Unitad Stataa Offtea of Watar EPA 140/2 33-017
Enironmaiol Proncuon RtguMomtfld Somdwdl January 1984
AfMicy Wahin^toA, DC 20440
Oaf
Economic Impact Analysis
of Proposed Amendment
to Effluent Limitations
and Standards for the
Fertilizer Manufacturing
Industry
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£
a.
QUANTITY
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Cevelopment Planning and Research Associates, Inc.
200 Research Orive, P.O. Box 727, Manhattan, KS 66502
Economic Analysis of the
Phosphate Subcategory of the
Fertilizer Manufacturing
Industry
Louisiana Phosphoric Acid Plants
Prepared for
U.S. Environmental Protection Agency
Office of Analysis and Evaluation
Washington, D.C. 20460
Contract Number
68-01-6744
P-577
February 1984
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PREFACE
'his document is a contractor's study prepared for the Office of Analysis
and Evaluation of the Environmental Protection Agency (EPA). The purpose
of the study is to analyze the economic impacts which could result from
point source remedial control options considered for four phosphoric acid
manufacturers located in Louisiana. The remedial control options were
considered when these four phosphoric acid plants experienced difficulties
greater than anticipated by EPA and the companies when BPT and BAT discharge
limitations were promulgated in 1974.
Presented in the study are the investment and operating costs associated
with the various remedial control options which were developed
independently. These cost estimates are supplemented by estimates of the
broader economic effects which may result from the various remedial control
options considered. The study estimates the impacts on product prices,
product availability, employment and the continued viability of the
affected plants for each of the remedial control options.
The study has been prepared with the supervision and review of the Office
of Analysis and Evaluation of EPA. The work was completed under Contract
No. 68-01-6744 by Development Planning and Research Associates, Inc.
(DPRA). The report was prepared by Donald J. Wissman, Craig E. Simons and
Robert J. Buzenberg of DPRA and completed in February, 1984.
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CONTENTS
Page
LIST OF TABLES iii
LIST OF FIGURES vi
EXECUTIVE SUMMARY 1
INTRODUCTION 1-1
A. Background 1-1
B. Scope of the Report 1-2
C. General Approach 1-2
II. INDUSTRY DESCRIPTION II-l
A. Industrial Process Description, Raw Materials,
and Final Products 11-1
B. Industry Structure 11-4
1. Location and Size of Plants 11-4
2. Level of Utilization II-6
C. Financial Characterization of the Industry 11-10
1. Revenues and Costs 11-11
2. Industrial Profitability 11-11
3. Financial Structure of the Industry 11-12
III. PRODUCTION, CONSUMPTION, AND PRICING OF PHOSPHATE
PRODUCTS I II-l
A. Production of Phosphate Fertilizer Products III-l
B. Consumption of Phosphate Fertilizer Products II1-3
C. International Trade and Competition 111-3
D. Phosphate Product Prices 111-7
IV. THE LOUISIANA PLANTS IV-1
A. Product Lines and Capacities IV-1
1. Phosphoric Acid IV-1
2. Sulfuric Acid IV-2
3. Ammonium Phosphates IV-2
4. Other Products IV-3
B. Phosphoric Acid Operational Characteristics IV-3
C. Sales, Cost, and Income Characteristics IV-3
V. THE REMEDIAL CONTROL OPTIONS V-l
A. Suirmary of Remedial Option Costs V-l
VI. PROJECTEO ECONOMIC IMPACTS VI-1
A. Price Effects VI-1
1. The Price Increase Required by the Remedial
Options to Maintain Profitability at the
Baseline Conditions VI-1
2. Expected Price Increases VI-9
B. Financial Effects VI-10
C. Production Effects VI-10
1. Direct Effects — Employment VI-10
2. Industry Effects VI-16
REFERENCES
APPENDIX A: Phosphoric Acid Plants Closing Since 1976
i i
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LIST OF TABLES
Page
rable
11-1. Wet-process phosphoric acid plant location
and capacity, 1983 11-5
11-2. Concentrated superphosphate plant location
and capacity, 1983 11-7
11-3. Ammonium phosphate plant location and
capacity, 1983 11-8
II-4. Indicative utilization rates for the
phosphoric acid industry, 1973-1982 11-9
III-1. U.S. production of phosphate rock,
phosphoric acid, and phosphate fertilizer
materials, 1970-1982 111-2
111-2. U.S. Consumption of phosphate fertilizer
materials, 1970-1982 111-4
III-3. Exports and imports of phosphate fertilizer
materials, 1970-1982 111-6
III-4. Nominal ana real phosphate rock, phosphoric
acid, and select phosphate fertilizer
prices 111-8
IV-1. Estimates of average sales and cost
experiences of four Louisiana phosphoric
acid plants in 1982/1983 IV-5
IV-2. Estimates of average sales and cost
experiences of four Louisiana phosphoric
acid plants in 1979 to 1981 IV-6
V-l. Investment and annual operating costs for
Option 1: Discharge Effluent and Gypsum
Solids to River (raise pH) $1983 V-2
V-2. Investment and annual operating costs for
Option 2: Ocean Disposal of Gypsum Solids
S1983 V-3
V-3. Investment and annual operating costs for
Option 3: Barging of Gypsum to site up or
down the river (20% solids slurry) $1983 V-4
111
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LIST OF TABLES (cont'd)
Page
"able
V-4. Investment and annual operating costs for
Option 4: Transportation by Truck to
Alternative Disposal Sites (gypsum solids)
S1983 V-5
V-5. Investment and annual operating costs for
Option 5: Slurrying Gypsum and Pumping to a
Site up or Down River $1983 V-6
VI-1. Annual and per ton cost increases resulting
from the pollution control costs for
Remedial Control Option 1: Raise pH and
Discharge Effluent and Gypsum Solids into
the Mississippi River VI-4
VI-2. Annual and per ton cost increases resulting
from the pollution control costs for Remedial
Control Option 2: Ocean Disposal of
Gypsum Sol Ids VI-5
VI-3. Annual and per ton cost increases resulting
from the pollution control costs for Remedial
Control Option 3: Barging the Gypsum to a
Site up or Down the Mississippi River VI-6
VI-4. Annual and per ton cost increases resulting
from the pollution control costs for Remedial
Control Option 4: Transportation af Gypsum
by Truck to Alternative Disposal Sites VI-7
VI-5. Annual and per ten cost increases resulting
from the pollution control costs for Remedial
Control Option 5: Slurrying Gypsum and
Pumping to a Site Jp or Down River VI-8
VI-6. Effects on profit resulting from Remedial
Control Option 1: Discharge Effluent and
Gypsum Solids Into the Mississippi River VI-11
VI-7. Effects on profit resulting from Remedial
Control Option 2: Ocean Disposal of Gypsum
Solids VI-12
IV
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LIST OF TABLES (cont'd)
Table
VI-9.
Page
VI-8. Effects on profit resulting from Remedial
Control Option 3: Barging the Gypsum to a
Site Up or Down the Mississippi River VI-13
Effects on profit resulting from Remedial
Control Option 4: Transportation of Gypsum
by Truck to Alternative Disposal Sites VI-14
VI-10. Effects on profit resulting from Remedial
Control Option 5: Slurrying Gypsum and
Pumping to a Site Up or Down the Mississippi
River VI-15
v
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Figure
II-1.
III-l.
LIST OF FIGURES
Page
Schematic diagram of the phosphate fertilizer
production process 11-2
Use of phosphate fertilizer by state, 1981 II1-5
vi
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EXECUTIVE SUMMARY
A. Introduction
This report analyzes the economic impact of various point source control
alternatives for the Phosphate Subcategory of the Fertilizer Manufacturing
Industry. It focuses on the impacts resulting from the remedial control
opt ions currently under consideration for the four phosphoric acid plants
located in Louisiana. The four companies and their plant locations are
listed below:
This action has become necessary because these four phosphoric acid plants
have experienced difficulties greater than originally anticipated by the
representatives of EPA and the Companies when developing the "no discharge"
status as promulgated in 1974. The present effluent guidelines are based
upon prevailinq industry practices which involve recycle of the water and
land disposal (stacking) of the gypsum by-product.
Due to unique conditions associated with the bearing strength of the
Louisiana soils and the abnormally high rainfall, several gypsum stack
failures have occurred in recent years. The occurrence of these failures,
in spite of conscientious management of the stacks by soil experts and use
of modern monitoring and management techniques, suggests that the Issue of
zero discharge and gypsum stack -nar.agement should be re-examined for these
four plants.
The purpose of this report is to provide an economic analysis of the
various remedial regulatory options under study for the four phosphoric
acid plants. The direct firm level impacts as well as the overall industry
impacts are examined.
Because of the time and information constraints involved In the preparation
of this report, the major emphasis has been to present an overview of the
present state of the fertilizer industry, focusing on the phosphate sector.
Secondary data is then used to estimate the impact of the various remedial
alternatives on the four plants under study.
Company
Plant location
Agrico Chemical Company
Allied Corporation
Beker Industries
Freeport Minerals
Donaldsonville, LA
Geismar, LA
Taft, LA
Uncle Sam, LA
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The control options used 1n the report were developed by the Effluent
Guidelines Division in association with the Technical Contractor, Frontier
Technical Associates, Inc. (FTA). Also, FTA developed cost estimates of
the alternatives that were deemed to be technically feasible. The costs of
the remedial options were applied to the financial profits of the
individual plants and the resulting impacts studied.
It is well to note that in a report of this nature, a number of simplifying
assumptions must be made that would not be necessary with the availability
of more detailed primary information. However, we believe the assumptions
are realistic and the accuracy of the impacts as developed are within
reasonable limits.
B. Industry Description
The fertilizer industry is comprised of establishments primarily engaged in
manufacturing nitrogen, phosphorus, and potassium fertilizer. The focus of
this report is on the production of an intermediate chemical, phosphoric
acid, which is used in the manufacture of phosphate fertilizer. Raw
materials used in the production of phosphate fertilizer are phosphate
rock, principally mined in Florida, and sulfuric acid. Intermediate and
final products, for purposes of this study, are divided into three
segments, each of which have minor variations. These segments are
phosphoric acid and superphosphoric acid, normal and triple superphosphate,
and anwonium phosphates.
1. Industry Structure, Capacity and Utilization
For purpose of this analysis the primary emphasis is on the phosphoric acid
plants. The Tennessee Valley Authority (TVA) reports there are thirty-two
active plants in this sector having a total capacity of over 11.5 million
tons of P205 in 1983. Fifteen plants are located in Florida which
represent~6T percent of total production capacity. Four plants are located
In Louisiana, representing nearly 1.8 million tons P205, or 15.4 percent of
total capacity. The remaining plants are located in~tFe southern and
western areas of the country.
Total phosphoric acid plant capacity has increased steadily during the past
ten years. In 1973 total capacity was just over 6.4 million tons of P205_
or only 56 percent of current capacity. Presently, there is significant
over capacity in the industry. This is caused by decreases in phosphate
demand due to depressed farm prices and a sluggish export market. Capacity
utilization rates, currently 60 to 70 percent, averaged nearly 90 percent
during the period from 1973-1981. However, TVA does not project any
changes in capacity through 1985 due to over-capacity and market
conditions.
2
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2. Financial Characterlzation of the Industry
Financial data specific to the phosphoric acid segment of the phosphate
fertilizer industry or even the phosphate fertilizer industry itself are
not available. However, reasonably detailed profitability data are
available for the fertilizer industry as a whole. (Cost data are not as
plentiful.)
Return on net worth experienced by integrated companies fertilizer
producers in the industry (principally phosphate and nitrogen manufactures)
has ranged from 27.4 percent in 1980 to -2.9 percent just two years later.
Before tax profit on sales and net worth, as compiled by the Fertilizer
Institute for these integrated companies, are presented below:
Before tax Before tax
Year profit on sales profit on net worth
[percent! (percent)
1982 -1.05 -2.9
1981 8.79 12.2
1980 14.72 27.4
1979 11.73 20.6
In the past, profitability has been high enough to attract additional
capital •'nto the phosphate Industry, which is exemplified by the increased
capacities, particularly in the phosphoric acid and ammonium phosphate
segments of the industry. Current low rates of profitability indicate why
investment in expansion has decreased.
C. Production, Consumption, and Pricing of Phosphate Products
1. Production of Phosphate Fertilizer Products
The production of most phosphate fertilizer products increased from 1970
through 1980. Phosphate rock production grew from 38.7 million tons of
rock to 60.0 million tons 1n 1980. Wet process phosphoric acid production
grew at an average annual rate of 7.5 percent while the production of
finished fertilizers increased at an average annual rate of 5.5 percent
from 1970 through 1980.
After 1980, production of all products declined. The decline in production
of phosphate products in 1981, 1982, and into 1983 corresponded in part to
decreased domestic demand and a softening in the export market.
2. Consumption of Phosphate Fertilizer Products
The domestic consumption of phosphate fertilizer, like production,
increased steadily through the seventies from 4.5 million tons of P205_ in
1970 to a peak 1n 1979 of 5.6 million tons. This represents an increase of
slightly over 2 percent per year. Consumption since that time has declined
to 4.8 million tons in 1982.
3
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There are two major reasons for the above trends. First, the average
fertilizer application rate per unit of production steadily increased
during the 70s, but leveled off in the 1981-1983 period. Fertilizer
experts generally believe this leveling trend will continue. A second
major determinate of domestic consumption is the total acreage planted.
Beginning in 1972, total acreage planted in the U.S. increased steadily
from 283 million acres in 1972 to 356 million in 1981. At that point the
USDA increased various acreage set-aside programs to reduce production.
