of hafnium products and imports are negligible.
The demand for hafnium is fairly inelastic with respect to price, because
no substitutes exist in major applications.
4.10 URANIUM FORMING
Depleted uranium, which has a low level of radioactivity, is generated
by the U.S. Department of Energy as a by-product of the uranium enrichment
4-38
-------
TABLE 4-20. U.S. HAFNIUM DEMAND
(short Cons)
U.S.
YEAR
DEMAND
1973
35
1974
32
1975
30
1976
28
1977
35
1978
40
1979
45
1980
45
1981
45
1982
50
SOURCES: U.S. Department of Interior, Mineral Facts and Problems, 1980
Edition, for data from 1973 to 1979. U.S. Department of Interior
Mineral Commodity Summaries, 1983, for data after 1979.
4-39
-------
process.
cations,
category
For every ton of
about 4.5 tons of
in the regulation
uranium that has been enriched for nuclear appli-
depleted uranium are produced. The uranium sub-
refers to the forming of depleted uranium.
As Table 4-21 shows, production of depleted uranium far exceeds apparent
consumption and exports. At the end of 1980, the Department of Energy held an
inventory of approximately 300,000 tons of the metal. The Department was con-
ducting research and encouraging development of nonenergy applications.
The principal use developed thus far is in ordnance. Uranium is an
extremely dense metal (2.5 times the density of iron). This quality makes
the metal ideal for armor-piercing shells and projectiles. According to the
Bureau of Mines, use of the metal for ordnance, which first became significant
in 1976, accounts for about 90 percent of total depleted uranium use.
Other uses include shielding for X-rays, shipping casks for nuclear
waste, and counterweights in commercial aircraft. None of these markets is
sensitive to price changes.
4.11 MAGNESIUM FORMING
Magnesium is the lightest structural metal available (only two-thirds the
weight of aluminum) and is easily formed into shapes. It is also one of the
more abundant metals. World resources are "virtually unlimited" according to
the U.S. Bureau of Mines, since it can be extracted from seawater, brines, or
any of several magnesium-bearing minerals.
The United States is the world's largest producer of magnesium: the U.S.
total of 125,000 tons accounted for 40 percent of the world total in 1982.
The Soviet Union and Norway accounted for another 29 percent and 17 percent,
respectively.
Most of the metal produced is used for aluminum-based alloys. Magnesium
castings and wrought products consume only 17 percent of total production.
4-40
-------
TABLE 4-21. PRODUCTION, CONSUMPTION, PRICES,
AND EMPLOYMENT IN THE DEPLETED URANIUM SECTOR
APPARENT
YEAR
PRODUCTION
(tons)
EXPORTS
(tons)
CONSUMPTION3
(tons)
PRICE
(per lb.)
EMPLOYMENT
1976
17,591
341
1,700
$2.00
250
1977
11,822
273
2,000
2.50
325
1978
15,763
590
2,200
2.50
450
1979
15,116
1,531
2,500
3.25
525
1980
18,000e
7,000e
3,500e
4. 50e
600e
a Production plus net imports.
e Estimated.
SOURCE: U.S. Bureau of Mines, Mineral Commodity Summaries. The Bureau
stopped reporting data for this metal in 1980.
4-41
-------
Uses include aircraft engine components, wheels for racing and sports cars,
power tool housings, and luggage frames.
Table 4-22 summarizes ten years of data for magnesium mill products,
including shipments, exports, and imports. U.S. production of mill shapes
peaked in 1979 at 44 million pounds. Consumption in 1980 and 1981 was at or
below the levels of the early 1970s.
In recent years, the United States has exported between 10 and 40 per-
cent of its magnesium mill shape production. The substantial swings in U.S.
production over the period 1977-1981 were largely the result of sharp increases
or decreases in U.S. exports.
The demand for magnesium forming products is relatively price-elastic,
because both zinc and aluminum are good substitutes for magnesium.
4-42
-------
TABLE 4-22. NET SHIPMENTS, EXPORTS, IMPORTS,
AND APPARENT CONSUMPTION OF MAGNESIUM MILL PRODUCTS: 1972 TO 1981
YEAR
VALUE OF
SHIPMENTS
($000)
MANUFACTURERS'
NET SHIPMENTS
(000 lbs)
EXPORTS OF DOMESTIC
MERCHANDISE
PERCENT
EXPORTS TO
MANUFACTURERS'
NET SHIPMENTS
(quant ity)
IMPORTS FOR
CONSUMPTION
APPARENT
CONSUMPTION
(000 lbs)
PERCENT
IMPORTS
TO APPARENT
CONSUMPTION
(quant ity)
QUANTITY
(000 lbs)
ESTIMATED
PRODUCERS'
VALUE
($000)
QUANTITY
(000 lbs)
VALUE
($000)
1972
(Y)
31,297
1,640
1,402
5
15
36
29,672
(z)
1973
(Y)
31,535
2,435
2,141
8
22
103
29,122
(z)
1974
(Y)
28,732
2,310
3,229
8
22
103
26,444
(z)
1975
(Y)
26,141
2,136
3,341
8
5
22
24,010
(z)
1976
(Y)
27,181
2,323
4,591
9
7
24
24,865
(z)
1977
(Y)
32,020
3,293
6,484
10
94
123
28,821
(z)
1978
(Y)
40,131
6,583
9,892
16
9
39
33,557
(z)
1979
(Y)
44,465
12,271
21,196
28
59
134
32,557
(z)
1980
61,735
34,981
13,853
21,946
40
95
132
21,223
(z)
1981
69,114
32,625
3,367
8,805
10
63
130
29,321
(z)
(Y) Data not collected prior to 1980.
(Z) Less than one-half percent.
SOURCE: U.S. Department of Commerce, Current Industrial Reports - Magnesium Mill Products, 1981.
-------
5. BASELINE PROJECTIONS OF INDUSTRY CONDITIONS
This chapter provides projections of conditions in the nonferrous metals
forming industry segments to 1990 under the assumption that there would be
no water pollution control requirements resulting from the Clean Water Act.
These projections are used together with estimated costs and other information
to assess the effects of the effluent control requirements on future industry
condit ions.
The baseline projections in this report provide a general point of refer-
ence for the analysis and are not intended to be a comprehensive, authorita-
tive forecast of future industry conditions. These projections provide a
plausible picture of future developments, and thus can be used as a benchmarck
for comparison. Although minor changes to the baseline may result from a more
comprehensive treatment of forecasting techniques, they are not likely to
significantly alter the study's overall conclusions regarding the extent of
the economic impacts of the effluent guidelines.
The basic approach followed in developing the.projections is to begin
with a forecast of demand-related factors, such as GNP or defense outlays.
Then, using the resulting initial projection of product volume for a metal,
industry supply factors are assessed to determine if there would be any
significant change in the number of plants.
5.1 DEMAND FACTORS
The primary reason for beginning the baseline projections with the demand
analysis is based on the hypothesis that the nonferrous metals forming industry
segments' supply factors will adjust to demand conditions. This results from
two factors: (1) the industry segments are a small proportion of the total
economic activity in the U.S. and, therefore, are more likely to react to
5-1
-------
general trends rather than influence them; and (2) the demand for nonferrous
metals forming products is a derived demand, depending on the sales and use of
thousands of products, such as automobiles, nuclear reactors, and electrical
products, that use nonferrous metals components.
The forecasts of demand for the various nonferrous metals forming sub-
categories are derived primarily from forecasts from sources such as the U.S.
Bureau of Mines (USBM) and the Department of Commerce. These sources are
supplemented by the analyses of recent trends in nonferrous metals production,
consumption and markets. Table 5-1 summarizes the demand forecasts for each
of the eleven subcategories.
These forecasts involved a number of assumptions and adjustments to the
information in the original sources shown in the table. First, for those
subcategories that are composed of more than one metal (e.g., lead/tin/bismuth)
weighted average growth rates were developed from forecasts of each individual
metal. Second, some of the outside forecasts, such as those prepared by the
USBM Minerals Commodities Summaries, are based on long-term trends and do not
capture cyclical variations. Since the base year for the forecasts shown in
the table, 1981, is a year of low production, the application of the long-term
growth rates to these data may result in underestimates of future demand. How-
ever, it is not certain that the original trend lines are still valid, because
the speed of recovery from the 1982 recession is uncertain and because the
markets for a number of the products may have undergone significant shifts in
end-use patterns in recent years. For example the price of gold in constant
dollars has multiplied over 4 times over the past 12 years and consumption
has dropped by more than half. Moreover, the price of gold has been quite
erratic over the past five years. Shifting materials usage in the automobile
and electrical and electronics industries is another cause of this uncertainty.
These industries have been increasing the use of plastics relative to other
materials. Given these uncertainties, where the published sources used a long-
run trend, the rate of growth of the trend line was applied to the low produc-
tion year of 1981. This assumption represents a conservative approach to the
forecast, since a rapid economic recovery over the mid-1980s could accelerate
5-2
-------
TABLE 5-1. BASE CASE PRODUCTION GROWTH PROJECTIONS
REAL
PROJECTIONS
TECHNICAL
SUBCATEGORY
HISTORICAL
RATE OF
GROWTH
ANNUAL RATE
1981 - 1990
GROWTH
1981-
1985
GROWTH
1981-
1990
SOURCE/COMMENT
1. Lead/Tin/Bisrauth
a
1.7%
+ 7%
+ 16%
Bureau of Mines, Mineral Commodity Summaries,
1983.
2. Nickel/Cobalt
1.5%b
2.3%
+10%
+23%
Bureau of Mines, Mineral Commodity Summaries,
1983.
3. Zinc
0%c
1.1%
+4%
+ 9%
Bureau of Mines, Mineral Commodity Summaries,
1983.
4. Beryllium
a
4% to 1985
0% 1985-
1990
+17%
+ 17%
1. Major markets are defense and aerospace.
There are no adequate substitutes. Growth
rate for GNP was applied to 1981 data growth.
2. Approximately same result could be achieved
using growth rate of defense budget (see
uranium).
3. Real defense expenditures are assumed to level
off after 1985.
5. Precious Metals
-2.0%d
2.5%
+10%
+25%
Bureau of Mines, Mineral Commodity Summaries,
1983.
6. Powder Metallurgy
-1.3%e
2% to 1985
3% 1985-
1990
+8%
+25%
Negative historical rate of growth reflects war-
related use of aluminum powders. Civilian uses
are widespread. Assumed growth equal to growth
of GNP over the 1982-1990 period.
a Time series has been eratic; no discernible trend.
^ 1960-1981 average annual rate.
c 1977-1981 average annual rate.
^ 1971-1981 average annual rate.
e 1972-1981 average annual rate.
-------
TABLE 5-1. BASE CASE PRODUCTION GROWTH PROJECTIONS (Continued)
REAL
PROJECTIONS
TECHNICAL
SUBCATEGORY
HISTORICAL
RATE OF
GROWTH
ANNUAL RATE
1981 - 1990
GROWTH
1981-
1985
GROWTH
1981-
1990
SOURCE/COMMENT
7. Titanium
1 12%f
2.7%
+ 11%
+27%
U.S. Department of Commerce, U.S. Industrial
Outlook, 1983. (Based on estimate that mill pro-
ducts production will increase from 2,500 S.T. in
1981 to 30,000 S.T. in 1987.)
8. Refractory Metals
NA
2% to 1985
3% 1985-
1990
+8%
+25%
1. Because of varied uses (electrical, aerospace
metal-working, construction), assumed growth
equal to growth of GNP.
2. U.S. Industrial Outlook projects tungsten demand
will grow faster than GNP, but so will imports.
9. Zirconium/Hafnium
a
4.5%
+ 19%
+49%
Bureau of Mines, Mineral Commodity Summaries, 1983.
10. Uranium
1A%8
4%
+ 17%
+42%
1. Assumed growth equal to defense budget growth
(CBO estimates 5% real growth FY81-88).
2. DRI projects real annual growth rate for ordn-
ance of 3.7%, 1981-1995, but says defense spend-
ing will rise faster than GNP to the late 1980's
before trailing off in the late 1980's to 1995.
11. Magnesium
-0.1%h
0%
0%
0%
U.S. consumption and manufacturers' shipments were
both virtually unchanged over the period 1972-1981.
Therefore, no growth assumed.
f 1976-1981, annual rate.
8 1976-1979, annual rate.
^ 1972-1981, annual rate.
SOURCE: JRB Associates estimates.
-------
this growth. That is, this approach is more likely to underestimate industry
growth than to overestimate it. It is important not to overstate baseline
conditions, since an overstatement oE industry baseline performance can lead
to an understatement of economic impacts due to the proposed regulation.
For some subcategories demand forecasts are based on the growth rates
of the major end-use sectors or the expected rate of growth of the overall
economy. Subcategories analyzed in this manner include beryllium, refractory
metals, uranium, powder metallurgy, and zirconium/hafnium. The reasoning for
these forecasts are listed in the last column of the table.
The demand forecasts are summarized in Table 5-1. Included in the table
are historical rates of growth for each of the eleven subcategories and base-
line growth projections in three forms: (1) an annual percentage rate or
rates; (2) cumulative growth in the 1981-1985 period; and (3) cumulative
growth in the 1981-1990 period. A final column lists sources of projections
or reasoning used to derive them.
The highest rates of growth in demand over the 1983-1990 period are
expected in the zirconium/hafnium subcategory. The demand for both of these
products is expected to be about 4.5 percent annually over the forecast
period. The demand growth rates for the other products range between 0 and
4 percent annually.
5.2 SUPPLY FACTORS
Questions relevant to this study are the number of baseline closures and
new sources that might be expected during the 1980s. The above forecasted
increase in demand through the 1980s can be supplied by (a) increasing capacity
utilization at current plants, (b) modifying current plants to increase their
capacity, (c) constructing new plants, and (d) increasing imports. Since
aggregate industry output is expected to increase, baseline closures are not
likely to result.
5-5
-------
During Che 1980-1982 period, capacity utilization rates for the plants
in the nonferrous raetals forming industry segments have been low. As a
result, a significant portion of the increased demand during the 1980s can
be met by increasing operating levels at existing facilities. Therefore, it
is unlikely that a substantial number of new plants will be opened during the
1980s. There may, however, be modifications at existing plants. There is
insufficient information available to determine the number of modifications
that will be substantial enough to be subject to new source standards.
5-6
-------
6. COST OF COMPLIANCE
6.1 OVERVIEW
Alternative water treatment control systems, costs, and effluent limita-
tions for the nonferrous metals forming category are enumerated in the Devel-
opment Document cited earlier. That document identifies various characteris-
tics of the industry, including the manufacturing processes; products manufac-
tured; volume of output; raw waste characteristics; supply, volume, and
discharge destination of water used in the production processes; sources of
wastewaters; and the constituents of wastewaters. Using the data in the
Development Document, pollutant parameters requiring limitations or standards
of performance were selected by EPA.
The EPA Development Document also identifies and assesses the range of
control and treatment technologies within each industry subcategory. The
assessment procedure involved an evaluation of both in-plant and end-of-pipe
technologies that could be designed for each subcategory. Information about
these technologies for existing surface water industrial dischargers was
evaluated to determine the effluent limitations required for the Best Prac-
tical Control Technology Currently Available (BPT), and the Best Available
Technology Economically Achievable (BAT). A similar evaluation was performed
for existing dischargers to publicly owned treatment works (POTWs) to develop
Pretreatment Standards for Existing Sources (PSES). Finally, New Source
Performance Standards (NSPS) and Pretreatment Standards for New Sources (PSNS)
were developed. The identified technologies were analyzed to estimate cost
and performance of each. Cost data were expressed in terms of investment,
operating and maintenance costs, depreciation, and interest expense. The
waste streams associated with each of the production processes were studied
to determine the identity and mass of pollutants discharged and volume of
wastewater discharged per unit of production.
6-1
-------
6.2 POLLUTANT PARAMETERS
The selection of pollution parameters for the application of effluent
limitations guidelines and standards was primarily based on a review of
laboratory analyses of wastewater samples from 17 nonferrous metals forming
plants and responses to a mail survey conducted by EPA in 1983. This infor-
mation was used to estimate the concentration of each of the 129 priority
pollutants as well as the conventional and nonconventional pollutants.
The specific approach to selecting pollutant parameters is presented in
Sections V and VI of the Development Document.
6.3 CONTROL AND TREATMENT TECHNOLOGIES
Based on the analysis of the significant pollutant parameters and treat-
ment-in-place in the nonferrous metals forming category, EPA identified three
treatment technologies that are most applicable for the reduction of the
selected pollutants. These treatment technologies are described in detail
in the Development Document and are listed below:
Treatment Option 1: Hexavalent chromium reduction,
cyanide removal and chemical emulsion breaking (where
applicable); oil skimming; chemical precipitation and
sedimentation ("lime and settle")
Treatment Option 2: Option 1 plus flow reduction by
recycle, and countercurrent cascade rinsing
Treatment Option 3: Option 2 plus filtration.
6.4 COMPLIANCE COST ESTIMATES
6.4.1 Cost Factors, Adjustments, and Assumptions
In developing the compliance cost estimates, a number of critical factors
were estimated, and adjustments and assumptions were made by EPA. These
assumptions, as outlined in the Development Document, are:
6-2
-------
All costs are expressed in first quarter of 1982 dollars.
Capital and annual cost data for the selected treatment
processes were obtained from equipment manufacturers,
literature data, and cost data from existing plants.
The cost of electricity used is 4.8 cents per kilowatt
hour, which is based on the electricity charge rate for
March 1982 reported in the Department of Energy's
Monthly Energy Review.
Capital costs are amortized at 10 years and 12 percent
interes t.
Sludge disposal costs are included in the cost estimates,
where applicable. A rate of $0.40 per gallon is assumed
for nonhazardous wastes, and $0.80 per gallon for hazard-
ous wastes.
A labor rate of 21 dollars per person-hour, including
fringe benefits and plant overhead was used to convert
the person-hour requirements into annual costs.
Where a batch, continuous, or haul-away treatment system
was possible, the system with the lowest life cycle cost
(over a 10-year period) was selected for presentation in
the system cost table.
The treatment system costs refer to a separate system
designed to treat all of the nonferrous metals forming
wastes, even though the plant may be carrying out other
operations requiring similar treatment.