Although consumption over the next 2 to 3 years is uncertain, it is likely
that the rate of increase in phosphate use will be lower than the rate
experienced in the 1970s.
3. International Trade and Competition
The U.S. is a major exporter of phosphate materials, annually exporting
about 40 percent of production in recent years. These exports include a
mix of materials, including phosphate rock, phosphoric acid, concentrated
superphosphates, and arrmonium phosphates. While exports of phosphate
materials in all forms have increased, the higher valued products,
particularly ammonium phosphates, have become an increasingly important
part of total exports.
Exports of total phosphate fertilizer materials increased steadily until
1981 when total exports declined sharply. Because the U.S. dollar has been
so strong on international monetary markets, U.S. phosphate has not been as
attractive to foreign countries. Meanwhile other countries have been
moving to increase phosphate productive capacities. These countries
include Morocco, Senegal, Brazil, and Tunisia.
4. Phosphoric Acid Prices
Phosphoric acid prices are not widely published, partially because much of
the phosphoric acid produced in the U.S. is used by the producing
companies, hence few actual sales are made. Quoted prices may not
accurately represent transaction orices because of price discounting
practices. Quoted phosphoric acid prices in October 1983 declined in both
real and nominal terms, reflecting the overall decrease in demand for
phosphate fertilizers. We expect this price to return to higher levels as
the phosphate fertilizer industry recovers.
D. The Louisiana Plants
Two basic scenarios were developed to illustrate the financial conditions
of the Louisiana plants. The first, based upon 1982/83 conditions in the
industry, showed the plants operating in a deficit position. The second
was based upon industry conditions over the 1977 to 1981 period with the
industry operating at a profit. The results of the second scenario are
shown on Table A. Under this scenario, pretax profit margins were
estimated to range from S7.50 to S10.95 per ton of 54% P205_ phosphoric
acid.
4
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lable A. Estinates of average sales and cost experiences of four Louisiana phosphoric acid plants In 19/9 to I9HI. 1/
Plant
Item Unit
$/Unlt
Agrlco
Chenical
Allied Corporation
Beker Industries
Freeport Hlnerals
Per ton
Annual 2/
Per ton
Annual 2/
Per ton
Annual 2/
Per ton
Annual ?/
(do)lars)
(Million \)
(dollars)
(Million })
(dollars)
(Million $)
(dollars)
(ait 11 Ion I)
Sales 1 ton (541 P205)
172.80
172.80
115.2
172.80
46.0
172.80
132.5
172.80
216.0
Variable Costs
Phosphate Rock 1.75 tons
24.00 3/
42.00
28.0
42.00
11.2
42.00
32.2
42.00
52.5
TransportatIon 1.75 tons
5.00
8.75
5.8
8.75
2.3
8.75
6.7
8.75
10.9
Sulfur .50 tons
115.00
57.50
38.3
57.50
15.3
57.50
44.1
57.50
71.9
Power 120 kwh
0.04
4.80
3.2
4.80
1.3
4.80
3.7
4.80
6.0
Chemicals
-
2.00
1.3
2.00
0.5
2.00
1.5
2.00
2.5
labor
-
13.00
8.7
15.00
4.0
12.00
9.2
13.00
16.3
Other
-
8.00
5.3
8.00
2.1
8.00
6.1
8.00
10.0
Total Variable Cost
TT05
90.6
TTH7C5
3E77
135.05
TffT5
136.OS
nrnr.i
fixed Costs
Depreciation
3.80
2.5
2.75
0.7
4.50
3.4
2.50
j.i
Taxes, Interest, Insurance
5.00
3.3
3.50
0.9
6.(00
4.6
3.00
3.7
Maintenance
4.00
2.7
7.00
1.9
4.00
3.1
7.00
8.8
Overhead
13.00
8.7
14.00
3.7
13.00
10.0
14.00
WJ
Total fixed Costs
25.80
17.2
27.25
7.2
27.50
21.1
26.50
33.1
Income (loss) Before Taxes
10.95
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Income (axes 4/
3.80
2.6
2.60
0.7
3.60
2.8
3.60
4.5
Net Margins (Losses)
7.15
4.8
4.90
1.4
6.65
5.1
6.65
8.3
\J Assumes the phosphoric acid produced Is sold at quoted market rates.
2/ Annual production Is calculated at 90 percent of capacity. Capacity ratings are as folloMS, expressed In thousand tons P205: Agrlco 400, Allied 160,
Beker 460, and Freeport 750. This converts to the following production capacity expressed as phosphoric acid, 54 percent P?05: Agrlco 741, Allied 296,
Beker 852, and Freeport 1389.
3/ FOB laupa.
4/ Average Incoae tax rate est(Mated at 35 percent.
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E. The Remedial Control Options
The critical factor in the continued operation of these four plants is the
ability to store on land the gypsum by-product generated with the
production of phosphoric acid. If environmentally acceptable and
economically feasible alternatives are not available, these four plants
will have to discontinue the manufacture of phosphoric acid. The data
below show the remaining life of the gypsum stacks under normal operating
rates if all of the gypsum is stored in these stacks.
Plant Remaining stack capacity
Agrico Chemical Company 2.5 to 3 years
Allied Corporation 13 years
Beker Industries 2 months
Freeport Chemical 6 years
Source: "Technical Memorandum," August 1983.
All of the plants are currently stacking the gypsum except the 3eker
Industries plant which discharges into the Mississippi River.
The Effluent Guidelines Division considered different remedial options for
control of the gypsum slurry and other wastes from the four Louisiana
phosphoric acid plants. These options are:
1. discharge effluent and solids to the Mississippi River (raise pH
from ^1.5 to 6.5 prior to discharge),
2. ocean disposal of gypsum solids by barge,
3. barging the soHds up or down the river to an alternate disposal
site,
4. transporting dried solids to a disposal site (sanitary landfill)
by truck,
5. use of a slurry pipeline to transport solids to an alternate
disposal site,
6. reuse waste material,
7. use wetlands as disposal sites,
8. stabilization alternatives,
9. underground injection alternatives, and
10. discontinue operations.
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Options 1 through 5 are considered technically feasible by EGD and the
estimated costs for implementing these options were developed by the
Technical Contractor and used to estimate the associated economic impacts.
Options 6 through 9 were judged to be not feasible for technical reasons
and associated costs were not developed.
Should the four plants be allowed to discharge directly, the question of
the related cost savings is then appropriate. According to preliminary
estimates, the costs for maintaining an active gypsum stack amounts to
roughly $1.00 per ton of phosphoric acid (54 percent P205J. Approximately
one-half of that cost would be necessary for continued stack maintenance
even though new additions of gypsum would not be added.
F. Projected Economic Impacts
The imposition of remedial options to control the current problems related
to wastewater and waste gypsum management at the Louisiana Phosphoric Acid
plants will result in economic impacts for the four plants. The
expenditures for the remedial options will not improve operating efficiency
but will result in increased costs to produce a unit of product. Three
levels of impacts were examined. First we examined the increase in revenue
required to maintain the profitability of the plants at baseline levels (no
control options) and then we examined the possibility of passing these
costs on to the end users. Second, the profit and loss situation for each
of the plants under the various alternatives was examined, and third the
industry production effects were examined.
Since we do not have detailed financial performance data on the plants, a
basic assumption was made that the plants are as profitable as the industry
average in the integrated company, basic producer category of the
fertilizer industry. This may or may not be true. Nevertheless, it does
allow a realistic look at the economic and financial impacts of the
remedial options.
1. Price Effects
One economic indicator that is extremely useful is the estimated price
increase that is required to offset the added cost of the remedial
alternatives. The various control options result in an increase in
production cost from $20.00 to S83.00 per ton of phosphoric acid (54
percent P205j. This translates to a pretax increase of 12.3 to 49.9
percent depending on the alternative. Option 1 which calls for raising the
pH of the gypsum slurry to 6.5 and then discharging the slurry into the
Mississippi River is the least expensive alternative.
The phosphate fertilizer industry is competitive, produces a relatively
homogenous product and currently has excess capacity. Further, the four
Louisiana plants which are affected to not have a unique position in any of
the geographical markets. Hence, it 1s doubtful that these plants could
pass the costs of the remedial control options forward in the form of
higher prices 1n other than token amounts.
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2. Financial Effects
The profit and loss situation for each of the plants under the various
remedial options is summarized on Table B below. Only the optimistic
scenario was used as the short-term scenario currently prevailing in the
industry would only show more negative results. The results indicate that
if the plants are required to implement remedial control options they will
be placed in a significant net operating loss situation and be forced to
cease operations.
3. Production Effects
Assuming that the Louisiana phosphoric acid plants cannot remain
competitive under the conditions of the remedial control options, we make
the worst case assumption that they will close when they have no more room
to store the waste gypsum. This will mean that if these plants operate at
near capacity levels the Beker Chemical plant will close in 1984, and the
Agrico Chemical plant will close in 1986 or 1987. (The other plants can
remain in operation until 1990 or beyond, hence we will not consider the
effects of their closure.)
Direct effects—employment. In addition to the financial loss associated
with the potential plant closures, the closures would result in the loss of
a substantial number of jobs. According to EGD the plants employ the
following approximate number of people:
Approximate
Plant number of employees
Beker 400
Agrico 400
Allied 200
Freeport 500
Obviously if a plant closes, the jobs accounted with that plant will be
lost. Since each of these plants are located in small communities,
opportunities for iirwediate reemployment are not good.
Industry effect. Under the worst case scenario, the Beker Chemical plant
located in Taft, Louisiana would probably be forced to discontinue
operation 1f not allowed to continue discharging its gypsum slurry into the
Mississippi River. This loss in industry capacity would mean that
utilization rate in the Industry would probably Increase from a projected
baseline in 1984 of 80 percent to 83-84 percent. We do not believe there
would be any industry wide production effects resulting from the remedial
control options 1n 1984. The Agrico plant closure would increase Industry
utilization by another 3-4 percent.
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labie B. Effects on profit resulting fiow Remedial Control Options
Plant
Item
Agrlco
Chemical
Allied Corporation
Beker
Industries
Freeport Mineral'
per ton
(dollars)
annual
(Million I)
per ton
dollars
annual
(oil 11 Ion ))
per ton
dol lars
annual
(ml 11 ton })
per ton
dollars
annual
(inl 11 ion
Option 1 -
Discharge Effluent and Gypsu
n Solids Into the Mississippi Rl
Iver 1/
Pretax profits before controls 2J
10.95
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Annual cost of controls
25.68
19.0
20.84
6.2
21.78
18.6
20.56
28.6
Net profits (loss)
(M. 73)
(11.6)
(13.34)
(4.1)
(11.53)
(10.7)
(10.31)
(15.8)
Option 2 -
Ocean Disposal of Gypsum Solids 1/
Pretax profits before controls 2/
10.9b
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Annual cost of controls
79.77
59.9
58.70
17.4
65.34
55.7
62.61
87.0
Net profits (loss)
(68.6?)
(52.5)
(51.20)
(15.3)
(55.09)
(47.8)
(52.36)
(74.2)
Option
3 - Barging the Gypsum to a
Site Up or Down the Mississippi
River 1/
Pretax profits before controls 2/
10.95
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Annual cost of controls
83.52
61.9
63.27
18.7
70.42
60.0
67.49
93.7
Net profits (loss)
(72.57)
(54.5)
(55.77)
(16.6)
(60.1?)
(52.1)
(57.24)
(80.9)
Option 4
- Transportation of Gypsu* by
1 Truck to Alternative Disposal Sites 1/
Pretax profits before controls 2/
10.95
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Annual cost of controls
64.53
47.8
39.83
11.8
83.11
70.8
54.72
76.0
Net profits (loss)
(53.58)
(40.4)
(32.33)
(9.7)
(72.86)
(72.9)
(44.47)
(63-2)
Option 5 -
Slurrying Gypsum
and Pumping
to a Site Up
or Down the Mississippi River
1/
Pretax profits before controls 2/
10.95
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Annual cost of controls
41.23
30.5
31.24
9.3
34.77
29.6
33.32
46.3
llet profits (loss)
(30.28)
(24.7)
(23.10)
(7.8)
(24.52)
(21.7)
(23.07)
(33.5)
1/ Assuaes remedial control costs cannot be passed on In the form of higher prices.
2/ Profitability estimates taken frua Table A.
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I. INTRODUCTION
This report is an economic analysis of various point source control
alternatives for the Phosphate Subcategory of the Fertilizer Manufacturing
Industry. The report focuses on the impacts resulting from the remedial
control options currently under consideration for four phosphoric acid
plants located in Louisiana. The four companies and their plant locations
are:
In April 1974, the BPT and BAT limitations for wet process phosphoric acid
manufacturing plants issued by EPA essentially required, with minor
limitations, "no discharge" of process water pollutants. The effluent
guidelines were based on prevailing industry practices which involved
recycle of the water and land disposal (stacking) of the gypsum byproduct.
Over the past several years, the phosphoric acid plants located in
Louisiana have experienced greater difficulties than originally anticipated
by the representatives EPA and the Companies in achieving the "no
discharge" status as promulgated. These difficulties occurred because of
certain site characteristics which prevent safe stacking of the gypsum to
Heights originally anticipated and utilized in Florida. Also, the high net
positive water balance experienced in the area over the past several years
further aggravated the problems. Knowledge of the compressibility and
bearing strength of the Louisiana soils has greatly increased since the
time of promulgation.
Several gypsum stack failures have occurred in the past few years. The
most recent failure occurred following a 6.5 inch rainfall in 16 hours
during August of this year. The occurrence of these failures, in spite of
conscientious management of the stacks by soil experts and use of modern
monitoring and management techniques, suggests that the issue of zero
discharge and gypsum stack management should be reexamined for these four
plants.
As a result, EPA has initiated action to evaluate the problems and proposed
remedial options. Presently various alternatives as described in Chapter V
are being studied to determine an appropriate course of action.
Company
Plant location
Agrico Chemical Company
Allied Corporation
Beker Industries
Freeport Minerals
Donaldsonville, LA
Geismar, LA
Taft, LA
Uncle Sam, LA
A. Background
1-1
-------
B. Scope of the Report
The purpose of this report is to provide an economic analysis of the
various remedial regulatory options for the four phosphoric acid plants.
The analysis investigated the direct firm level impacts as well as the
overall impacts on the industry and their customers.
C. General Approach
Because of the time and information constraints involved in the preparation
of this report, the major emphasis has been to present an overview of the
present state of the fertilizer industry focusing, of course, on the
phosphate sector. This includes the industry structure, financial
characteristics of the industry and pricing and pricing considerations.
Financial profiles were developed for the four Louisiana plants under study
using known production rates and secondary data.
The control options used 1n the report were developed by the Effluent
Guidelines Division 1n association with the Technical Contractor, Frontier
Technical Associates, Inc. (Technical Memorandums" August 1982 and
November 1983) 1/ Also, FTA developed cost estimates of the alternatives
that were deemed to be technically feasible. The costs of the remedial
options were applied to the financial profits of the individual plants and
the resulting impacts studied.
It is well to note that in a report of this nature, a number of simplifying
assumptions must be made that would not be necessary with the availability
of more detailed primary information. However, we believe the assumptions
are realistic and the accuracy of the impacts as developed are within
reasonable limits.
1/ P. Michael and Terlecky, "Technical Memorandum: Surface and
Subsurface Site Characteristics at Louisiana Phosphoric Acid Plants"
11 August 1982, and Technical Memorandum: Remedial Options -
Louisiana Phosphoric Acid Plants," 18 November 1983. Prepared for
Thomas Fielding, Environmental Protection Agency, Effluent Guidelines
Division, Frontier Technical Associates, Inc. (FTA).
1-2
-------
II. INDUSTRY DESCRIPTION
The fertilizer industry is comprised of establishments primarily engaged in
manufacturing nitrogen, phosphorus, and potassium fertilizer. The focus of
this report is on the production of an intermediate chemical, phosphoric
acid, which is used in the manufacture of phosphate (phosphorus) fertilizer.
The phosphate fertilizer industry and the facilities making up the industry
are examined in this chapter.
Raw materials used in the production of phosphate fertilizer are phosphate
rock and sulfuric acid. Intermediate and final products, for purposes of
this study, are divided into three segments, each of which have minor
variations. These segments are phosphoric acid and superphosphoric acid,
normal and triple superphosphate, and anmonium phosphates. A schematic
diagram of the production of phosphate fertilizer products is presented in
Figure II-1.
In this chapter we will describe the raw materials, industrial processes,
and final products of the industry, industry structure, and finally present
an overview of the financial performance of the industry.
A. Industrial Process Description, Raw Materials, and Final Products
The phosphate fertilizer industry uses phosphate rock as the major raw
material, which is principally mined in Florida and North Carolina, and
to a limited extent in Tennessee, and the Western States. The major
minerals of most phosphate rock are in the apatite qroup and can be
represented by the generalized formula Ca5_(F,Cl ,0H) (P04)2- Small
quantities of calcium may be replaced by many elements such as magnesium,
manganese, strontium, lead, sodium, uranium, cerium, and yttrium. The
major impurities include iron as limonite, clay, aluminum, fluorine, and
si 1ica as quartz sand.
After mining, the rock is processed in order to transform the rock into
soluble P205_, a form readily available to plants. The first of these
processes is beneflclation. In this process the rock is ground by using
various mills which reduce the material to very small particles.
The most common method of transforming the particles of phosphate rock into
P20£ 1s by treatment with a mineral acid such as sulfuric, nitric, or
hydrochloric acid to make phosphoric acid. Sulfuric acid is used
predominantly in the U.S., hence we will limit the process description to
the use of sulfuric acid.
The acidulation process involves mixing the particles of phosphate rock
with sulfuric acid after the acid has been diluted with water to a 55 to 70
-------
I
IX)
RAM
Materials
lnt« mediate
Products
Final
Products
Sulfuric Acid
Phosphate Rock
I
Noma I
Superphosphate
Amaonlua
Superphosphate
Solid Nixed
Ferti lizers
Sulfurlc Acid
Phosphoric and
Superphosphorlc Acid
Triple
Superphosphate
Nil 3 ( NH3
Annoniun
Phosphates
Liquld Mixed
Ferti lizers
Phosphate fertilizer Products
flyure 11-1. Schematic diagram of the phosphate fertilizer production process.
-------
percent H2S04 concentration. This mixing takes place in a vessel
(sometimes called a digestor) where it is held for several hours. The
chemical reactions which occur produce gypsum, phosphoric acid and water.
(Additional minor amounts of various elements present in the phosphate rock
are also present, such as aluminum, lead, strontium, uranium and fluorine.)
Following the reaction in the digestor, the watery mixture of phosphoric
acid and gypsum is pumped through a filter which separates the particulate
gypsum and many impurities present from the phosphoric acid. The volume of
the by-product gypsum is approximately five kilograms per kilogram of
phosphoric acid. This gypsum is then sluiced with the contaminated water
from the plant to a disposal area where the gypsum is settled out of the
water and stored in stacks while the water is recirculated back to the
acidulation process.
The phosphoric acid produced in this process, which is approximately 32
percent P2p5_ is further concentrated to approximately 54 percent P^O^ by
vacuum evaporation of water. Additional impurities are also removed from
the phosphoric acid in this process.
Superphosphoric acid which is approximately 68 to 72 percent P205^ is
manufactured at numerous phosphoric acid plants. Superphosphoric acid is
basically phosphoric acid (54 percent P205J which is further concentrated
by a molecular dehydration process.
Normal superphosphate is a fertilizer material containing from 16 to 21
percent P205 which is made by reacting ground phosphate rock with a
sulfuric acTd and water solution. This product has declined in importance
in recent years.
Triple superphosphate is manufactured in much the same way as normal
superphosphate except that phosphoric acid is used instead of sulfuric acid
in the acidulation process. Triple superphosphate typically accounts for
over half of all phosphate fertilizer products.
Ammonium phosphates are produced by reacting phosphoric acid with anhydrous
aimonia. Both solid and liquid anwonium phosphate fertilizers are produced
in the United States with solid being of greatest importance and accordingly
emphasized here. Ammoniated superphosphates are also produced by adding
normal or triple superphosphate to the mixture.
Amronium phosphate fertilizers have product nutrients ranging from 10 to 21
percent nitrogen and from 20 to 55 percent P205_. Important ammonium
phosphate fertilizer grades in the U.S. are:
Monoammonium phosphates (MAP)
11-48-0 11-55-0
13-52-0 16-20-0
Diarononium phosphates (DAP)
16-48-0 18-46-0
11-3
-------
where N-P-K analysis represents
N = percentage of available nitrogen
P = percentage of available P20_5
K - percentage of soluble potassium oxide ('<£0)
These aumonium phosphate grades can be used directly or blended with other
fertilizers, in both liquid and sol id forms, to produce mixed fertilizers.
B. Industry Structure
The Dhosphate fertilizer industry, dependant on phosphate rock formations
as its principle raw material, is concentrated in areas where the rock is
mined. In this section we will present an analysis on the plant locations
and capacities, with particular emphasis on capacity utilization and the
role of the four affected plants located in Louisiana.
1. Location and Size of Plants
For purposes of this analysis we will consider only phosphoric acid plants,
concentrated (triple) superphosphate plants and anmonlum phosphate plants.
The manufacture of other products, such as super phosphoric acid for example
is usually done at plants producing phosphoric acid.
Table 11-1 lists the plants who can produce phosphoric acid in the U.S.
Thirty-two plants are able to produce, though several plants are idle at
this time. These plants have a total capacity of over 11.5 million tons of
P205_ in 1983 (not counting the three idle plants which have a total
capacity of 408,000 tons of P205_). An analysis of tne capacity size
distribution of operating plant? is presented below:
Capacity range Number of plants
(1000 tons MQ5)
<200 8
200-500 12
>500 8
Idle or insufficient information 4
Fifteen plants are located 1n Florida. These plants represent 63 percent
of total production capacity. Only four plants are located in Louisiana,
representing nearly 1.8 million tons P205_» or 15 percent of total capacity.
The remaining plants are located in the south and western area of the
country.
Total phosphoric acid plant capacity has been increasing steadily during
the past ten years. In 1973 total capacity was just over 6.4 million tons
of P205_ or only 56 percent of current capacity. This capacity increase
resuTted in spite of the closure of numerous plants which could not remain
competitive, at least rock resources. A list of plants closing since 1976
is presented in Appendix A.
11-4
-------
Table 11-1. Wet-process phosphoric acid plant
location and capacity, 1983. \J
Company Location Capacity V
(1000 tons P205)
Agrico Chemical-Wi11iams
Pierce, FL
420
Donaldsonvilie
, LA
400
Aliied Corp.
Geismar, LA
160
Amax Corp.
Piney Point, FL 3/
-
Bartow Chemical Products
Bartow, FL
414
Beker Industries
Conda, ID
273
Taft, LA
460
CF Industries, Inc.
Bonnie, FL
690
Plant City, FL
650
Chevron Chemical Co.
Garfield, UT
100
Rock Springs, '
iJY 4/
-
Conserv Inc. (Phlbro)
Nichols, FL
200
Farmland Industries
Pierce, FL
574
Fertilizer Co. of Texas
Pasadena, TX
50
First Mississippi Corp.
Fort Madison IA 3/
-
Freeport Minerals
Uncle Sam, LA
750
Ft. Meade Chemical Products
Ft. Meade, FL
440
Gardinier
Tampa, FL
720
W. R. Grace & Co.
Bartow, FL
310
International Minerals
Bonnie (N Wales), FL
975
1/
500
Mississippi Chemical Corp.
Pascagoula, MS
243
Mobil (Pasadena Chemical)
Pasadena, TX
240
Mobil Chemical Co.
Depue, IL
125
Occidental Ag. Chemical
White Springs,
FL
1,066
Lathrop CA 3/
-
01 in Corp.
Jol i'et, IL ~
127
Royster Co.
Mulberry, FL
168
J.R. Simplot Co.
Pocatello, ID
2^0
Helm, CA
125
Texasgulf (Aquitaine)
Lee Creek, NC
1,020
USS Agri-Chemicals
3artow, FL
90
Total United States
11,530
y Capacity data for the Louisiana plants, estimated by TVA are not the
same as estimates made more recently by representatives of EPA. The
more recent EPA capacity estimates for the Louisiana facilities are
used in Chapter 4.
2/ Capacity estimates are based on an operating year of 340 days.
T/ Idle.
J/ Insufficient information.
T/ Under construction.
Source: Fertilizer Trends. 1982, National Fertilizer Development Center,
TVA", Muscle Shoals, Alabama.
11-5
-------
The Tennessee Valley Authority (TVA) does not project any changes in
capacity through 1985.
Concentrated superphosphate plants and plant capacities are presented in
Table 11-2. Only twelve plants manufacture concentrated superphosphate in
the U.S., nine of which are in Florida. Total capacity of operating plants
is just over 1.9 million tons of P205_.
Unlike phosphoric acid production capacity, concentrated superphosphate
capacity has been declining during the past ten years. Capacity in 1973
was nearly 2.6 million metric tons, 36 percent higher than 1983.
Ammonium phosphate plant location and capacity data are presented in Table
11-3. There are currently twenty-four companies owning forty plants,
thirty-five of which are operating. An analysis of plant capacity is
presented below for operating plants.
Capacity range Number of plants
(1000 tons p2q5_)
<50
11
50-100
5
101-300
9
301-500
5
>500
3
Idle
5
Insufficient information
_2
Total Plants
40
Although still concentrated in Florida where twelve plants are located,
ammonium phosphate plants are much more widely dispersed than phosphoric
acid and concentrated superphosphate. Ammonium phosphate plants are
located in seventeen states.
Ammonium phosphate plant caoacity has generally been increasing during the
past ten years, though capacity in 1983 was down slightly from 1982.
Capacity in 1973 was 4.7 million tons of P205_, only 76 percent of 1983
capacity.
2. Level of Utilization
'Jtilization rates have declined in the phosphoric acid industry since 1981,
after being very high curing the period from 1978-1980. While utilization
rates must be interpreted with caution because of difficulty in estimating
plant capacities, rates presented on Table 11-4 indicate that utilization
rates from 1973-1982 have averaged nearly 90 percent. 1/
More recently industry's utilization has declined. Phosphoric acid
producers have felt the impact of depressed farm prices and federal crop
T7 Capacity estimates do not include idle or closed facilities.
[1-6
-------
Table 11-2. Concentrated superphosphate plant
location and capacity, 1983.