In many instances, in-process flow reduction controls are
relatively inexpensive and the cost savings from a smaller-
sized end-of-pipe treatment result in lower annual compli-
ance costs for Treatment Option 2 than for Treatment Option
1. In such cases, it is assumed that Treatment Option 2
would be installed instead of Treatment Option 1, even when
the regulation would only require the smaller removals
resulting from implementation of Option 1.
6.4.2 Compliance Costs of Existing Sources
EPA has identified 294 nonferrous metals forming plants. However, the
regulation only affects 146 plants discharging wastes: 32 plants discharging
6-3
-------
Co surface waters (direct dischargers), 107 discharging to publicly owned
treatment works (indirect dischargers), and 7 discharging both to surface
waters and POTWs.
Plant-specific compliance costs were estimated for 23 plants that repre-
sent 22 relatively homogeneous groups of plants in terras of wastewater char-
acteristics, wastewater flow, and treatment-in-place. Two plants were selected
to represent the powder metallurgy group because of the large number of plants
in that group. Table 6-1 lists the 22 plant groups. For costing purposes, a
plant is classified here according to the major nonferrous metal that it forms.
The selection of representative plants for compliance cost estimation is
explained in the Development Document (Section VIII). Plants which have flows
close to the group averages were selected for costing. An attempt was also
made to choose plants with treatment-in-place typical of their groups. In
many cases, plants in a same product group have similar levels of treatment-
in-place. For example, the bullet manufacturers all have Iime-and-settle
treatment. Because of the high degree of integration, plants with major pro-
duction in the nicke1/cobalt, titanium, refractory metals, and zirconium/
hafnium subcategories were grouped together although these plants have different
levels of treatment-in-place. The diversity of treatment-in-place was taken
into account by subdividing the plants into two groupsplants with treatment-
in-place and plants without, as shown in Table 6-1. In addition, five size-
categories for each of the "with" and "without" treatment groups were estab-
lished to account for different wastewater flows. Ten representative plants
were selected to represent these costing groups.
The engineering cost estimates for the 23 representative plants take
into consideration detailed information on the production processes, flows and
treatment-in-place. These cost estimates were the bases for projecting costs
for the remaining plants in the costing groups. It was determined that plant
compliance costs would be better estimated based on nonferrous metals forming
process wastewater flow than based on nonferrous forming production volume.
6-4
-------
TABLE 6-1. NONFERROUS METALS FORMING COSTING GROUPS
NUMBER OF
DISCHARGING
SUBCATEGORY COSTING GROUP PLANTS
1. Lead/Tin/Bismuth Bullet Manufacturers 4
Solder Manufacturers 5
Other Products 10*
2. Beryllium 1
3. Uranium 2
4. Magnesium 1
5. Zinc 2
6. Powder Metallurgy Metal Powder Production 6
Production of Metal 18
Parts from Powder
7. Zirconium/Hafnium,
Nickel/Cobalt,
Refractory Metals
Titanium
With Treatment Extra Small 14
Small 7
Medium 8
Large 9
Extra Large 1
Without Treatment Extra Small 9
Small 4
Medium 12
Large 8
Extra Large 1
8. Precious Metals Small 10
Medium 8
Large 6
146
* Five plants are nonferrous metals forming operations of battery manufacturing
plants. The wastewaters of the nonferrous metals forming operations can be
treated together with the battery manufacturing wastewaters, thus there will
be no incremental compliance costs.
SOURCE: EPA, Development Document.
6-5
-------
Based on wastewater flow rate data available for 65 plants, compliance
costs were estimated for these plants using the cost estimates of the 23
representative plants.i/ For an additional 24 plants, nonferrous metals
forming production data were available and compliance costs were estimated
for these plants using the same approach described in the footnote but sub-
stituting plant production for flow. Finally, compliance costs were projected
for the remaining 34 discharging plants by assuming for each plant the average
compliance costs per plant of its costing group.
Tables 6-2, 6-3, and 6-4 present the industry compliance costs by tech-
nical subcategory for all plants and for the direct and indirect discharging
plants, respectively. Because many plants form more than one type of nonfer-
rous metal, compliance costs for these plants were allocated to the corres-
ponding technical subcategories based on production volume. In a few cases,
production data were not available by type of metal produced at the plant,
U Compliance costs of individual plants in each costing group were estimated
as follows:
CCIij
CCIi x
Flowjj
Flow;
.6
ACCij
ACCi x
Flowij
Flow:
.6
where: CCIij = Compliance capital investment of plant j in costing group i
CCI;
ACC
ACCi
= Compliance capital investment of the representative plant
of costing group i
= Annual compliance cost of plant j in costing group i
= Annual compliance cost of the representative plant of
costing group i
Flow£j = Flow rate of plant j in costing group i
Flow£ = Flow rate of the representative plant of costing group i
6-6
-------
TABLE 6-2. TOTAL INDUSTRY COMPLIANCE COSTS FOR EXISTING SOURCES
(in thousands of 1982 dollars)
NO. OF
CAPITAL INVESTMENT
ANNUAL
COMPLIANCE
COSTS
TECHNICAL SUBCATEGORY
LINES
OPTION 1
OPTION 2
OPTION 3
OPTION 1
OPTION 2
OPTION 3
Lead/Tin/Bismuth
21
582.6
616.2
773.2
142.9
152.0
229.1
Nickel/Cobalt
40
2,333.7
2,753.4
3,035.3
1,041.4
1,175.2
1,301.4
Zinc
3
100.9
161.3
176.8
68.4
83.7
87.0
Beryl 1ium
1
0
0.4
0.4
15.7
16.0
16.0
Precious Metals
34
336.1
594.6
1,014.8
481.2
560.6
726.4
Powder Metallurgy
23
577.3
577.1
667.5
536.4
536.4
616.3
Ti tanium
27
2,066.5
2,258.8
2,473.0
1,344.6
1,423.0
1,531.0
Refractory Metals
35
982.6
1,393.7
1,523.1
568.3
677.1
736.3
Zirconium/Hafnium
7
248.0
292.0
313.2
116.7
128.5
136.8
Magnesium
4
75.0
75.3
76.3
49.8
50.2
50.9
Uranium
2
475.0
475.0
475.0
253.2
253.2
253.2
TOTAL NO. OF PLANTS
a
146
7,777.7
9,197.8
10,528.6
4,618.6
5,055.9
5,684.4
a Total is lower than the sum of all subcategories because many plants form more than one type of metal.
SOURCE: JRB Associates estimates.
-------
TABLE 6-3. COMPLIANCE COSTS FOR EXISTING DIRECT DISCHARGERS
(in thousands of 1982 dollars)
TECHNICAL SUBCATEGORY
NO. OF
LINES
CAPITAL INVESTMENT
ANNUAL
COMPLIANCE
COSTS
OPTION 1
OPTION 2
OPTION 3
OPTION 1
OPTION 2
OPTION 3
Lead/Tin/Bismuth
3
165.5
174.1
225.8
11.0
12.4
35.6
Nickel/Cobalt
14
390.6
429.6
483.5
73.1
84.0
103.9
Zinc
1
13.3
72.1
72.1
27.3
36.8
36.8
Beryl 1ium
1
0
0.4
0.4
15.7
16.0
16.0
Precious Metals
7
95.5
219.9
298.8
93.4
130.7
163.7
Powder Metallurgy
3
189.5
189.5
227.1
122.5
122. 5
165.5
Titanium
12
1,385.9
1,420.8
1,535.5
876.0
894.0
948.9
Refractory Metals
8
14.5
89.5
105.5
23.1
41.7
50.1
Zirconium/Hafnium
4
228.1
271.7
289.9
114.0
125.7
132.9
Magnes ium
3
71.0
71.0
71.0
44.8
44.8
44.8
Uran ium
2
356.3
356.3
356.3
189.9
189.9
189.9
TOTAL NO. OF PLANTS
a
39
2,910.2
3,294.9
3,665.9
1 ,590.8
1,698.5
1 ,888.1
a Total is lower than the sura of all subcategories because many plants form more than one type of metal.
SOURCE: JRB Associates estimates.
-------
TABLE 6-4. COMPLIANCE COSTS FOR EXISTING INDIRECT DISCHARGERS
(in thousands of 1982 dollars)
TECHNICAL SUBCATEGORY
NO. OF
LINES
CAPITAL INVESTMENT
ANNUAL
COMPLIANCE
COSTS
OPTION 1
OPTION 2
OPTION 3
OPTION 1
OPTION 2
OPTION 3
Lead/Tin/Bismuth
18
417. 1
442.1
547.4
131.9
139.6
193.5
Nickel/Cobalt
28
1,943.1
2,323.8
2,551.8
968.3
1,091.2
1,197.5
Zinc
2
87.6
89.2
104.7
41.1
46.9
50.2
BerylILum
0
-
-
-
-
-
-
Precious Metals
28
240.6
374.7
716.0
387.8
429.9
562.7
Powder Metallurgy
20
387.8
387.6
440.4
413.9
413.9
450.8
Titanium
16
680.6
838.0
937.5
468.6
529.0
582.1
Refractory Metals
29
968.1
1,304.2
1,417.6
545.2
635.4
686.2
Zirconium/Hafnium
4
19.9
20. 3
23. 3
2.7
2.8
3.9
Magnes ium
2
4.0
4.3
5.3
5.0
5.4
6.1
Uranium
1
118.7
118. 7
118.7
63.3
63.3
63. 3
TOTAL NO. OF PLANTS
a
114
4,867.5
5,902.9
6,862.7
3,027.8
3,357.4
3,796.3
a Total is lower than the sum of all subcategories because many plants form more than one type of metal.
SOURCE: JRB Associates estimates.
-------
in these cases, compliance costs were equally distributed to each of the
metals. Similarly, treatment costs for plants discharging both directly and
indirectly were apportioned equally to the direct and indirect cost totals.
Table 6-2 shows that total industry capital investment ranges between $7.8
million for Treatment Option 1 and $10.5 million for Treatment Option 3.
Annual compliance costs vary between $4.6 million for Treatment Option 1 and
$5.7 million for Treatment Option 3..1/
6.5 ANALYSIS OF TREATMENT-IN-PLACE
To gain an understanding of factors that have influenced the installation
of treatment and to get a general idea of the potential impacts of the regula-
tions, EPA industry survey data were reviewed to examine the level of treatment
already in place among the nonferrous metals forming plants.
Even though no guidelines have specifically been issued for the nonferr-
ous metals forming category, compliance with current NPDES permit limitations
generally requires treatment of wastewaters discharged by the direct dischargers.
Review of survey data on the 146 discharging plants in the nonferrous metals
forming industry as well as more detailed analysis of the 23 representative
plants bears this out. Table 6-5 indicates that approximately 90 percent of
the direct dischargers already have some treatment-in-place. On the other
hand, pretreatment requirements for indirect dischargers have been applied
less broadly, and it is estimated that only 50 percent of the indirect dis-
chargers have any treatment-in-place.
U The BAT limitations proposed in the Federal Register notice are Option 3
for nine subcategories and Option 2 for the lead/tin/bismuth and powder
metallurgy subcategories; for PSES the option choices are the same exce Pt
that the zinc indirect dischargers are excluded from the regulation.
Cost estimates for the proposed limitations based on the above figures are
(in millions): BPT - $2.9 capital and $1.6 annual; BAT - $3.6 capital and
$1.8 annual; PSES - $6.6 capital and $3.7 annual. Total cost for the pro-
posed regulation is $10.2 capital and $5.5 annual.
6-10
-------
TABLE 6-5. SUMMARY OF TREATMENT-IN-PLACE
DIRECT
DISCHARGERS
INDIRECT
DISCHARGERS
All Dischargers
Number of Plants3
Number of Plants with
Treatment-in-place
Some Treatment
L&Sb
L&S+C
39 (100%)
34 (87%)
24 (62%)
10 (26%)
114 (100%)
58 (51%)
17 (15%)
3 (3%)
23 Representative Plants
Number of Plants
Number of Plants with
Treatment-in-place
8 (100%)
7 (88%)
15 (100%)
5 (33%)
a Includes 7 plants that are both direct and indirect dischargers.
k L&S = Lime and settle; technology basis for Option 1.
c L&S+ = Lime, settle and filter (in place at 1 direct plant and one
direct/indirect plant) and lime and multi-stage settling (in place at 8
direct plants and 2 indirect plants).
SOURCE: EPA Industry Survey.
6-11
-------
Although most direct dischargers have some treatment to meet permit
limits, there are exceptions. Table 6-5 indicates that of the 8 representa-
tive direct discharging plants, one has no treatment-in-place. This plant,
which discharges to the Ohio River, currently contract-hauls its dirtiest
waste streams (acid baths) and discharges rinse streams which have been mixed
with cooling water. Among the 15 representative indirect dischargers, only
five have treatment-in-place while 10 have none. Review of discharge flow
data for the nonferrous metals forming waste streams of these plants shows
that the indirect dischargers with treatment generally have larger flows than
the indirect dischargers without treatment. Therefore, even in the absence
of across-the-board pretreatment programs, it appears that municipalities
have tended to require treatment of their largest dischargers.
Finally, it should be noted that plants which already have in place some
of the technology on which the regulatory limits are based may still incur
substantial costs in complying with the regulation, because of the need for
various, types of preliminary treatment, upgrading, etc. For example, of the
12 representative plants with some treatment-in-place, the cost credited to
the treatment in operation averages only 40 percent of the total costs for
Treatment Option 1.
6-12
-------
7. ECONOMIC IMPACT ANALYSIS
This section provides an assessment of the economic impacts which are
likely to occur as a result of the imposition of the costs of the effluent
treatment technologies described in Chapter 6. It is based upon an examina-
tion of the estimated compliance costs and other economic, technical, and
financial characteristics of 105 discharging plants for which compliance cost
estimates and plant revenues are available. The analytical methodology used
is described in Chapter 2. The primary economic impacts discussed include
changes in industry profitability, plant closures, substitution effects,
changes in employment, shifts in imports and exports, and industry structure
e f fects.
7.1 PRICE AND QUANTITY CHANGES
Table 7-1 shows the industry-wide price increases and the resulting
changes in quantity of production for each compliance option estimated from
the pricing model described in Chapter 2. The price increases are generally
small, not exceeding one-quarter of a percent for all product groups except
uranium.i/ Similarly, the production quantity changes are also very small.
The small changes in production costs and quantity demanded suggest that the
major impacts, to the extent they exist, will be intra-industry. That is,
the degree to which the unit compliance costs are unequally distributed
across the industry will determine the extent of the impacts.
U One reason for the high expected price increase for the uranium subcate-
gory is that, since the companies do not own the uranium, the measure of
output submitted in the survey is value added, rather than shipments.
Hence, the price increase is taken relative to a smaller base here than
in the other subcategories.
7-1
-------
TABLE 7-1. ESTIMATED PRODUCT PRICE AND PRODUCTION CHANGES
(in percent)
OPTION 1 OPTION 2 OPTION 3
PRODUCT GROUP dP/P dQ/Q dP/P dQ/Q dP/P dQ/Q
Lead/Tin/Bismuth 0.04 -0.02 0.05 -0.03 0.07 -0.04
Nickel/Cobalt 0.13 -0.07 0.15 -0.08 0.17 -0.09
Zinc 0.21 -0.16 0.23 -0.17 0.23 -0.17
Beryllium 0.09 -0.02 0.10 -0.03 0.10 -0.03
Precious Metals 0.05 -0.03 0.06 -0.03 0.08 -0.04
Powder Metallurgy 0.20 -0.10 0.20 -0.10 0.23 -0.12
Titanium 0.14 -0.07 0.15 -0.08 0.16 -0.08
Refractory Metals 0.10 -0.05 0.12 -0.06 0.13 -0.07
Zirconium/Hafnium 0.07 -0.05 0.07 -0.05 0.08 -0.06
Magnesium 0.12 -0.09 0.12 -0.09 0.12 -0.09
Uranium 2.38 -0.60 2.38 -0.60 2.38 -0.60
dP/P = Change in price.
dQ/Q = Change in quantity of production.
SOURCE: JRB Associates estimates.
7-2
-------
7.2 MAGNITUDE OF COMPLIANCE COSTS
To evaluate the magnitude of the costs of the regulations, the ratios of
annual compliance costs to revenues (ACC/R) and compliance capital investment
to revenues (CCI/R) are calculated for each plant. Tables 7-2 and 7-3 pre-
sent the distribution of the ACC/R and CCI/R ratios, respectively, for the
105 nonferrous metals forming sample discharging plants. These tables indi-
cate that the costs of the proposed regulations seem to be relatively low as
90 plants have annual compliance costs less than 1 percent of revenues and 95
plants have compliance capital investment less than 2 percent of revenues
at Treatment Option 3. Only 5 plants (1 nickel/cobalt, 1 zinc, 1 titanium,
1 refractory metals, and 1 uranium) have annual compliance costs greater than
2 percent of revenues. A detailed impact analysis which determines potential
plant closures and other impacts is presented in the following sections.
7.3 PROFIT IMPACT ANALYSIS
As indicated in Chapter 2, the impact of the regulations on plant profita-
bility is measured by (1) the change in plant ROI, and (2) the plant after-
compliance net present value (NPV).
7.3.1 Changes in Plant ROI
Plant baseline and after-compliance ROI calculations are based on the
algorithm shown in Section 2.5 combined with the key financial and economic
parameters shown in Table 7-4. These parameters represent average industry
ratios. These ratios are imputed to each plant because plant-specific base-
line financial characteristics (e.g., plant profit margin, asset value,
variable, and fixed costs of production) are not available. The differences
in profitability among the various product groups are due primarily to differ-
ent asset turnover (i.e., assets to sales) ratios across product groups.
Appendix A describes the methodology for estimating the baseline values for
the key financial variables. The price elasticity estimates are based on
the qualitative assessment in Chapter 4.
7-3
-------
TABLE 7-2. DISTRIBUTION OF ANNUAL COMPLIANCE COST TO REVENUE RATIOS
AT TREATMENT OPTION 3
NUMBER OF a
NUMBER OF DISCHARGING PLANTS WITH ACC/R
(in percent)
PRODUCT GROUP
DISCHARGERS
0-0.5
0.5-1
1-2
2-5
>5
NA
Lead/Tin/Bismuth
22
12
2
1
7
Nickel/Cobalt
29
17
4
3
1
4
Zinc
2
1
1
Bery11iura
1
1
Precious Metals
24
13
1
10
Powder Metallurgy
21
11
2
3
5
Titanium
13
9
1
1
1
1
Refractory Metals
29
12
3
1
13
Zirconium/Hafnium
1
1
Magnes ium
2
1
1
Uranium
2
1
1
TOTAL
146
78
12
10
4
1
41
a Many plants form more than one nonferrous metal. Each of these plants
is classified in a single nonferrous metals product group that accounts for
most of its total nonferrous metals forming.