Company Location Capacity 1/
(1000 tons P205)
Agrico Chemical-Wil1iams Pierce, FL 276
Amax Corp. Piney Point, FL 2/
CF Industries, Inc. Plant City, FL 375
Chevron Chemical Co. Gar-filed, UT 41
Gardinier Tampa, FL 250
W.R. Grace & Co. Bartow, FL 330
International Minerals Bonnie (N Wales), FL 138
Occidental Ag. Chemical White Springs, FL 78
Royster Co. Mulberry, FL 97
J. R. Simplot Co. Pocatello, ID 79
Texasgulf (Aquitaine) Lee Creek, NC 255
USS Agri-Chemicals Fort Meade, FL 2/
Total United States 1,919
1/ Capacity estimates are based on an operating year of 340 days.
2/ Idle.
Source: Fertilizer Trends, 1982, National Fertilizer Devlopment Center,
TV A, Muscle Shoals, Alabama.
11-7
-------
Table 11-3. Ammonium phosphate plant
location and capacity, 1983
Company Location Capacity U
(IOOO tons P205J
Agrico Chemical-Wil 1iams
Pierce, FL
83
Donaldsonvilie, LA
756
A11ied Corp.
Helena, AR
50
Amax Corp.
Piney Point, FL 2/
-
Beker Industries
Conda, ID
209
Taft, LA
370
Brewster Phosphates
Luling, LA 2/
-
Geismar, LA It
-
CF Industries, Inc.
Bonnie, FL
635
Plant City, FL 2j
-
Chevron Chemical Co.
Richmond, CA ~~
20
Fort Madison, IA
58
Kennewick, WA
36
Garfield, UT
56
Rock Springs, WY 2/
-
Conserv Inc. (Phibro)
Nichols, FL ~~
184
Farmland Industries
Pierce, FL
336
Fertl1izer Co. of Texas
Pasadena, TX V
-
Kerens, TX
33
First Mississippi Corp.
Fort Madison IA 2/
-
Ford Motor Co.
Dearborn, MI ~~
10
Gardini er
Tampa, FL
438
W. R. Grace & Co.
Bartow, FL
370
Joplin, MO
10
Columbus, OH
15
New Albany, IN
25
Wilmington, NC
25
Henry, IL
25
International Minerals
Bonnie (N Wales), FL
750
Kai ser Steel Corp.
-ontana, CA
15
Mobil (Pasadena Chemical)
3asadena, TX
230
Mobil Chemical Co.
Cepue, IL
125
Occidental Ag. Chemical
'*hi te Springs, FL
188
Royster Co.
Mulberry, FL
80
J.R. Simplot Co.
Pocatello, ID
158
Helm, CA
126
Tennessee Valley Authority
Muscle Shoals, AL
20
Texasgulf (Aquitaine)
Lee Creek, NC
343
USS Agri-Chemicals
Cherokee, AL
115
Bartow, FL
242
Total United States
6,136
T7 Capacity estimates are based on an operating year of 34(5 days.
7/ Idle.
7/ Insufficient information.
Tj Under construction.
Source: Fertilizer Trends, 1982, National Fertilizer Development Center,
TVA, Muscle Shoals, Alabama.
11-8
-------
Table 11-4. Indicative utilization rates for the
phosphoric acid industry, 1973-1982.
Year
Estimated
capacity
Production
Indicative
utilization rate
1000
tons P205_
percent
1982
10,714
8,523 1/
72
1981
10,663
9,228
87
1980
10,354
10,240
99
1979
- 9,729
9,554
98
1978
9,561
8,892
93
1977
9,296
8,038
86
1976
8,951
7,226
81
1975
8,753
6,921
79
1974
6,488
6,186
95
1973
6,233
5,919
95
\J 1982 Production data from Bureau of Census, USDC.
Source: Capacity from Fertilizer Trends, Tennessee Valley Authority,
Muscle
Shoals, Alabama, various years.
11-9
-------
set-aside programs (such as the payment-in-kind program) both of which have
diminished the demand for phosphate fertilizer. Phosphoric acid producers
have been reportedly operating at 60 to 70 percent capacity in 1983.
(Chemical Marketing Reporter, July 18, 1983.)
The current industry slump has caused the delay and possible curtailment of
expansion plans by numerous companies in all aspects of the production of
phosphate fertilizer. (Chemical Marketing Reporter, 1983.) We anticipate
that increased domestic demand brought about by increased acreage in crops
(especially corn which 1s the most important crop in terms of phosphate
use) and higher crop prices will cause utilization rates to increase. The
industry may subsequently resume expansion investments, which appeared to
be needed in the late 1970s because of the fast growing market at that
time.
C. Financial Characterization of the Industry
Financial data specific to the phosphoric acid segment of the phosphate
fertilizer industry or even the phosphate fertilizer industry itself are
not available. However, reasonably detailed profitability data are
available for the fertilizer industry as a whole. (Cost data are not as
plentiful.) Two data sources are used in this report to provide a picture
of the financial characteristics of the industry. The Fertilizer Institute
publishes an annual report entitled "Fertilizer Financial Facts"
(Fertilizer Institute). Data are provided for three segments of the
Industry:
1. basic potash producer, 6 companies reporting in 1980,
2. integrated company, basic producer, 32 companies reporting in
1982, and
3. integrated company, nonbasic producer, 8 companies reporting in
1982.
Data from the second group are used in this report.
The second data series is Robert Morris' Annual Statement Studies (Robert
Morris, 1983). The Annual Statement Studies are developed from raw data
the Robert Morris Associates (RMA) member bank's voluntary submit to RMA.
These data are acquired from lending applications and do not constitute a
random or statistical sample.
Both of the data series used include financial characteristics of nitrogen
and potash producers as well as phosphate producers. Because producing
segments of the fertilizer industry are related and the demand for one
nutrient 1s related to the demand for other fertilizer nutrients, we
believe that financial data representing the entire industry are
representative of phosphate fertilizer and phosphoric acid producers.
Hence, although much of the data used in this analysis is for the entire
industry, we assume it represents the phosphate segment of the industry.
11-10
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1. Revenues and Costs
Phosphoric acid, which is an intermediate product used in the production of
phosphate fertilizer, is frequently used by the company manufacturing it
and therefore not actually sold. However, other companies produce only
phosphoric acid which is sold to other companies to manufacture the actual
phosphate fertilizer. Currently, (November 1983) published prices for
phosphoric acid are 167.50 per ton for 54 percent P^O^. (Chemical
Marketing Reporter, 1983.) (Phosphoric acid will generally be considered to
be 54 percent P205 in this report unless otherwise specified.)
The variable costs associated with the production of phosphoric acid
typically range from 75 to 80 percent of sales. (David, et al., 1973.)
The major available costs are for the raw materials, phosphate rock and
sulfur. These inputs generally account for 75 percent of variable costs
and nearly 60 percent of the total costs associated with the manufacture of
phosphoric acid. Other significant variable costs include labor,
chemicals, power and in some cases transportation.
Fixed costs generally range from 15 to 25 percent of sales. These costs
are the most difficult to estimate because of wide variations from facility
to facility. Depreciation for example varies widely because many plants
are relatively old and the value of depreciable assets is accordingly low
while other newer multi-ml 11 ion dollar plants have much higher depreciation
rates. In addition to depreciation, major fixed costs Include taxes
(excluding income), insurance, interest, and overhead.
A more detailed analysis of revenues and costs is presented in Chapter IV.
2. Industry Profitability
The fertilizer industry has experienced significant fluctuations in
profitability in the past, with some years being very profitable while
other years the industry suffers substantial losses. The last year for
which data are available (1982) indicates a poor year with the industry
losing money.
Return on net worth experienced by integrated companies, basic producers,
in the industry (principally phosphate and nitrogen manufactures) has
ranged from 27.4 percent in 1980 to -2.9 percent just two years later.
Return on net worth, as compiled by the Fertilizer Institute for integrated
companies, basic producers are presented below.
Year
Before tax
profit on sales
(percent)
Before tax
profit on net worth
(percent)
1982
1981
1980
1979
1978
1977
1976
-1.05
8.79
14.72
11.73
-2.9
12.2
27.4
20.6
11.1
15.7
19.1
11-11
-------
Generally profitability has been high enough to attract additional capital
into the phosphate industry, which is exemplified by the increased
capacities, particularly in the phosphoric acid and amnonium phosphate
segments of the industry.
A slightly different situation is presented in the Annual Statement
Studies (median quartile of 84 different firms).
Year ending
March 31
Before tax
profit on sales
(percent)
Before tax
profit on net worth
(percent)
1983
1982
1981
1980
1979
1.4
3.4
2.6
1.4
1.8
10.1
16.4
13.6
10.7
14.1
Clearly the second data series represents a more uniform profitability over
the past 5 years. This is because the Annual Statement Studies covers a
broad segment of the industry and includes 34 companies; whereas, the
Fertilizer Institute series is concentrated on integrated companies, basic
producers (32 companies). The additional companies and segments tend to
average the high and low characteristies of the basic producers. Also, the
basic producers are more highly capitalized with total net sales reported
at 81 percent of total assets. This is in contrast to sales at 220 percent
of total assets as represented by the Annual Statement Studies. This is
the reason for the seeming disparity in the return on sales data.
3. Financial Structure of the Industry
The fertilizer industry's assets can be classified as current and fixed.
Current assets consist of cash, accounts receivable and inventory. Current
assets generally comprise about 30 to 35 percent of total assets. Fixed
assets, comprised mainly of property plant and equipment, account for 60 to
55 percent of total assets (The Fertilizer Institute, 1983). The
proportion of fixed assets to total assets has been increasing 1n recent
years, as a result of increased investment in the industry.
Total liabilities generally account for 60 to 70 percent of
term debt accounts for 15 to 20 percent of total assets and
in recent years. Net worth ranges from 30 to 40 percent of
assets. Long
has been rising
total assets.
11-12
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III. PRODUCTION, CONSUMPTION, AND PRICING OF PHOSPHATE PRODUCTS
In this chapter we will discuss the production, consumption, international
trade, and prices for phosphate fertilizer products. These discussions
will review the historical trends as well as our outlook for the future.
This discussion will generally focus on all aspects of the industry from
phosphate rock and phosphoric acid to the final fertilizer products.
A. Production of Phosphate Fertilizer Products
The production of most phosphate fertilizer products increased from 1970
through 1980 according to data on Table III-l. Phosphate rock production
grew from 38.7 million tons of rock to 60.0 million tons in 1980. Wet
process phosphoric add production grew at an average annual rate of 7.5
percent while the production of finished fertilizers increased at an
average annual rate of 5.5 percent from 1970 through 1980. (The mix of
production of finished fertilizers also changed with ammonium phosphates
becoming more important while the production of normal superphosphate
decreased substantially.)
After 1980, production of all products declined. The decline in production
of phosphate products in 1981, 1982, and into 1983 corresponded in part to
1 decreased domestic demand because of low agricultural prices and federal
crops set-aside programs, a softening in the export market and a general
recession which affected both the U.S. and world economy. Additional
production capacities of some foreign countries also hurt the U.S.
phosphate industry.
The current situation has led to an excess 1n capacity in the industry with
major uncertainties as to future capacity and production levels. In
response to large increases in export shipments that occurred in the late
1970s, many producers began capacity expansion programs. Some of the
plants were built; however the net gain was reduced due to the closing of
small noncompetitive plants (Section II-B1). Plans for new plants have
been temporarily put on hold because of the extent of idle capacity now
prevalent 1n the industry (Section II-B2). Future production levels are
likely to increase but major uncertainties due to the international market
and the domestic farm situation make forecasts difficult (Harre, 1983). In
generally, we believe the production rate will increase in 1984, but the
overall rate of growth over the foreseeable future will not be as great as
the rate experienced in the 1970s.
III-l
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Table 111-1. U.S. production of phosphate rock, phosphoric acid,
and phosphate fertilizer materials, 1970-1982.
Fertilizer 2/
Year
Phosphate rock \J
Wet process
phosphoric acid 2/
Sue
Normal
lerphosphate
1 Concentrated
Ammonium
phosphates
Other
Total
million tons of material
million tons of P205
1000 tons of P205--
1970
38.7
4.6
670
1,474
2,092
361
4,597
1971
38.9
5.0
626
1,513
2,395
468
4,992
1972
40.8
5.8
677
1,659
2,577
570
5,483
1973
42.1
5.9
620
1,693
2,919
347
5,578
1974
45.7
6.2
698
1,719
2,654
296
5,367
1975
48.8
6.9
484
1,678
3,193
218
5,573
1976
49.2
7.2
383
1,595
3,614
232
5,824
1977
52.1
8.0
340
1,791
4,325
243
6,699
1978
55.2
8.9
291
1,820
4,875
190
7,176
1979
56.9
9.6
353
1,842
5,271
197
7,663
1980
60.0
10.2
425
1,693
6,125
66
8,309
1981
59.1
9.2
227
1,558
5,172
33
6,961
1982
NA
7.9
120
1,017
4,534
3/
5,671
\J Source: "Phosphate Rock," Minerals Yearbook, U.S. Bureau of Mines.
2/ Source: "Inorganic Fertilizer Materials and Related Products," USDC Current Industrial Reports, Series
M28A and M28B.
3/ Included in Ammonium Phosphates.
-------
B. Consumption of Phosphate Fertilizer Products
The domestic consumption of phosphate fertilizer, unlike production,
increased steadily through the seventies from 4,5 million tons of P2Q5. in
1970 to a peak in 1979 of 5.6 million tons. This represents an increase of
slightly over 2 percent per year (Table II1-2). Consumption since that
time has declined to 4.8 million tons in 1982. The major growth in this
area has been the use of P205_ in mixtures, which increased from 3.7 million
tons to 4.8 million tons over the same period. Demand for direct
application material has been flat.
There are two major reasons for the above trends. First, the average
fertilizer application rate per unit of production steadily increased
during the 70s but fertilizer experts generally believe there will be a
general leveling of application rates (Harre, 1983 and Murphy, 1983). A
second major determinate of domestic consumption is the total acreage
planted. Beginning in 1972, total acreage planted in the U.S. increased
steadily from 283 million acres in 1972 to 356 million in 1981. At that
point the USDA began various acreage set-aside programs to bring production
under control. Although production over the next 2 to 3 years is
uncertain, it is certain that the rate of increase in acres harvested will
not increase at the same rate as in the seventies.
Use of phosphate fertilizer, by state, in 1981 is shown in Figure 111-1.
It is well to note that approximately 70 percent of the phosphate
fertilizer consumed in the United States would travel up the Mississippi
River and supply the states in the Central United States. This is
significant because it indicates that the Central United States is supplied
by phosphate products produced both in the Louisiana plants and the
competing plants in Florida.
C. International Trade and Competition
"he U.S. is a major exporter of phosphate materials, annually exporting
about 40 percent of production in recent years. These exports include a
mix of materials, including phosphate rock, phosphoric acid, concentrated
superphosphates, and ammonium phosphates. While exports of phosphate
materials in all forms have increased, the higher valued products,
particularly aimionium phosphates have become an increasingly important part
of total exports.
Data on exports and imports of phosphate fertilizer materials are presented
on Table III-3 (excluding phosphate rock). These data show a steady
increase in total phosphate fertilizer materials until 1981 when total
exports fell. Imports of phosphates have been steady since 1970, generally
ranging from 200,000 to 300,000 tons of P205_.
During the period 1970-1981 phosphate rock exports have ranged from 10 to
15 million tons of material. No significant trends in rock exports are in
evidence.
111-3
-------
Table II1-2. U.S. consumption of phosphate fertilizer
materials, 1970-1982
P205
Direct Application
Materials
Total
in
Superphosphate
Ammonium
?205
Year
Mixtures
Normal
Triple
Phosphates
Consumption
(1000 tons of P205J
1970
3,709
62
546
184
4,574
1971
3,943
55
556
179
4,803
1972
3,997
44
577
174
4,864
1973
4,237
35
569
201
5,085
1974
4,271
39
538
193
5,099
1975
3,718
36
531
' 176
4,511
1976
4,428
28
548
161
5,227
1977
4,790
26
559
185
5,630
1978
4,341
21
488
179
5,096
1979
4,769
17
555
150
5,606
1980
4,564
24
527
183
5,431
1981
4,735
22
472
134
5,434
1982
4,243
14
375
111
4,818
aTota1
of 11-48
-0, 13-39-
0, 16-20-0, 21-53-0
, and 27-14-0.
Source
: USDA,
Comnercial
Fertilizers, Statistical Reporting Service,
annual reports.
111-4
-------
KEY
{1,000 tona p205)
Q 0-50 U) 101 -200 ^>401
51-100 A 201 -400
Figure 111-1. Use of phosphate fertilizer by state, 1981.
i
-------
Year
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
Sour
Table 111-3. Exports and imports of phosphate fertilizer
materials, 1970-1981
Exports Imports
A/rmoni urn Phospnoric
Superphosphate phosphate acid Total All materials
(1000 tons P205J
333
470
36
839
280
323
624
105
1,052
282
405
835
41
1,281
340
412
1,028
74
1,514
295
494
916
220
1,630
293
500
1,240
313
2,053
245
591
1,307
442
2,340
226
565
1,553
469
2,587
240
748
2,237
527
3,512
224
738
2,243
804
3,785
263
790
2,781
818
4,389
220
693
1,994
832
3,519
227
"U.S. Exports," USDC Report FT410 and "U.S. Imports," USDC Report
FT135, various annual reports.
111 -6
-------
The export market is expected to continue to grow at a higher rate than the
domestic market, which the Bureau of Mines has projected at only one
percent through 1987. However, because the U.S. dollar has been so strong
on international monetary markets, U.S. phosphate has not been as
attractive to foreign countries and the demand fcr phosphates has softened.
Meanwhile other countries have been moving to increase phosphate productive
capacities. These countries include Morocco, Senegal, Brazil, and Tunisia.
Major importers of U.S. phosphate products include Canada, Mexico, Japan,
India, and China. Once a major importer, Brazil has decreased its
dependency on U.S. phosphate, largely because of the Inability to secure
needed foreign capital. Subsequently Brazil has begun exploiting its
somewhat lower quality resources.
We believe that the export market will continue to be very important to the
phosphate fertilizer industry. However, the high valued dollar could
continue to be a detriment to the growth of phosphate exports and an
inducement to countries with phosphate rock to develop their resources.
D. Phosphate Product Prices
Prices for phosphate rock have increased steadily in nominal terms since
1973. However, in constant dollar terms (1982 dollars) prices have
remained reasonably steady, varying between $25 and $28 per ton since 1977.
Average annual prices in both nominal and constant (1982 dollars) are
presented on Table III-4.
Phosphoric acid prices are not widely published, partially because much of
the phosphoric acid produced in the U.S. is useti by the producing
companies, hence no actual sales are made. Quoted prices, which may not
accurately represent transaction prices because of price discounting
practices, are presented on Table 111-4 for 1981 to October 1983. These
prices are year-end quotes (except for 1983).
Quoted phosphoric acid prices in October 1983 declined in both real and
nominal terms, reflecting the overall decrease in demand for phosphate
fertilizers. We expect this price to return to higher levels as the
phosohate fertilizer industry recovers.
Phosphate fertilizer prices are a'so presented on Table III-4 for two
common types of fertilizer, superphosphate and an aumonium phosphate,
18-46-0. These prices, which are retail, reached all time highs in 1974
and 1975 when there was a significant fertilizer shortage (David, et al.,
1976). Prices subsequently fell in 1977 and 1978 in both real and nominal
terms. In 1979 real prices began to rise until 1981 when the phosphate
fertilizer market weakened due to low agricultural prices and federal crop
set-aside programs.
111-7
-------
Table 111-4. Nomina) and real phosphate rock, phosphoric acid, and
select phosphate fertilizer prices J_/
Fertilizer 4/
Phosphoric acid Superphosphate
Year Phosphate rock 2/ (54 percent P205) 3/ (46 percent P205) 18-46-0 bj
• HaIIatc nar t rvn
ftf lUAtprlAl
UC/ 1 1*11 9 UC1 lUII
U 1 IIIO IC 1 1 u 1
Nomi na1
Real (1982)
Nominal
Real (1982)
Nomi na 1
Real (1982)
Nominal
Real (1982)
1970
NA
NA
75.70
172.05
94.80
215.45
1971
NA
-
NA
-
76.60
166.52
95.20
206.96
1972
NA
-
NA
-
78.50
163.54
98.10
204.38
1973
5.66
11.10
NA
-
90.80
178.04
114.00
223.53
1974
10.98
19.61
NA
-
169.00
301.79
204.50
365.18
1975
22.99
37.69
NA
-
NA
-
239.50
392.62
1976
19.28
30.13
NA
-
NA
-
183.00
285.94
1977
17.48
25.71
NA
-
NA
-
183.70
270.15
1978
18.48
25.32
NA
-
153.00
209.59
186.00
254.79
1979
20.04
25.37
172.80
218.73
189.00
239.24
230.50
291.77
1980
22.78
26.49
172.80
200.93
246.00
286.05
288.00
334.88
1981
26.63
28.33
172.80
183.83
239.00
254.26
272.50
289.89
1982
NA
-
172.80
172.80
-
-
-
-
Oct.
1983 28.00 b/
167.40
—
205.00
-
238.00
-
1/ Real prices are 1982 prices converted by using the SNP implicit price deflator.
7/ Prices are average prices received for both domestic and export sales.
1/ Prices are year end quotes. These prices may not actually represent transaction prices as acid may be sold
at a discount or premium to quoted prices.
4/ Fertilizer prices are prices paid by farmers.
5/ 18-46-0 is a mixed or ammonium phosphate fertilizer which is 18 percent nitrogen, 46 percent phosphorus
and 0 percent potassium. This is the most common type of phosphate fertilizer. The prices for this
fertilizer also reflect the price of nitrogen.
6/ From Chemical Marketing Reporter. FOB Tampa.
NA-Not available.
Source: Phosphate rock prices from Minerals Yearbook, various years. Phosphoric acid prices are from
"Chemical Marketing Reporter," various Issues.
-------
IV. THE LOUISIANA PLANTS
In this chapter we will discuss the characteristics of the four phosphoric
acid plants located in Louisiana which would be affected by the alternative
regulatory options. Topics to be addressed include the product mix and
rated capacity for each product, important operational character!sties, and
sales and cost characteristics. We will also discuss the importance of-
these facilities to the industry as a whole.
The emphasis of this discussion, especially the sales, cost, and income
characteristics will be found on the manufacture of the phosphoric acid.
The related activities of the plants will not be considered in detail.
The four companies and their plant locations are listed below.
Numerous products are manufactured at each facility. All of the facilities
produce sulfuric acid and phosphoric acid. Three of the four plants also
produce some form of final product fertilizer, including nitrogen based
fertilizers as well as phosphoric. None of the plants manufacture
superphosphate.
Production and capacity information is presented below by product line.
1. Phosphoric Acid
The Tennessee Valley Authority (TVA) traditionally develops estimates of
plant capacity, follows plant closings and forecasts new capacity for the
entire fertilizer industry. We have used these estimates as an indicator
of industry capacity for the Phosphate subcategory. The relationship
between the four Louisiana phosphoric acid plants and total industry
capacity is shown below:
Company
Plant location
Agrico Chemical Company
Allied Corporation
Beker Industries
Freeport Minerals
Donaldsonville, LA
Geismar, LA
Taft, LA
Uncle Sam, LA
A. Product Lines and Capacities
IV-1
-------
Plant
Agrico Chemical Co.
A11ied Corp.
Beker Industries
Freeport Chemicals
Total 4 Plants
Phosphoric acid
capacity estimates 1/
mmm
400
160
460
750
T7777
Percent of
industry
capaci ty
3.5
1.4
4.0
6.5
"TOO
Industry Total 2/
11,530
100.0
1/ From Fertilizer Trends 1982, TVA.
7/ Does not include idle capacity.
Ttiese four plants represent 12.5 percent of the total number of plants in
the industry. They are, on average, slightly larger than the typical plant
and comprise 15.4 percent of industry capacity.
The Allied Chemical Company plant also produces super phosphoric acid. The
capacity for this product is unknown.
2. Sulfuric Acid
Sulfuric acid is manufactured by all four plants to be used in the
production of phosphoric acid. Production data are only available on two
plants, Agrico Chemical Company which manufactures approximately 1.2
million tons annually and Freeport Chemical which manufactures 2.3 million
tons annually.
Because sulfuric acid is produced and used by a multitude of industries, a
discussion of industry capacity is not appropriate.
3. Ammonium Phosphates
Ammonium phosphates are manufactured by two of the plants. These plants
are listed below with their respective capacity estimates.
Percent of
Plant. Ammonium phosphate capacity industry capacity
(I005 tQns P2Q5J
Agrico Chemical Company 756 12.3
Beker Industries 370 6.0
2 Plant Total T&E TO
Industry Total 6,136 100.0
Source: Fertilizer Trends 1982, TVA
IV—2
-------
These two plants represent a significant portion of total ammonium
phosphate capacity, 18.3 percent. It is unknown whether these facilities
would continue to produce ammonium phosphates in the event that their
phosphoric acid plants are unable to remain in operation.
4. Other Products
Amnonia is produced at Agrico Chemical with a productive capacity of
468,000 tons (3.0 percent of the industry total) and Allied Corporation
with a capacity of 340,000 tons (2.2 percent of the industry total). Both
of these plants use the amuonia in the production of ammonium phosphate
(the Beker Industries plant purchase airanonia to manufacture ammonium
phosphate.)
Both the Agrico Chemical plant and the Allied Corporation plant produce
urea. Combined capacity 1s approximately 440,000 tons of urea or 7.1
percent of industry capacity.
Numerous other products are also manufactured at the Allied Chemical plant.
These products are nitric acid, ammonium nitrate and hydrofluoric acid.
B. Phosphoric Acid Operational Characteristics
The critical factor 1n the continued operation of these four plants is the
ability to store on land the gypsum by-product generated with the
production of phosphoric acid. If environmentally acceptable and
economically feasible alternatives are not available these four plants will
have to discontinue the manufacture of phosphoric acid. The data below
show the remaining life of the gypsum stacks under normal operating rates
if all of the gypsum is stored in these stacks.
Plant Remaining stack capacity
Agrico Chemical Company 2.5 to 3 years
Allied Corporation 13 years
Beker Industries 2 months
Freeport Chemical 6 years
Source: "Technical Memorandum," August 1983.
All of the plants are currently stacking the gypsum except the Beker
Industries plant which discharges into the Mississippi River.
C. Sales, Cost, and Income Characteristics
For purposes of this analysis, sales, and costs are examined for the
production of phosphoric acid only. We implicitly assume that all four
plants produce ana sell their phosphoric acid at market prices, even though
three of the plants use phosphoric acid Internally to make ammonium
phosphate.
IV—3
-------
All of the estimates regarding both sales and costs were made from general
knowledge of the industry and not necessarily from specific information
provided by the four plants. Rather, the estimates were made with
consideration toward the size, age, and other plant specific
characteristics. However, we believe that the analysis presents an
accurate picture of the relationship between sales and costs for the four
plants involved.