NA: Data not available.
SOURCE: JRB Associates estimates.
7-4
-------
TABLE 7-3. DISTRIBUTION OF COMPLIANCE CAPITAL INVESTMENT TO REVENUE RATIOS
AT TREATMENT OPTION 3
NUMBER OF DISCHARGING PLANTS
WITH CCI/R
NUMBER OF a
(in percent)
PRODUCT GROUP
DISCHARGERS
0-1
1-2
2-5
5-10
>10
NA
Lead/Tin/Bismuth
22
12
2
1
7
Nickel/Cobalt
29
20
2
2
1
4
Zinc
2
1
1
Beryl1iura
1
1
Precious Metals
24
13
1
10
Powder Metallurgy
21
15
1
5
T i t an i urn
13
11
1
1
Refractory Metals
29
14
1
1
13
Zirconium/Hafnium
1
1
Magnesium
2
1
1
Uranium
2
1
1
TOTAL
146
89
6
5
2
3
41
a Many plants form more than one nonferrous metal. Each of these plants is
classified in a single nonferrous metals product group that accounts for most
of its total nonferrous metals forming.
NA: Data not available.
SOURCE: JRB Associates estimates.
7-5
-------
TABLE 7-4. BASELINE CHARACTERISTICS OF THE
NONFERROUS METALS FORMING INDUSTRY
PRODUCT GROUP
Lead/Tin/Bismuth
Nickel/Cobalt
Zinc
Beryl 1ium
Precious Metals
Powder Metallurgy
Titanium
Refractory Metals
Zirconium/Hafnium
Magnes ium
Uranium
PRICE
ELASTICITY
-.50
-.50
-.75
-.25
-.50
-.50
-.50
-.50
-.75
-.75
-.25
BEFORE-TAXES
RETURN ON
SALES (%)
4.5
4.0
4.5
4.5
3.7
4.6
4.6
4.5
4.5
4.5
4.5
RATIO OF ASSETS TO
VARIABLE COST REVENUES
TO TOTAL COST RATIO
.80
.80
.80
.80
.80
.80
.80
.80
.80
.80
.80
0.56
0.50
0.56
0.56
0.46
0.58
0.57
0.56
0.56
0.56
0.56
SOURCE: JRB Associates estimates (see Appendix A).
7-6
-------
Table 7-5 presents the distribution of changes in plant ROI as a result
of the proposed regulations. The regulations seem to affect the nickel/cobalt
forming plants most, as 4 plants have ROI reductions greater than 2 percent
at Treatment Option 3.
7.3.2 Plant After-Compliance Net Present Value
The impact of the proposed regulations on plant profitability is measured
by the plant after-compliance net present value (NPV) as described in Section
2.5. The plant NPV represents the difference between the present value of the
projected cash flows from operating the plant and the liquidation value of the
plant. A negative NPV indicates that the plant is not earning its cost of
capital and, consequently, can be considered a potential closure.
Table 7-6 summarizes the results of the NPV analysis and shows that 4
plants (1 nickel/cobalt, 1 zinc, 1 titanium and 1 refractory metal) have a
negative NPV at all treatment options.
7.4 CAPITAL REQUIREMENT ANALYSIS
As presented in Chapter 2, the "fixed charge coverage" ratio is used to
evaluate a firm's ability to raise the capital necessary to install the pro-
posed pollution control systems. The "fixed charge coverage" ratio is defined
as the ratio of earnings before interest and taxes to all fixed charge obliga-
tions (i.e., interest payments). This ratio is often used by lenders to
evaluate firms' ability to incur additional debt. In this analysis, the ratio
is applied to individual plants. Firms or plants with fixed charge coverage
ratios greater than 2 are generally considered solvent and will not encounter
unusual difficulty obtaining additional loans. Table 7-7 presents the results
of the capital availability analysis. At Treatment Option 3, 10 plants have
fixed charge coverage ratios less than 2. These plants include all 4 plants
that have negative after-compliance NPV's.
7-7
-------
TABLE 7-5. DISTRIBUTION OF CHANGE IN ROI AT TREATMENT OPTION 3
NUMBER OF a
NUMBER OF DISCHARGING PLANTS WITH ROI REDUCTION
(in percent)
PRODUCT GROUP
DISCHARGERS
<1
1-2
2-3
3-4
>4
NA
Lead/Tin/B ismuth
22
12
2
1
7
Nickel/Cobalt
29
17
4
2
1
1
4
Zinc
2
1
1
Beryl 1ium
1
1
Precious Metals
24
12
1
1
10
Powder Metallurgy
21
12
2
1
1
5
Titanium
13
10
1
1
1
Refractory Metals
29
13
2
1
13
Zirconium/Hafnium
1
1
Magnes ium
2
1
1
Uran ium
2
1
1
TOTAL
146
81
12
5
3
4
41
a Many plants form more Chan one nonferrous metal. Each of these plants is
classified in a single nonferrous metal product group that accounts for most of
its total nonferrous metals forming.
NA: Data not available.
SOURCE: JRB Associates estimates.
7-8
-------
TABLE 7-6. SUMMARY OF NET PRESENT VALUE ANALYSIS
NUMBER OF NUMBER OF PLANTS WITH NPV <0
DISCHARGING
PRODUCT GROUP PLANTS a OPTION 1 OPTION. .2 OPTION 3
Lead/Tin/Bismuth
22
0
0
0
Nickel/Cobalt
29
1
1
1
Zinc
2
1
1
1
Beryl 1ium
1
0
0
0
Precious Metals
24
0
0
0
Powder Metallurgy
21
0
0
0
Titanium
13
1
1
1
Refractory Metals
29
1
1
1
Zirconium/Hafnium
1
0
0
0
Magnes ium
2
0
0
0
Uranium
2
0
0
0
TOTAL
146
4
4
4
a Many plants form more than one nonferrous metal. Each of these plants
is classified in a single nonferrous metal product group that accounts for most
of its total nonferrous metals forming.
SOURCE: JRB Associates estimates.
7-9
-------
TABLE 7-7. SUMMARY OF CAPITAL REQUIREMENT ANALYSIS
NUMBER OF
DISCHARGING
PRODUCT GROUP PLANTS a
Lead/Tin/Bismuth 22
Nickel/Cobalt 29
Zinc 2
Beryllium 1
Precious Metals 24
Powder Metallurgy 21
Titanium 13
Refractory Metals 29
Zirconium/Hafnium 1
Magnesium 2
Uranium 2
TOTAL 146
NUMBER OF PLANTS WITH FCC* RATIO <2
OPTION 1 OPTION 2 OPTION 3
1 1 1
3 3 3
1 1 1
0 0 0
0 0 1
1 1 1
1 1 1
1 1 1
0 0 0
1 1 1
0 0 0
9 9 10
a Many plants form more than one nonferrous metal. Each of these plants
is classified in a single nonferrous metal product group that accounts for most
of its total nonferrous metals forming.
* FCC = Fixed charge coverage ratio.
SOURCE: JRB Associates estimates.
7-10
-------
7.5 PLANT CLOSURE ANALYSIS
While financial parameters are Che main determinants of plant clqsures,
nonfinancial factors are also important and may influence the decision
process. Some of these nonfinancial factors are market growth potential,
contribution to total firm's product line, diversification, integration,
intra-industry competition, and substitution potential for the products.
Very often, these nonfinancial factors cannot be quantified. Therefore, the
plant closure decision, like most investment decisions, ultimately involves
managerial judgment.
In this analysis, the relevant investment decision factors are combined
in a summary table to model the investment decision-making process, thereby
facilitating estimates of plant closures. This information is shown in
Table 7-8 for the 10 potentially impacted nonferrous metals forming plants in
the sample identified in the above profit impact and capital requirements
analyses. The table shows that 4 plants (all indirect dischargers.and with
negative NPVs) are projected to have high probability of closure at each
treatment option.
Table 7-9 summarizes the results of the plant closure analysis. Other
impacts of the regulations such as employment, community, and regional effects,
substitution effects, foreign trade impacts, and industry structure effects
are examined in Section 7.6.
7.6 OTHER IMPACTS
7.6.1 Employment, Community, and Regional Effects
As shown in Table 7-9, there is judged to be a potential for 4 plant
closures at each of the three treatment options, involving a loss of about 340
jobs. The plants projected to close are located in large metropoIitan/indus-
trial areas and do not account for a significant portion of community employ-
ment; hence there are no significant community or regional impacts likely.