Two cost and sales scenarios are presented. Initially we depict the
industry's current situation (November 1983) when phosphate prices are
depressed and the plants are operating at 70 percent of capacity. Secondly
a market situation more in line with experiences from 1980 and 1981 when
the industry was operating at near capacity with phosphate prices somewhat
higher is depicted.
Table IV-1 depicts general sales and cost levels which have prevailed in
1982/1983 for the Louisiana phosphoric acid plants. During this period the
entire industry cut back on production to approximately 70 percent of
capacity. Net income (margins) were negative as indicated by a negative
return on investment, which in 1982 was -2.9 percent.
Sales of phosphoric acid (54 percent P205_) were estimated at $167.40 per
ton for all facilities. We estimated total costs to range from $167.25 per
ton to $168.75. (These costs do not include a return on investment.)
Major components of production costs were variable costs which ranged from
approximately $137 to S140 per ton. The major components of variable cost
were for the raw materials used in the production of phosphoric acid,
namely phosphate rock and sulfur. Fixed costs were estimated to range from
$28 to $32 per ton.
»
During this time margins on a per ton basis were negative, subsequently
total income was also negative for most of the facilities. We expect that
this situation will not persist and income levels will rise to levels
more equivalent to those experienced during the period from 1979 to 1981.
Table IV-2 depicts sales, cost, ana income characteristics which we believe
more accurately represent the long-run exoerience in the industry. These
costs are estimates of the situation in the industry during the years from
1979-1981 when the industry was ooerating near capacity. Sales were
estimated at S172.80 per ton of phosphoric acid (54 percent P205).
Variable costs were slightly below those experienced in 1982/T9?3 because
of lower phosphate rock prices, labor and power costs although sulfur costs
were somewhat higher during this time period. Fixed costs were lower,
primarily because higher capacity utilization rates spread these costs over
a larger output.
Net margins on the production and sale of one ton of phosphoric acid (54
percent P205^ ranged from approximately $7.50 to $11.00 before taxes and
S5.00 to T7.00 after taxes.
IV-4
-------
lable IV-1. (stiautes ot average sales and cost experiences of four ioulslana phosphoric acid plants In 1982/19B3. 1/
Plant
Ite*
Unit
I/Unit
Agrlco
Chemical
All led Corporal ion
Beker Industries
freeport Mineral:
Per ton
Annual 2/
Per ton
Annual ?/
Per ton
Annual ?/
Per ton
Annual
(dollars)
(¦111Ion $)
(dollars)
(nil lion $)
(dollars)
(iiiII ion I)
(dollars)
(oil 11 ioi
Sales
1 ton (541 P205)
167.40
T67.40
86.8
167.40
34.7
167.40
99.8
167.40
162.8
Variable Costs
Phosphate Ruck
1.75 tons
26.00 3/
49.00
25.4
49.00
10.2
49.00
29.2
49.00
47.6
Iranspoitatlon
1.75 tons
5.00
8.75
4.5
8.75
1.8
8.75
5.2
8. 75
8.5
Sulfur
.50 tons
100.00
50.00
25.9
50.00
10.4
50.00
29. B
50.00
48.6
Power
120 kMh
0.05
6.00
3.1
6.00
1.2
6.00
3.6
6.00
5.8
Chemicals
-
-
2.00
1.0
2.00
.4
2.00
1.2
2.00
1.9
Labor
-
-
14.00
7.3
16.00
3.3
13.00
7.8
14.00
13.6
Other
-
-
8.00
4.1
8.00
1.7
B.00
4.8
8.00
7.B
lotal Variable Cost
jym
TT3
TJ9T75
20
136.75
BO
nr.75
me
f Wed Costs
Depreciation
5.00
2.6
3.50
0.7
6.00
3.6
3.50
3.4
laxes. Interest, Insurance
6.00
3.1
4.00
0.8
7.00
4.2
4.00
3.9
Maintenance
4.00
2.1
6.00
1.2
4.00
2.4
7.00
6.8
1—1
Overhead
15.00
7.8
15.00
hi
15.00
8.9
15.00
14.6
i
in
loial FIxed Costs
30.00
15,6
28.50
5.8
32.00
19.1
29.50
28./
Incoae (Loss) Before laxes
(.35)
(0.1)
(-85)
(0.1)
(1.35)
(0.9)
.15
.3
Income laxes 4/
-
-
-
.05
.1
Net Margins (Losses)
(.35)
(0.1)
(.85)
(0.1)
(1.35)
(0.9)
.10
.2
]/ As sum: s the pltosphoric acid produced Is sold at quoted aarket rates.
2/ Annual production Is calculated at 70 percent of capacity. Capacity ratings are as follotis. expressed In thousand tons P205: Agrlco 400, Allied 160,
Beker 460, and Freeport 750. This converts to the following production capacity expressed as phosphoric acid, 54 percent P?05: Agrlco 741, Allied ?96,
Beker 852, and Freeport 1189.
3/ FOB lanpa.
4/
Average Income tax rate est tinted at 35 percent.
-------
lablc IV-?. Estimates of aveiage sales and cost experiences of four Louisiana phosphoric add plants In 19/9 to 1981. 1/
1 tew
Unit
1/Unit
Plant
Agrlco Chemical
A11 led Corporation
Beker Industries
Freeport Minerals
Per ton
Annual 2/
Per ton
Annual 2/
Per ton
Annual 2/
Per ton
Annual !
(dollars)
(million $)
(dollars)
(ml 11 ion })
(dollars)
(ml 11 ion $)
(dollars)
(mi 11 ion
Sales
1 ton (541 P205)
172.80
172.80
US.2
172.80
46.0
172.80
132.5
1/2.80
216.0
Variable Costs
Phosphate Rock
I.7S tons
24.00 3/
42.00
28.0
42.00
11.2
42.00
32.2
42.00
52.5
transportation
1.76 tons
5.00
8.7S
S.8
8. 75
2.3
8.75
6.7
8.75
10.9
Sulfur
.SO tons
IIS.00
S7.S0
38.3
57.50
15.3
57.50
44.1
57.50
71.9
Power
120 kwh
0.04
4.80
3.2
4.80
1.3
4.80
3.7
4.80
6.0
Chemicals
-
-
2.00
1.3
2.00
0.5
2.00
1.5
2.00
2.5
Labor
-
-
13.00
8.7
15.00
4.0
12.00
9.2
11.00
16.3
Other
.
-
8.00
5.3
8.00
2.1
8.00
6.1
8.00
10.0
Total Variable Cost
ns.ifc
90.6
138.05
36! 7
135.05
103.5
Y3£Tfi5
\70.l
f tied Costs
Depreciation
3.80
2.5
2.75
0.7
4.50
3.4
2.50
3.1
laxes. Interest. Insurance
5.00
3.3
3.50
0.9
6.00
4.6
3.00
3.7
Maintenance
4.00
2.7
7.00
1.9
4.00
3.1
7.00
8.8
Overhead
13.00
8.7
14.00
LI
13.00
10.0
I4_.00
1^5
lotal F Ixed Costs
25.80
17.2
27.25
1.2
27.50
21.1
26.50
33.1
Income (Loss) Before Taxes
10.95
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Income laxes 4/
3.80
2.6
2.60
0.7
3.60
2.8
3.60
4.5
Net Margins (losses)
7.15
4.8
4.90
1.4
6.65
5.1
6.65
8.3
If Assumes the phosphoric actd produced ts sold at quoted market rates.
2/ Annual production ts calculated at 90 percent of capacity. Capacity ratings are as follows, expressed In thousand tons P205: Agrlco 400, Allied 160,
Beker 460, and Freeport 750. Ihls converts to the following production capacity expressed as phosphoric acid, 54 percent P?05: Agrlco Ml, Allied 296,
Beker 852, and freeport 1389.
3/ FOB laupa.
4/ Average income tax rate estlaiated at 35 percent.
-------
estimated at 5172.80 per ton of phosphoric acid (54 percent P205).
Variable costs were slightly below those experienced in 1982/T9S3 because
of lower phosphate rock prices, labor and power costs although sulfur costs
were somewhat higher during this time period. Fixed costs were lower,
primarily because higher capacity utilization rates spread these costs over
a larger output.
Net margins on the production and sale of one ton of phosphoric acid (54
percent P205J ranged from approximately $7.50 to $11.00 before taxes and
$5.00 to T7.C0 after taxes.
IV-7
-------
V. THE REMEDIAL CONTROL OPTIONS
The Effluent Guidelines Division of EPA has considered ten different
options for control of the gypsum slurry and other wastes from the four
Louisiana phosphoric acid plants. These options are:
1. discharge effluent and solids to the Mississippi River (raise pH
from ^1.5 to 6.5 prior to discharge),
2. ocean disposal of gypsum solids by barge,
3. barging the solids up or down the river to an alternate disposal
site,
4. transporting dried solids to a disposal site (sanitary landfill)
by truck,
5. use of a slurry pipeline to transport solids to an alternate
disposal site,
6. reuse waste material,
7. use wetlands as disposal sites,
8. stabilization alternatives,
9. underground injection alternatives, and
10. discontinue operations.
Options 1 through 5 are considered technically feasible by the Effluent
Guidelines Division, and the associated costs developed by EGD are
presented in the following secfcn. Options 6 through 9 were judged to be
not feasible for technical reasons and associated costs were not developed.
For a more complete discussion of the options see: "Technical
Memorandums", 11 August 1983 and '.8 November 1983. The costs associated
with discontinuing operations and closing the phosphoric acid plants and
nonitoring the stacks have not been considered. (Option 10)
A. Sunwary of Remedial Option Costs
The investment and operating costs for each of the options that were
considered technically feasible are suirmarlzed by plant in Tables V-l-5.
The costs presented here are taken from technical memorandum mentioned
above and are only sumnarized in terms of investment and operating costs.
For further technical detail and estimate of costs by component the reader
is referred to the "Technical Memorandums."
V-l
-------
Table V-l. Investment and annual operating costs for Option 1:
Discharge Effluent and Gypsum Solids to River
(raise pH) S1983
Daily Capital Operating
Plant flow investment and maintenance
imn (51000)
Allied
1.76
S 2,258
5,849
Agrico
5.78
5,539
18,226
Beker
5.63
5,389
17,774
Freeport
8.80
$ 7,595
27,462
TOTAL
22.0
$20,781
569,311
Source: Technical Memorandum
V-2
-------
Table V-2. Investment and annual operating costs for Option 2:
Ocean Disposal of Gypsum Solids $1983.
Plant
Waste gypsum
produced annually
Capital
i nvestment
Operating and
maintenance
(1000 tons)
-(51000]
Allied
830
$ 6,635
$ 16,437
Agrico
2,560
21,896
55,939
Beker
2,640
21,233
52,600
Freeport
4,000
33,176
82,187
Four Plants
10,030
$82,942
$207,160
Source: Technical Memorandum
V-3
-------
Table V-3. Investment and annual operating costs for Option 3:
Barging of Gypsum to site up or down the river
(20% solids slurry) -$1983
Pi ant
Waste gypsum
Capital
Operating
produced annually
i nvestment
and maintenance
(1000 tons)
-(51000)
Allied
830
$ 23,937
$ 15,300
Agrico
2,560
78,994
50,491
Beker
2,640
76,600
48,961
Freeport
4,000
119,687
76,502
Four Plants
10,030
$299,218
$191,254
Source: Technical Memorandum
V-4
-------
Table V-4. Investment and annual operating costs for Option 4:
Transportation by Truck to Alternative Disposal Sites
(gypsum sol ids) $1983
Plant
Daily wt
of gypsum
Annual
landfil1
cost
Annual
transportation
cost
Total
annual cost
(tons)
("Slflflfil
\ 0 JL U U U /
Allied
8,000
S 6,000
$ 5,800
11,800
Agrico
8,500
20,300
27,500
47,800
Beker
2,500
19,100
51,700
70,800
Freeport
12.500
29,800
$ 46,200
76,000
Four Plants
31,500
$75,200
$131,200
$206,400
Source: Technical Memorandum
V-5
-------
Table V-5. Investment and annual operating costs for Option 5:
Slurrying Gypsum and Pumping to a Site up or Down River $1983.
Plant
Waste gypsum
produced annually
Capi tal
investment
Operati ng
and maintenance
(1000 tons)
-($1000)
Allied
830
$26,064
$ 5,502
Agrico
2,560
86,011
18,156
Beker
2,640
83,404
17,605
Freeport
4,000
130,319
27,508
Four Plants
10,030
$325,798
$68,771
Source: Technical Memorandum
V-6
-------
VI. PROJECTED ECONOMIC IMPACTS
The imposition of remedial options to control the current problems related
to wastewater and waste gypsum management at the Louisiana Phosphoric Acid
plants will result in economic impacts for the four plants. The
expenditures for the remedial options will not improve operating efficiency
but will result in increased costs to produce a unit of product. The
extent of these impacts are analyzed in this chapter as well as the
orojected profitability of the plants before and after controls.
The economic impacts of the various remedial alternatives were projected
using the methodology as described below in each of the respective
sections. Basically, we first examined the increase in revenue required to
maintain the profitability of the plants at baseline level (no control
options) and the possibility of the plants passing these costs on to the
end user. Second, we looked at the profit and loss situation for each of
the plants under the various alternatives.
Production effects are also examined in this chapter. Production effects
may result from two sources--plant closures resulting from the economic
impact of the proposed remedial options, and/or production decreases or
shifts 1n the regulated plants resulting from regulatory action.