7-11
-------
TABLE 7-8. SUMMARY OF PLANT CLOSURE ANALYSIS
AFTER-
ANNUAL
PLANT
COMPLIANCE
POTENTIAL
METAL(S)
PRODUCTION
DIVERSIFICATION/
TREATMENT
ACC/R
NPV
CCI/R
*FCC
FOR
PLANT
PRODUCED
(mil/lbs)
INTEGRATION
OPTION
(%)
($000)
(%)
RATIO
CLOSURE
Plant A
Nickel
1-3
Moderate
1
1.7
-108
2.9
1.7
High
2
1.9
-180
3.5
1.6
High
3
2.0
-215
3.7
1 .6
High
Plant B
Titanium
<1
Low
1
9.2
-418
15.0
-0.1
High
Nickel
<1
2
10.2
-467
18.3
-0.2
High
3
10.7
-493
19.4
-0.2
High
Plant C
Refractory
<1
Low
1
3.3
-253
5.5
1.3
High
N icke1
o
V
2
3.7
-322
6.7
1.2
High
3
4.0
-459
7.3
1.2
High
Plant D
Zinc
1-3
Low
1
3.4
-35
6.9
1.3
High
2
3.5
-38
7.0
1.3
High
3
4.1
-55
8.0
1.2
High
Plant E
Nicke1
<0.1
High. NFF pro-
1
0.9
23
20.1
1.6
Low
duction accounts
2
0.9
33
o
CM
1.6
Low
for 1% of total
3
1.0
32
21.6
1.6
Low
plant revenues
Plant F
Powde r
1-3
Low
1
1.6
116
4.1
1.8
Low
Metallurgy
2
1.6
116
4.1
1.8
Low
3
1.7
110
4.2
1.8
Low
Plant G
Magnes ium
<1
Low
1
1.4
83
2.1
1.9
Low
2
1.4
83
2.1
1.9
Low
3
1.4
83
2.1
1.9
Low
SOURCE: JRB Associates estimates.
-------
TABLE 7-8. SUMMARY OF PLANT CLOSURE ANALYSIS (Continued)
AFTER-
ANNUAL
PLANT
COMPLIANCE
POTENTIAL
METAJL(S)
PRODUCTION
DIVERSIFICATION/
TREATMENT
ACC/R
NPV
CCI/R
FCC
FOR
PLANT
PRODUCED
(mil/lbs)
INTEGRATION
OPTION
(%3
(§000)
{%>
RATIO
CLOSURE
Plant H
Lead
1-3
High. NFF pro-
1
0.4
59
8.8
1.9
Low
duction accounts
2
0.4
59
8.8
1.9
Low
for IX of total
3
1.8
26
11.6
1.6
Low
revenues
Plant I
Nickel
<1
Moderate
1
1.0
35
0-i.
2.0
Low
2
1.4
7
1.1
1.9
Low
3
1.4
2
1.1
1.9
Low
Plant J
Prec ious
<1
Low
(
0.8
19
1.1
2.0
Low
Metals
2
0.9
55
1.6
2.0
Low
3
1.0
7
1.7
1.9
Low
SOURCE: JRB Associates estimates.
-------
TABLE 7-9. SUMMARY OF POTENTIAL CLOSURES
(all treatment options)
Number of Plants
Number of Closures
Employment Losses
Annual Production of
Closed Facilities
- Million lbs.
- % of Industry Total
DIRECT
DISCHARGERS
39a
0
0
INDIRECT
DISCHARGERS
114a
4
340
6.3
0.9
a Includes 7 plants which discharge both directly and indirectly.
SOURCE: JRB Associates estimates.
7-14
-------
The industry price increases due to the regulations would result in less
than one percent reduction in the quantity of nonferrous metals forming
products demanded (see Table 7-1). Such small quantity reductions would
have minor effects on plant employment levels.
7.6.2 Substitution Effects
The price increases due to regulatory compliance costs will frequently
lead to substitution by other products and materials which, in turn, results
in a decrease in the quantity of product demanded.
However, the compliance costs of the regulations for the nonferrous
metals forming industry are relatively small, and the price increases due to
compliance are projected to be less than one-quarter of 1 percent for all
subcategories except uranium. As shown in Table 7-1, such low price increases
will result in less than 1 percent reduction in quantity demanded. Thus, the
regulations will cause insignificant shifts to the use of other materials.
7.6.3 Foreign Trade Impacts
As shown in Table 7-1, the price increases estimated to result from the
regulations are quite small, amounting to fractions of a percent for all pro-
duct groups but uranium. The regulations would raise the prices of uranium
products by approximately 2.5 percent; however, the primary application of
uranium is for armor-piercing shells for which demand is presumably very
price inelastic. Thus, the proposed regulations are expected to have very
little impact on foreign trade.patterns.
7.6.4 Industry Structure Effects
As shown in Table 7-8, the 4 potential closures each have less than 3
million pounds annual production. Total production of these plants accounts
for less than 1 percent of industry output; their closures, therefore, are
not expected to significantly change the industry structure.
7-15
-------
7.7 NEW SOURCE IMPACTS
The proposed effluent standards and associated technologies for new
sources are identical to those for existing sources. It is believed that
compliance costs could be lower for new sources than for the corresponding
options for existing sources because there would be no costs associated with
retrofitting the in-process controls. Since the new source limitations would
not create an additional cost for prospective new plants or major modifica-
tions, the proposed regulations would not cause barriers to entry.
7-16
-------
8. SMALL BUSINESS ANALYSIS
The Regulatory Flexibility Act (RFA) of 1980 (P.L. 96-354), which amends
the Administrative Procedures Act, requires Federal regulatory agencies to
consider "small entities" throughout the regulatory process. The RFA requires
an initial screening analysis to be performed to determine if a substantial
number of small entities will be significantly impacted. If so, regulatory
alternatives that eliminate or mitigate the impacts must be considered. This
analysis addresses these objectives by identifying and evaluating the economic
impacts of these regulations on small nonferrous metals forming plants. As
described in Chapter 2, the small business analysis is developed as an integral
part of the general economic impact analysis and is based on the examination
of the distribution by plant size of the number of nonferrous metals forming
plants, plant revenues, wastewater volumes, compliance costs, and potential
closures from the regulations.
As explained in Section 2.11, rather than define small business in terms
of firm total employment (i.e., the SBA definition), "small business" is
defined more appropriately for the present analysis in terms of plant size,
with size measured by rate of production. Several plant-size definitions
based on plant annual production of nonferrous metals forming products were
considered as alternative definitions:
Plants
with
less
than
500,000 pounds in
produc t ion
Plants
with
less
than
1 million pounds
in production
Plants
with
less
than
2 million pounds
in production
Plants
with
less
than
3 million pounds
in production
Plants
with
less
than
5 million pounds
in production
Plants
with
less
than
10 million pounds
in production.
8-1
-------
Table 8-1 shows the distribution of 190 nonferrous metal forming sample
plants with production data (including nondischarging plants) by size cate-
gories as well as the distribution of potential plant closures due to regula-
tions. This table indicates that the majority of the plants in the nonferrous
metals forming industry are small plants with less than 1 million pounds in
annual production. A total of 4 plants are projected to close at each treat-
ment option. Two of these plants have production less than 1 million pounds
annually and the other two have 2-3 million pounds of production annually.
Table 8-2 presents the distribution of plant production and compliance
costs by plant size. This table shows that annual compliance costs per unit
of production for plants with less than 1 million pounds of annual production
are substantially higher than those of larger plants.
8-2
-------
TABLE 8-1. DISTRIBUTION OF NONFERROUS METALS FORMING PLANTS BY PRODUCTION VOLUME
TOTAL
NUMBER
OF SAMPLE PLANTS WITH NFF* PRODUCTION
NUMBER OF
(in mil
ion pounds)
SAMPLE
PLANTS
<0.5
0.5-1
1-2 *
' 2-3
3-5
5-10
>10
Lead/Tin/Bismuth
Total
34
7
4
3
3
3
8
6
Dischargers
15
3
1
2
0
2
4
3
Nondischargers
19
4
3
1
3
1
4
3
Potential Closures
0
0
0
0
0
0
0
0
Nickel/Cobalt
- Total
38
19
5
4
4
2
0
4
Dischargers
24
11
4
2
3
0
0
4
Nondischargers
14
8
1
2
1
2
0
0
Potential Closures
1
0
0
0
1
0
0
0
Zinc
Total
5
1
0
1
1
0
1
1
Dischargers
2
0
0
0
1
0
0
1
Nondischargers
3
1
0
1
0
0
1
0
Potential Closures
1
0
0
0
1
0
0
0
Beryl1ium
- Total
1
1
0
0
0
0
0
0
Dischargers
1
1
0
0
0
0
0
0
Nondischargers
0
0
0
0
0
0
0
0
Potential Closures
0
0
0
0
0
0
0
0
Precious Metals
Total
20
17
1
1
1
0
0
0
Dischargers
14
11
1
1
1
0
0
0
Nondischargers
6
6
0
0
0
0
0
0
Potential Closures
0
0
0
0
0
0
0
0
Powder Metallurgy
- Total
38
12
5
5
3
3
3
7
Dischargers
16
3
3
4
1
2
1
2
Nondischargers
22
9
2
1
2
1
2
5
Potential Closures
0
0
0
0
0
0
0
0
Titanium
Total
19
9
2
3
0
2
1
2
Dischargers
11
3
1
3
0
1
1
2
- Nondischargers
8
6
1
0
0
1
0
0
Potential Closures
1
0
1
0
0
0
0
0
* Nonferrous metals forming.
8-3
-------
TABLE 8-1. DISTRIBUTION OF NONFERROUS METALS FORMING PLANTS BY PRODUCTION VOLUME
(Continued)
TOTAL
NUMBER
OF SAMPLE PLANTS WITH NFF* PRODUCTION
NUMBER OF
(in mil
.ion pounds)
SAMPLE
PLANTS
<0.5
0.5-1
1-2
2-3
3-5
. 5-10
>10
Refractory Metals
Total
26
21
0
3
0
1
1
0
Dischargers
17
13
0
2
0
1
1
0
Nondischargers
9
8
0
1
0
0
0
0
Potential Closures
1
1
0
0
0
0
0
0
Zirconium/Hafnium
- Total
2
0
2
0
0
0
0
0
Dischargers
1
0
1
0
0
0
0
0
Nondischargers
1
0
1
0
0
0
0
0
Potential Closures
0
0
0
0
0
0
0
0
Magnes iura
Total
6
3
0
0
0
1
1
1
Dischargers
2
2
0
0
0
0
0
0
Nondischargers
4
1
0
0
0
1
1
1
Potential Closures
0
0
0
0
0
0
0
0
Uranium
- Total
1
0
0
0
0
0
1
0
Dischargers
1
0
0
0
0
0
1
0
Nondischargers
0
0
0
0
0
0
0
0
Potential Closures
0
0
0
0
0
0
0
0
Total Industry
- Total
190
90
19
20
12
12
16
21
Dischargers
104
47
11
14
6
6
8
12
Nondischargers
86
43
8
6
6
6
8
9
Potential Closures
4
1
1
0
2
0
0
0
* Nonferrous metals forming.
SOURCE: EPA Industry Survey
8-4
-------
TABLE 8-2. DISTRIBUTION OF COMPLIANCE COSTS BY PRODUCTION VOLUME
SAMPLE PLANTS WITH ANNUAL NFF* PRODUCTION
(in million pounds)
Direct Dischargers
Number of Plants
Production - 10^ x lbs
Potential Closures
Number
Employment
Production - 10^ x lbs
Treatment Option 1
Investment - $000
Annual - $000
- «!/lb
Treatment Option 2
Investment - $000
Annual - $000
- i! lb
Treatment Option 3
Investment - $000
Annual - $000
- 5_
8
166.3
0
0
0
1,533.2
854.6
0.5
1,591.9
864.7
0.5
1,721.3
946.3
0.6
* Nonferrous metals forming.
8-5
-------
TABLE 8-2. DISTRIBUTION OF COMPLIANCE COSTS BY PRODUCTION VOLUME
(Continued)
SAMPLE PLANTS WITH ANNUAL NFF* PRODUCTION
(in million pounds)
Indirect Dischargers
Number of Plants
Production - 10^ x lbs
Potential Closures
Number
Employment
Production - 10^ lbs
Treatment Option 1
Investment - $000
Annual - $000
- «!/lb
Treatment Option 2
Investment - $000
Annual - $000
- illb
Treatment Option 3
Investment - $000
Annual - $000
- «!/lb
<0.5
34
4.3
1
a
a
770.0
528.7
12.4
1,029.6
623.4
14.6
1,122.0
672.2
15.7
0.5-1
9
6.1
579 .4
367.5
6.0
884.1
455.4
7.4
968.3
496.2
8.1
1-2
10
14.6
0
0
0
451.3
573.9
3.9
474.4
602.8
4.1
786.6
732.8
5.0
2-3
4
9.4
2
a
5.4
698.9
356.1
3.8
798.9
383.7
4.1
848.1
410.3
4.4
3-5
4
16.0
0
0
0
82.4
109.5
0.7
92.7
112.7
0.7
110.3
124.4
0.8
>5
11
208.8
0
0
0
1,259.2
376.2
0.2
1,303.1
387.4
0.2
1,494.6
469.5
0.2
* Nonferrous metals forming.
a Withheld to avoid disclosure of confidential data.
SOURCE: EPA Industry Survey.
8-6
-------
9. LIMITATIONS OF THE ANALYSIS
This section discusses the major limitations of the economic impact
analysis. It focuses on the limitations of the data, methodology, assumptions,
and estimations made in this report.
9.1 DATA LIMITATIONS
The accuracy of the conclusions of this report depends largely on the
accuracy of the data used in the analyses, especially that of the estimated
compliance costs, and plant financial and economic characteristics.
One important limitation to this study results from the fact that
engineering cost estimates were developed for only 23 representative plants.
These engineering cost estimates were the basis for extrapolating the costs
to the remaining plants in the industry, as explained in Section 6.4. It is
likely that the extrapolated costs are less accurate than the engineering
estimates, since less information was taken into consideration regarding the
specific waste streams needing treatment and the extent of treatment-in-place.
Further analysis of compliance costs is therefore planned.
In the absence of a detailed financial survey for the nonferrous metals
forming industry, a financial profile of the nonferrous metals forming indus-
try was developed based on extensive review of trade literature and published
financial reports. This financial profile is subject to the following major
assumptions and limitations:
Lacking plant-specific operating ratios such as profit
margin, assets value, fixed and variable costs of pro-
duction industry average estimates were applied to the
plants. The methodology for estimating these financial
variables are explained in Appendix A.
9-1
-------
Only a single year's plant production and value of ship-
ments data (1981) were collected in the EPA industry survey.
Multiple years production data would have enabled a more
in-depth analysis, encompassing the cyclical nature of the
industry. However, the 1981 period was neither a peak nor
a trough for the industry and the general economy and is,
therefore, considered to be representative of average con-
ditions in the industry over the long run.
9.2 METHODOLOGY LIMITATIONS
In addition to the data limitations described above, this study is also
subject to limitations of the methodology used. These limitations are related
to critical assumptions on price increase, profit impact, and capital avail-
ability.
9.2.1 Price Increase Assumptions
Because the nonferrous metals forming industry exhibits characteristics
of both competitive and noncompetitive market behavior, it is assumed that
the industry's pricing behavior will follow a strategy that will maintain the
industry-wide initial return on sales. This assumption appears to be fairly
reasonable since the demand for nonferrous metals forming products is rela-
tively inelastic with respect to price.
9.2.2 Profit Impact Assumptions
The basic measure of profit impact used in this study is the after-compli-
ance net present value. Due to the difficulty and uncertainties of forecasting
the fluctuation in annual cash flows, it is assumed that annual cash flows
remain constant over the period of the analysis. The rationale for this
assumption is that while cash flows vary from year to year, they would tend
to average around a normal level over a period of time. The assumption of
constant cash flow is believed to have little effect on the accuracy of the
analys is.
9-2
-------
Another limitation relates to the ability of the profit impact methodology
to assess the combined effects of the business cycle and the timing of the
effective date of the regulation. As previously mentioned, portions of the
study rely on inferences from only one or a few years of data. Where this
occurred, care was taken to insure that any point estimate was not taken for
an extreme year, such as a trough of a recession or a peak of an expansion.
The 1981 time period was neither a peak nor a trough for the industry or the
general economy, and is, therefore, considered to be representative of average
conditions in the industry over a long period of time.
9.2.3 Capital Availability Assumptions
The capital investment requirements analysis was assessed through an
evaluation of the "fixed charge coverage" ratio. Although this technique
does not provide a precise conclusion on a firm's ability to make the invest-
ment, it does provide a good indication of the relative burden of the require-
ment .
9.3 SUMMARY OF LIMITATIONS
Although the above factors may affect the quantitative accuracy of the
impact assessments on specific nonferrous metals forming plants , it is believed
that the results of this study represent a valid industry-wide assessment of the
economic impacts likely to be associated with effluent guideline control costs.
For the purpose of this study, the focus of the analysis is on the impacts
of the regulations on the nonferrous metals forming operations of a plant. As
a result, when a plant includes manufacturing^activities other than nonferrous
metals forming, only the nonferrous metals forming operations of that plant were
evaluated. That is, the economic impact analysis is focused on the compliance
costs and revenues of the nonferrous metals forming operations of the plant.
9-3
-------
APPENDIX A
ESTIMATION OF PLANT ASSET VALUE, BASELINE RETURN
ON SALES, AND COST OF CAPITAL
-------
APPENDIX A
ESTIMATION OF PLANT ASSET VALUE, BASELINE
RETURN ON SALES AND COST OF CAPITAL
This appendix described the methodology for estimating three critical
financial parameters of the economic impact analysis. These parameters are:
Plant asset value
Plant baseline return on sales, and
Industry cost of capital (i.e., discount rate).
Data for the above estimations are obtained from the 1977 Census of Manufac-
tures, the Federal Trade Commission's Quarterly Financial Report for Manufac-
turing, Mining and Trade Corporations, and various corporate annual reports.
A.1 ESTIMATION OF PLANT ASSET VALUE
Plant assets are defined in this study as plant property and equiment net
of depreciation, plus inventories and other current assets (i.e., cash, short-
term investments, receivables, etc.). The individual plant asset values are
estimated based on asset to value of shipment (A/VS) ratios calculated for
each nonferrous metals forming group as follows:
GBFA - DEP
INV OCA
A/VS
+
VS
VS VS
GBFA
VS
+
INV OCA
VS~ VS~
GBFA VA
x x i
VA VS
+
INV OCA
VS VS
A-l
-------
where:
GBFA/VA = Gross book value of fixed assets to value added ratio
VA/VS - Value added to value of shipment ratio
DEP/GBFA = Accumulated depreciation to gross book value of fixed
assets ratio
INV/VS = Inventories to value of shipments ratio
OCA/VS = Other current assets to value of shipment ratio.
Table A-l presents the steps and assumptions for estimating the nonferrous
metals forming plant asset values.