In this case, we have examined the effects of an orderly shutdown of the
four plants based upon the estimated life of their stacking capacity.
Since we do not have detailed financial performance data on the
plants, a basic assumption was made that the plants are as profitable as
the industry average in the integrated company, basic producer category of
the fertilizer industry. This may or may not be true. Nevertheless, it
Goes allow a realistic look at the economic and financial impacts of the
remedial options.
A. Price Effects
1. The Price Increase Required by the Remedial Options to Maintain
Profitability at the Baseline Conditions
One economic indicator that is extremely useful is the estimated price
increase that is required to offset the added cost of the remedial
alternatives. To estimate the required revenue increase we use an
annualized costing formula. This analysis also has a second part. Once
the price increase required 1s determined then the second Question must be
answered. This question addresses whether the price increase can be passed
along to consumers In the form of higher profits, backward to raw material
suppliers, absorbed in the profit margins of the plants or a combination of
the above. This question will be addressed in the following section.
VI-1
-------
To determine the required revenue increase, capital (investment) costs,
operating and maintenance costs, investment tax credits, depreciation,
investment life, interest rates (cost of capital), and inflation need to be
taken into account. The methodology developed herewith will incorporate
all of these factors into one formula.
The derivation of the basic formula for the price impact analysis requires
the following assumptions:
• there 1s no replacement investment for remedial control options,
t remedial control investments have zero salvage value,
t no differential inflation occurs among the cost or revenue items,
t the weighted average cost of capital and the marginal income tax
rate remain constant during the life of the investment,
t depreciation is based on the 1981 Economic Recovery Act,
Accelerated Cost Recovery System (ACRS) five-year rates,
t a 10 percent investment tax credit is applicable on remedial
control investment and is reali zed in the year foil owing the
investment.
The resulting annual revenue increase will not affect the net present value
of the phosphoric acid plants which we are unable to calculate due to a
lack of data on book values, salvage values, depreciation and other
variables needed to make such calculations.
The simplified formula for calculating the required revenue Increase can be
expressed as:
I TAXF
R = OM * . 2
y y (1-t) I (l+1nf)y
y«l (l+d)y
where
Ry ¦ annual required revenue increase
y "time period (year)
OM » operation and maintenance costs in year y (for this analysis
y OHj » 0M2 « 0M3 etc.)
I ¦ capital investment occurring at the beginning of the project.
t ¦ marginal tax rate (for this analysis t « AS)
n = the expected life of the pollution control investment (for
this analysis n =» 10)
inf » inflation rate (for this analysis 1nf = .06)
VI-2
-------
d = cost of capital (for this analysis d = .12)
7AXF » constant which accounts for investment tax credit (assumed to
equal .10) and the accelerated depreciation rate, depreciating
the investment over five years as allowed by the 1981 Economic
Recovery Act. Specifically
- i .1 + .151 .22t .211 .211 .21t
iMAP " i - ——— - - - , - . -
1+d (l*d (1+d) (1+d) {1+d)
Solving this equation for TAXF and substituting the result and the values
for "inf," "d" and "t" into the original equation produces the required
revenue formula as follows:
Ry * 0My + .144 IQ
This provides an annualized cost with allowances for depreciation and
investment tax credit.
The results of the analysis are shown for each option and plant on Tables
VI-1 through VI-5 and summarized below:
Price increase required 1/
Option S Per tonPercent
1 20.56 to 25.63 12.3 to 15.3
2 58.70 to 79.77 35.1 to 47.7
3 63.27 to 83.52 37.8 to 49.9
4 39.83 to 83.11 23.8 to 49.6
5 31.24 to 41.23 18.7 to 24.6
In surnnary, the various control options result in an increase in production
cost from $20.56 to S83.52 per ton of phosphoric acid (54 percent P2_Q5_).
This translates to a pretax increase of 12.3 to 49.9 percent depending on
the alternatives considered, y
U The increases in cost from the remedial option alternatives presented
~~ here differ from those calculated by the technical contractor because
of differences in cost of capital, tax considerations, also the
increases in cost presented in this report are in terms of tons of 545
P2p5_ phosphoric acid in contrast to reporting by the technical
contractor which was based on annual operating cost on a per ton basis
for P205_ and labeled cost/ton WPA. In effect, it was the annualized
cost divided by the capacity of total P205_. Our analysis is based on
54 percent P205_ phosphoric acid at the Fasic price of $167.40 versus
the price per ton of phosphate P2Q5_ (100% equivalent) of S310 per ton.
VI-3
-------
Table VI -1. Annual and per ton cost increases resulting from the
pollution control costs for Remedial Control Option 1:
Raise pH and Discharge Effluent and Gypsum Solids
into the Mississippi River
Cost per ton of
Percent price
phosphoric acid 1/
lncrease
PI ant
Annualized cost (54 percent P20F)
required 1/
Agrico Chemical Company
Allied Corporation
Beker Industries
Freeport Minerals
(S1000)
(dollars)
19,024
25.68
15.3
6,174
20.84
12.4
18,550
21.78
13.0
28,556
20.56
12.3
1/. Per ton costs are estimated assuming the plants in question operate at
100 percent of capacity. Capacity estimates are as follows:
Tons P205 Tons phosphoric acid
(100 percent F205) (54 percent P205J
Agrico Chemical Company 400,000 740,740
Allied Corporation 160,000 296,300
Beker Industries 460,000 . 851,850
Freeport Minerals 750,000 1,388,890
V Assuming a base price of $167.4-0 for phosphoric acid.
VI -4
-------
Table VI-2. Annual and per ton cost increases resulting from the
pollution control costs for Remedial Control Option 2:
Ocean Disposal of Gypsum Solids
PI ant
Cost per ton of
phosphoric acid 1/
Annualized cost (54 percent P^O?")
Percent price
increase
required 2/
Agrico Chemical Company
Allied Corporation
3eker Industries
Freeport Minerals
(S1000)
(dollars)
59,092
79.77
47.7
17,392
58.70
35.1
55,658
65.34
39.0
86,964
62.61
37.4
1/ Per ton costs are estimated assuming the plants in question operate at
100 percent of capacity. Capacity estimates are as follows:
Tons P205 Tons phosphoric acid
(100 percent P"205_) (54 percent P205)
Agrico Chemical Company 400,000 740,740
Allied Corporation 160,000 296,300
Beker Industries 460,000 851,850
Freeport Minerals 750,000 1,388,890
2/ Assuming a base price of 5167.40 for phosphoric acid.
VI - 5
-------
Table VI -3. Annual and per ton cost increases resulting from the
pollution control costs for Remedial Control Option 3:
Barging the Gypsum to a Site up or Down the Mississippi River
Cost per ton of
Percent price
phosphoric acid 1/
increase
PI ant
Annualized cost (54 percent P20?)
required 2/
Agrico Chemical Company
A11ied Corporation
Beker Industries
Freeport Minerals
($1000)
(dollars)
61,866
83.52
49.9
18,747
63.27
37.8
59,991
70.42
42.1
93,737
67.49
40.3
If Per ton costs are estimated assuming the plants 1n question operate at
100 percent of.capacity. Capacity estimates are as follows:
Tons P205 Tons phosphoric acid
(100 percent "P"205_) (54 percent P205_)
Agrico Chemical Company 400,000 740,740
Allied Corporation 160,000 296,300
Beker Industries 460,000 851,850
Freeport Minerals 750,000 1,388,890 .
2/ Assuming a base price of $167.40 for phosphoric acid.
VI -6
-------
Table VI-4. Annual and per ton cost increases resulting from the
pollution control costs for Remedial Control Option 4:
Transportation of Gypsum by Truck to Alternative Disposal Sites
Cost per ton of Percent price
phosphoric acid 1/ increase
Plant Annualized cost (54 percent P20^) required 2/
(51000)
(dollars)
Agrico Chemical Company
47,800
64.53
38.5
Allied Corporation
11,800
39.83
23.8
Beker Industries
70,800
83.11
49.6
Freeport Minerals
76,000
54.72
32.7
y Per ton costs are estimated assuming the plants in question operate at
100 percent of capacity. Capacity estimates are as follows:
Tons P205 Tons phosphoric acid
(100 percent ^205_) (54 percent P2Q5)
Agrico Chemical Company 400,000 740,740
Allied Corporation 160,000 296,300
Beker Industries 460,000 851,850
Freeport Minerals 750,000 1,388,890
2/ Assuming a base price of $167.40 for phosphoric acid.
VI-7
-------
Table VI -5. Annual and per ton cost increases resulting from the
pollution control costs for Remedial Control Option 5:
Slurrying Gypsum and Pumping to a Site Up or Down River
Plant
Cost per ton of
phosphoric acid 1/
Annualized cost (54 percent P201T)
Percent price
i ncrease
required 2/
($1000)
(dollars)
Agrico Chemical Company
30,542
41.23
24.6
Allied Corporation
9,255
31.24
18.7
Beker Industries
29,615
34.77
20.8
Freeport Minerals
46,274
33.32
19.9
1/
Per ton costs are estimated assuming the plants in question operate at
100 percent of capacity. Capacity estimates are as follows:
Tons P205
(100 percent "F205)
Agrico Chemical Company 400,000
Allied Corporation 160,000
Beker Industries 460,000
Freeport Minerals 750,000
Tons phosphoric acid
(54 percent P205_)
740,740
296,300
851,850
1,388,890
2/ Assuming a base price of $167.40 for phosphoric acid.
VI -8
-------
2. Expected Price Increases
The fertilizer industry is a competitive industry subject to various supply
and demand characteristics and making basically a commodity type product.
Little, if any, product differentiation is recognized among end users
except the nutrient content, form—liquid or granular-- and mix of the
product. The resulting effect is that the phosphoric acid production under
question can easily be substituted for by phosphoric acid from other plants
or other phosphate fertilizers. The orderly closing of numerous small
plants (Section II-B and Appendix A) is cited as evidence of the extreme
cost pressure in the industry. While we do not know the cost structure for
those plants closed, we can only speculate that many of the closings
occurred because of the narrow margins and homogeneity of the end products
involved.
Second, there is currently over-capacity in the industry due to a number of
factors described in the proceeding sections. The industry operated at a
reported 72 percent of capacity in 1982 and was projected to decline
another 5-6 percent in 1983, down from the 90 percent experienced in the
1970s (see II-B-2). In addition, approximately 25-30 percent of this
capacity is used for export. Because of the over-capacity problems,
proposed plants that were scheduled to be built have been postponed (II-B).
Third, it is clear from an examination of the geographical markets involved
that the four plants in question do not have a unique position in any of
the markets. Basically all of the phosphate that is used in the midwest
originates from the mines in Florida. It is a matter of transporting the
phosphate rock to Louisiana and using local supplies of sulphur and
anhydrous arononia, or transporting the sulphur and anhydrous amnonia to
Florida to manufacture the phosphoric acid and disposing of the gypsum in
that area. Obviously it would take a detailed examination to determine the
least cost option, but our judgement at this point would suggest that the
costs would be roughly equivalent. Further, the four plants do not enjoy a
unique market in the midwest, as approximately 70 percent of the nations
fertilizers is consumed in the midwest but only 15.4 is produced in the
four plants in question. In other words, the phosphate products produced
in Florida are presently competing in the midwest markets.
Economic theory suggests that when increased costs are incurred throughout
an industry (or among all producers), price increases will result over the
long run. However, in this situation only 15.4 percent of the industry
capacity is affected. Given the present situation it is doubtful if the
increased cost from remedial options could be passed forward to
intermediate or end users in other than token amounts. Given the required
price increase of 12 to 50 percent under the various options, and if a
plant would price their product at that percent above the market price,
buyers most likely would choose alternative suppliers. For integrated
producers who require the phosphoric acid to manufacture the end products,
it would simply be cheaper to buy the phosphoric acid from an alternative
supplier although their internal cost structure may be such that a higher
percentage of the control costs could be absorbed.
VI-9
-------
B. Financial Effects
The profit and loss situation for each of the plants under the various
remedial options is presented in this Section. Only the optimistic
scenario was used as the short-term (operating at a loss) scenario would
only show more negative results. Pretax profitability was taken from
Chapter V and combined with the annualized cost developed 1n Section VI-A.
The net results,.on an aftertax basis is shown on Tables VI-6-10.
3ased on the assumptions used in the development of this report, the
results indicate that if the plants are required to implement remedial
options they will be placed in a net operating loss situation. As a
result, the firms will be forced to cease operations and close their
plants. This is true for the least cost alternative -- which is Option 1
-- and, of course, for the remaining options under study.
C. Production Effects
The current production capacity of the industry is 11.5 million tons of
P205.
Assuming that the Louisiana phosphoric acid plants cannot remain
competitive under the conditions of the remedial control options, we make
the worst case assumption that they will close when they have no more room
to store the waste gypsum. This will mean that if these plants operate at
near capacity levels the Beker Chemical plant will close in 1984, and the
Agrico Chemical plant will close in 1986 or 1987. (The other plants can
remain in operation until 1990, hence we will not consider the effects of
their closure).
1. Direct Effects -- Employment
In addition to the financial loss associated with the potential plant
closures the closures would result in the loss of a substantial number of
jobs. According to EGO the plants employ the following approximate number
of people:
Approximate
Plant number of employees
3eker 400
Agrico 400
Allied 200
Freeport 500
Obviously if a plant closes, the jobs associated with that plant will be
lost. Since each of these plants are located in small communities,
opportunities for immediate reemployment are slim.