As indicated in Section 2.5, the assessment of potential for plant closure
is based on the comparison of the present value of the plant's projected annual
cash flows and its liquidation value. Table A-2 summarizes the estimation of
the liquidation value of plant assets for each nonferrous metals forming group.
Plant liquidation value is estimated to vary from 68 percent of book value for
the metal powders group to 76 percent of book value for the precious metals
forming group, respectively. These estimates are based on the following
assumpt ions:
Liquidation value of inventories is 85 percent of book
value,
Liquidation value of other current assets (i.e., cash,
short-term securities, and receivables) is 90 percent
of book value, and
Salvage value of fixed assets is zero, however, assuming
a 40 percent corporate tax rate, the liquidation value of
fixed assets will be 40 percent of book value as the result
of tax-writeoff benefit.
A.2 ESTIMATION OF BASELINE RETURN ON SALES
In the absence of plant-specific data, industry average baseline profit
margins (PM^) are estimated for each nonferrous metals forming group. A
-------
TABLE A-l. ESTIMATION OF PLANT ASSETS VALUE
PRODUCT GROUP
a/
GBFA/VA
b /
VA/VS
c/
DEP/GBFA
d/
INV/VS
e/
OCA/VS
f/
A/VS
(1)
(2)
(3)
(4)
(5)
(6)
Nickel Forming
(SIC 33561)
1.25
0.21
0.41
0.18
0.17
0.50
Titanium Forming
(SIC 33562)
1.25
0.30
0.41
0.18
0.17
0.57
Precious Metals Forming
(SIC 33563)
1.25
0.15
0.41
0.18
0.17
0.46
Other Nonferrous Metals
Forming (SIC 33569)
1.25
0.28
0.41
0.18
0.17
0.56
Metal Powders
(SIC 33991)
1.17
0.34
0.41
0.18
0.17
0.58
a/ 1977 4-digit SIC gross book value of fixed assets to value added ratio.
(SOURCE: 1977 Census of Manufactures.)
b/ 1977 5-digit SIC value added to value of shipment ratio. (SOURCE: 1977
Census of Manufactures.)
c/ 1982 accumulated asset depreciation to gross book value of fixed assets
ratio of Nonferrous Metals industry. (SOURCE: Federal Trade Commission,
Quarterly Financial Report.)
dy 1977 4-digit SIC inventories to value of shipments. (SOURCE: 1977 Census
Manufactures.)
e/ 1982 other current assets to sales ratio of Nonferrous Metals industry.
(SOURCE: Federal Trade Commission, Quarterly Financial Report.)
tj Equals [(1) x (2)] x [1 - (3)] + (4) + (5).
SOURCE: JRB Associates estimates.
-------
TABLE A-2. ESTIMATION OF SALVAGE VALUE OF PLANT ASSETS
BOOK VALUE OF ASSETS
(% OF TOTAL ASSETS)
SALVAGE VALUE OF ASSETS (% OF
BOOK VALUE OF TOTAL ASSETS)
PRODUCT GROUP
aj
INVENTORIES
b/
CURRENT
ASSETS
c/
FIXED
ASSETS
INVENTORIES
. e/
CURRENT
ASSETS
f/
FIXED
ASSETS
TOTAL
Nickel Forming
36
34
30
31
31
12
74
Titanium Forming
31
30
. 39
26
27
16
69
Precious Metals
Forming
39
37
24
33
33
10
76
Other Nonferrous
Metals Forming
32
31
37
27
28
15
70
Metal Powders
31
29
40
26
26
16
68
a/ Equal to INV/VS * A/VS (estimated in Table A-l).
_b/ Equal to OCA/VS t A/VS (estimated in Table A-l).
c/ Equal to GVFA/VA x VA/VS x (1 - DEP/GBFA) t A/VS (estimated in Table A-l).
&/ Salvage value of inventories is estimated to be 85 percent of book, value.
e/ Salvage value of other current assets is estimated to be 90 percent of book,
value.
Jj Liquidation value of fixed assets is assumed to be 40 percent of book value.
SOURCE: JRB Associates estimates.
A-4
-------
impact analysis estimated the baseline before-tax return on assets (ROI) of
the nonferrous metals forming industry to be approximately 8 percent._!/ In
addition, the Federal Trade Commission's Quarterly Financial Report for Manu-
facturing, Mining, and Trade Corporations also reported that before-tax ROI
in the nonferrous metals forming industry averaged about 8 percent during 1978-
1982. Finally, annual reports of over 50 nonferrous metals formers were
reviewed. Most of these companies are highly diversified and their nonferrous
metals forming operations represent a relatively small portion of their total
business; however, 15 companies report financial data on their nonferrous
metals forming lines of business. Table A-3 lists the before-taxes ROIs of
the nonferrous metals forming line of business for these 15 companies for the
period 1978-1982. The mean ROI for these companies during that period range
from 3.7 percent in 1982 to 16.4 percent in 1980, averaging 12 percent over
the five-year period. The 1978-1982 average ROI is believed to represent the
industry's future normal profit level because it includes periods of both
industry expansion and slowdown.
For the purpose of this analysis, it is assumed that the nonferrous metals
forming industry baseline ROI would average 8 percent. This is believed to
represent a conservative estimate. Based on asset-turnover ratios estimated
in Table A-l, the industry baseline return on sales PM^ is estimated to range
from 3.7 percent for the precious metals forming plants to 4.6 percent for
the metal powder plants, respectively. Table A-4 summarizes the baseline
return on sales estimated for the nonferrous metals forming groups.
A.3 ESTIMATION OF INDUSTRY COST OF CAPITAL
As described in Section 2.5, the discount rate for present value calcula-
tions is defined as the weighted average of cost of equity and cost of debt,
that is:
(ixD)+(exE)
k =
D + E
U EPA, Economic Impact Analysis of Effluent Limitations Guidelines and
Standards for the Aluminum Forming Industry, September 1983.
A-5
-------
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
TABLE A-3. ESTIMATION OF NONFERROUS METALS FORMING
BASELINE RETURN ON ASSETS
COMPANY
BEFORE-TAXES RETURN ON ASSETS (in
1982
1981
1980
Allegheny International
Amax, Inc.
Amsted Industries
Cabot Corp.
Carlisle Corp.
Curtiss-Wright Corp.
Driver-Harris Co.
Engelhard Corp.
Federal-Mogul Corp.
Handy & Harman
Inco
Kennametal
Olin Corp.
H.K. Porter Co., Inc.
Quanex
AVERAGE
2.3
(13.2)
13.4
(3.4)
16.2
3.9
(0.8)
5.0
13.5
4.3
(8.0)
15.2
13.6
13.4
(20.1)
3.7
14.1
4.4
22.7
2.9
38.4
7.6
(5.4)
9.7
16.6
12.3
(1.3)
17.2
14.6
20.2
20.3
13.0
13.7
15.7
23.9
12.6
36.8
18.6
(1.9)
12.0
18.2
13.6
8.1
23.8
8.8
27.5
14.3
16.4
A-6
-------
TABLE A-4. ESTIMATION OF NONFERROUS METALS
FORMING BASELINE RETURN ON SALES
PRODUCT GROUP
Nickel Forming
Titanium Forming
Precious Metals Forming
Other Nonferrous Metals
Forming
BASELINE
ROI (%)
8.0
8.0
8.0
8.0
ASSET
TURNOVER
RATIO
0.50
0.57
0.46
0.56
BASELINE
PMx (%)
4.0
4.6
3.7.
4.5
Powder Metallurgy
8.0
0.58
4.6
SOURCE: JRB Associates estimates.
A-7
-------
where:
k = Discount rate
i = Interest rate of debt capital
*
e = Cost of equity capital
D = Debt capital
E = Equity capital.
Interest rates on commercial loans are generally 1 to 2 percentage points
above prime interest rates (i.e., interest rates that banks usually charge
their best, most credit-worthy customers). Data Resources, Inc. forecasted
that prime rates between 1985 and 1995 would average about 10.5 percent..2/
Assuming a premium of 1.5 percent, it is projected that interest rates on
debt would average about 12 percent over that period of time.
For this study, cost of equity is defined as the rate of return on a risk-
free investment such as the U.S. Treasury Bond plus a risk premium factor. DRI
forecasts show that 10-year U.S. Treasury Bond yields would average about 9
percent over the 1985-1995 time period.2/ In the financial literature, the
long-run normal risk premium on stock investment is estimated to be 5 percent.it/
As the result, the cost of equity is expected to average around 14 percent.
Finally, the Federal Trade Commission's Quarterly Financial Report indi-
cates that book values of debt and equity in the nonferrous metals forming
industry each average approximately 50 percent of total capital during 1978-
1982. As indicated in Table A-2, the salvage values of assets average approxi-
mately 70 percent of book value. Since debt is due in full at liquidation of
the plant, it actually represents about 71 percent of the plant liquidation
value (50 * 70 = 0.71), and equity accounts for 29 percent. Thus, the c^st
of capital of the nonferrous metals forming industry is estimated to be 12.6
percent ([12 x 0.71] + [14 x 0.29]).
U Data Resources, Inc., U.S. Long-term Review, Winter 1982-1983.
1! Ibid.
it/ Alfred Rappaport, "Strategic Analysis for More Profitable Acquisitions,"
Harvard Business Review, July-August 1979.
A-8
------- |