VI-10
-------
lalile VI - 6. Effects on profit resulting (rum Remedial Control Option 1:
Discharge If fluent and Gypsu* Solids Into the Mississippi Klver \J
Plant
1 ten
Agrico
Cheatcat
Allied Corporation
Beker
Industries
freeport Minerals
per ton
(dollars)
annual
(all lion 1)
per ton
dollars
annual
(ml 11 ion })
per ton
dollars
annual
(ail 11 Ion I)
per ton
dollars
annual
(ail 11 Ion 1)
Pretax profits before controls 2/
10.95
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Annual cost of controls
26.68
19.0
20.84
6.2
21. 78
18.6
20.56
26.6
Pretax profits (losses) after controls
(H-73)
(116)
(13.34)
(4-D
(11.53)
(10.7)
(10.31)
(15.8)
Incoae taxes
--
--
—
--
--
--
--
--
Net profits (loss)
(H-73)
(11.6)
(13.34)
(4.1)
(11.53)
(10.7)
(10.31)
(15.8)
J/ Assuwes renedlal control costs cannot be passed on In the for* of higher prices.
2/ Profitability estimates taken fro* Table IV-2.
-------
I able VI-/. Effects on profit resulting (rota Kewucildl Control Ojil ion l:
Ocean Disposal of Gypsum Solids ]/
Mant
lie* " Agrlco Che»fcal Allied Corporation Beler Industries Freepofl Minerals
per tun
(dollars)
annual
(nil 1 Ion ))
per ton
dollars
annual
(million ))
per ton
dullars
annual
(nil 11 Ion J)
per ton
dollars
annual
(»il 11 ion I)
Pretax profits before controls 2/
10.95
7.4
7.50
2.1
10.25
7.9
10.25
12.H
Annual cost of controls
79.77
59.9
58.70
17.4
65.34
55.7
62.61
87.0
Pretax profits (losses) after controls
(68.82)
(52.5)
(51.20)
(15.3)
(55.09)
(47.8)
(52.36)
(74.2)
Incoaie taxes
Net profits (loss)
(63.82)
(52.5)
(51.20)
(15.3)
(55.09)
(47.8)
(52 36)
(74.2)
1/ Assumes reuedlal control costs cannot be passed on In the for* of higher prices.
2/ Profitability estimates taken fro* Table IV-?.
i
ro
-------
lable Vl-fl. Effects oil profit resulting frow Reuiedlal Control Option 3:
Barglny the Gypsupi to a Slttf Up or Down the Mississippi River 1/
Plant
Item
Agrlco
Chenical
Allied Corporation
Belter
Industries
Freeport Minerals
per ton
(dollars)
annual
(¦illion i)
per ton
dollars
annual
(¦illIon })
per ton
dollars
annual
(nil lion t)
per ton
dollars
annual
(ml 11 ion \)
Pretax profits before controls 2J
10.96
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Annual cost of controls
83.52
61.9
63.27
IB.7
70.42
60.0
67.49
93.7
Pretax profits (losses) after controls
(72.57)
(645)
(66.77)
(16.6)
(60.17)
(62.1)
(57.24)
(80.9)
Incoue taxes
—
--
—
--
—
--
--
--
Net profits (loss)
(72.57)
(54.5)
(55.77)
(16.6)
(60.17)
(52.1)
(57.24)
(BO.9)
1/ Assuaes rewdlil control costs cannot be passed on in the for* of higher prices.
2/ Profitability estimates taken frua lable IV-?.
i
t—*
CJ
-------
table VI - 9. I Itecis on prof II resulting from Keincdlal Conlrul Option 4:
IranspoilatIon of Gypsum by Truck to Alternative Disposal biles \J
_____ HI ant _
Item Agrlco Chenfcal Allied Corporation " Belie r Industries Freeport Minerals
per ton
(dollars)
annual
(nil 1 Ion $)
per ton
dollars
annual
(uiilllon t)
per ton
dol1ars
annual
(mi 11 ion 1)
per (on
dollars
annual
(¦nil lion I)
Pretax profits before control* 2/
10.9b
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Annual cost of controls
64.63
47.8
39.83
11.8
83.11
70.8
54.72
76.0
Pretax profits (losses) after controls
(53.58)
(40.4)
(32.33)
(9.7)
(72.86)
(72.9)
(44.47)
(63.2)
Incooe taxes
--
--
--
--
--
--
--
--
Net profits (loss)
(53.58)
(40.4)
(32.33)
(9.7)
(72.86)
(72.9)
(44.47)
(63?)
1/ Assumes reaedial control costs cannot be passed oil in the fore of higher prices.
2/ Profitability estimates taken fron lable IV-?.
»—4
I
-------
table VI-IO. Effects un profit resulting from Henedlal Contrul Option S:
Slurrying Gypsum and Pumping to a Site Up or Down the Mississippi River \J
Plant
Item
Agrlco Chemical
Allied Corporation
Beker
Industries
Frceport Minerals
per ton
(dollars)
annual
(million $)
per ton
dollars
annual
(million $)
per ton
dollars
annual
(ml 11 Ion $)
per ton
dollars
annual
(mi 11 Ion ))
Pretax profits before controls 2/
10.95
7.4
7.50
2.1
10.25
7.9
10.25
12.8
Annual cost of controls
41.23
30.5
31.24
9.3
34.77
29.6
33.32
46.3
Pretax profits (losses) after controls
(30.28)
(24.7)
(23.10)
(7.8)
(24.52)
(21.7)
(23.07)
(33.5)
Income taxes
--
--
—
--
--
--
--
--
Net profits (loss)
(30.28)
(24.7)
(23.10)
(7.8)
(24.52)
(21.7)
(23.07)
(33.5)
\J Assumes remedial control costs cannot be passed on In the for* of higher prices.
2/ Profitability estimates taken frem lable IV-?.
-------
2. Industry Effects
The recent decline in production of phosphate materials was precipitated by
a corresponding decline in the demand for phosphate fertilizer in both
domestic and export markets. Domestic markets have been hurt by low crop
prices, farm income, and federal crop acreage reduction programs. The
export market has been depressed because of a recession worldwide, the
development by other countries of their phosphate resources and especially
the hign value of the dollar relative to other foreign currencies.
Projections of future production levels, which must be made in view of
demand are complicated by all of these factors. For this reason,
projections of domestic use are normally only made for the upcoming crop
year by the Tennessee Yalley Authority. Projections of capacity and
domestic demand are made for five years by the Food and Agriculture
Organization of the United Nations (FAO), but these projections are made
for North America as a whole and are largely outdated because of changing
conditions in demand since they were made in February 1983. (Changes 1n
market conditions since February stem from increased crop prices, reduced
inventories, and the outlook for reduced federal crop acreage reduction
programs, especially for corn, which will increase the demand for phosphate
fertilizer, at least domestically.) Also FAO projections do not include
any analysis of export markets.
Domestic demand for phosphate fertilizer in 1984 is expected to total
approximately 5.1 million tons of P205^ (Harre, personal communication,
1983). Export demand while expected to increase over the 1983 crop year,
continues to be hurt by unfavorable exchange rates. The most current
estimates are for a total export demand of approximately 4.1 million tons
of P205 (Andrilenas, 1983).
Production of phosphoric acid will have to total approximately 9.2 million
tons of P205_ to meet demand requirements, assuming no changes in
inventories? Given TVA's estimates of capacity of 11.5 million tons of
P£05^ in the form of phosphoric acid, capacity utilization rates under
baseline conditions will equal approximately 80 percent.
The implications of plant closures against this background are as follows:
The Seker Chemical plant, located in Taf-t, Louisiana would probably be
forced to discontinue operations if not allowed to continue discharging its
gypsum slurry into the Mississippi River. (We assume the other plants
would continue to use remaining capacity to stack the gypsum by-product.)
This loss 1n Industry capacity would mean that utilization rates in the
industry would probably Increase to 83-84 percent. We do not believe that
there would be any industry wide production effects resulting from the
remedial control options 1n 1984.
VI-16
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It is difficult to forecast the impact of an additional closure in 1986 or
1987 because of the uncertainties on the demand side. If demand remains at
the projected 1984 rate of 9.2 million tons, the industry utilization rate
will be increased to 87 to 88 percent. In other words, the loss of the
Beker and Agrico plants will reduce total capacity, according to TVA
estimates to approximately 10.6 million tons of P205_.
In orcer for there to be any production effects resulting from the remedial
control options, we believe that domestic and export demand would have to
reach a level near the maximum industry capacity of 10.6 million tons of
P205_. The likelihood of this happening by 1986 or 1987 is hard to assess
because of the difficulty in making demand projections this far into the
future. However, domestic demand is not expected to increase
significantly. We are doubtful that the export market will increase enough
to cause serious production effects during this time period.
Capacity can be added to the industry according to Industry sources in
approximately two to three years (Harre, Personal Communication, 1983). If
industry utilization rates increase to maximum levels in the late 1980s, we
believe investment in additional capacity would result.
Should the four plants be allowed to discharge directly, the question of
the related cost savings is then appropriate. According to preliminary
estimates, the costs for maintaining an active gypsum stack amounts to
roughly $1.00 per ton of P205 (54 percent produced). Approxitnately
one-half of that cost woulH"Fe necessary for continued stack maintenance
even though new additions of gypsum would not be added.
VI-17
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REFERENCES
Andrilenas, Paul. USDA. Personal Communication. December 1983.
Chemical Marketinq Reporter. "Chemical Profile-Phosphoric Acid." July 18.
1383.
Chemical Marketing Reporter. "Phosphate Makers Put Expansion on Hold as
Forecasts Push Recovery Back to 1984." December 1983.
Chemical Meek. "Exports Offer Hope for Phosphates." July 13, 1983.
Chemical Week. "Fertilizer-Getting Set for the Big Rebound." November 9,
RB3:—
David, M.L., J.M. Malk, C.C. Jones. The Economic Impact of Costs of
Proposed Effluent Limitation Guidelines for the Fertilizer Industry.
Environmental Protection Agency-230/1-73-010. November 1973.
David, M.L., T.R. Eyestone, and R.E. Seltzer. The Corrcnodity Shortages of
1973-1974. "Study of Causes, Adjustments and Impacts of Shortages in
Fertilizers." Prepared for the National Commission on Supplies and
Shortages. August 1976.
Douglas, John. "Fertilizer Costs-1985. Can Farmers Afford Them?"
Ferti 1 izer Progress. September-October 1981.
EPA. Final Guideline Document: Control of Fluoride Emissions From
Existing Phosphate Fertilizer Plants. EPA-450/2-77-005. March 1977.
Fielding, Thomas E. Memorandum: Louisiana Phosphoric Acid Plant Site
Visit Reports. EPA. July 1983.
Harre, Edwin A. and Norman L. Hargett "Fertilizer Supply/Demand Outlook
Mixed." Solutions. February 1983, pp. 30-40.
Harre, Edwin A. Tennessee Valley Authority. Personal Corrmunication.
December 1983.
The Fertilizer Institute. Ferti1izer Financial Facts. Compiled by Ernst
and Whinney. Annual.
Jaquier, L.L. "Nitrogen and Phosphates-Supply/Demand/Cost-Now and in
1985." Fertilizer Progress. March-April 1981.
Murphy, Larry Dr., The Potash-Phosphate Institute, Midwest Director.
Personal Conmunication. December 1983.
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REFERENCES (cont'd)
Myers, J.M., G.D. Rawlings, E.A. Mullen, C.M. Moscowitz, and R.B. Reznik.
Source Assessment: Phosphate Fertilizer Industry. Prepared for EPA,
Office of Research and Development. EPA-600/Z-79-019C. May 1979.
Robert Morris Associates. Annual Statement Studies. Annual.
Tennessee Valley Authority. Ferti1izer Trends. National Fertilizer
Development Center, Muscle Shoals, Alabama. Annual.
Terlecky, P.M. "Technical Memorandum: Surface and Subsurface Site
Characteristics at Louisiana Phosphoric Acid'PI ants." Frontier
Technical Associates. Buffalo, New York. November 2, 1983.
Terlecky, P.M. "Technical Memorandum: Remedial Options-Louisiana
Phosphoric Acid Plants." Frontier Technical Associates. 8uffalo, New
York. November 18, 1983.
USDA. Agricultural Prices. Crop Reporting Board, Statistical Reporting
Service, Washington, D.C. Monthly.
USDA. Fertilizer Outlook and Situation. National Economics Division,
Economic Research Service, Washington, D.C. Annual.
USDC. Inorganic Fertilizer Materials and Related Products. Series M288,
Bureau of Census, Washington, D.C. Monthly.
USDC. 1983 U.S. Industrial Outlook. Bureau of Industrial Economics.
Washington, D.C. January 1983.
Young, R.D. and C.H. Dav-ies. Phosphate Fertilizers and Process Technology.
Tennessee Valley Authority^ Muscle Shoals, Alabama. June 1976.
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APPENDIX A
Phosphoric Acid Plants Closing Since 1976
Company
Location
Approximate closing date
Arkla Chemical
Beker Industries
Bordon Chemical
Col 1ier Carton
Duval Corp.
First Mississippi
Gulf Resources
Occidental Chemical
01 in Corp.
Stauffer
Stauffer
Valley Nitrogen
Helena, AR
Marseilles, IL
Streator, IL
Pittsburg, CA
Hanford, CA
Fort Madison,
Kellogg, ID
Lathrop, CA
Pasadena, TX
Pasadena, TX
Garfield, UT
Helm, CA
IA
1976
1976
7
?
1977
1982
1982
1983
1980
1976
1982
1981
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