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Counting the cost of clean air: USBM studies economic impact of smelter rebuilds.


The U.S. copper industry has made major investments to convert its smelting technology to meet new environmental regulations. A dramatic reduction in [SO.sub.2] emissions has occurred. By the end of 187 some 83% of these emissions were under control, today this figure approaches 90%, and it will be still higher in the future. U.S. copper smelters are now a minor source of [SO.sub.2] emissions in comparison to other man-made sources and are no longer a significant contributor on the national level (Table 4). [Tabular Data Omitted]

However, this successful emission-reduction program has been expensive. The net regulatory-cost burden being carried by U.S. smelters in 187 was estimated to be as high as 7.5[cent]/lb copper, over 45% of the total estimated operating cost. Unable to bear the additional costs, many U.S. smelters have closed down.

The number of operating copper smelters in the United States has fallen to eight. A 36% reduction in domestic smelting capacity occurred between 1975 and the end of 1987. Table 1 presents a summary of recent changes. [Tabular Data Omitted]

Seven of the eight U.S. copper smelters are located in the southwest. The eighth smelter, the low-sulphur-feed Copper Range Co. White Pine smelter in northern Michigan, was not covered in the USBM study, but is described elsewhere in this issue. The study covered the seven southwestern smelters representing approximately 96% of U.S. copper-smelting capacity in 1987.

The major regulatory impact on U.S. smelters arose from the Clean Air Act requirements for control of sulphur dioxide. The smelters have adopted or are adopting a variety of new smelting processes to comply with the regulations.

The operating costs for the individual smelters ranged from 10-15 [cents]/lb copper and the average operating cost in 1987 was 12.3 [cents]/lb (Table 2). This operating cost included 3.2[cent], 26%, as the cost burden of compliance with environmental, health, and safety regulations.

Table : Table 2. Southwestern U.S. Smelter Costs Weighted average operating cost in [cent]/lb copper
                Item       Cost   % of total
                Labor       4.7        38
                Energy      3.7        30
                Supplies    3.9        32
                Total      12.3       100

Weighted average regulatory cost

3.2 26

Installation of the new processes led to some saving in operating cost and sometimes to an increase in production capacity. However, the combined operating-cost savings and capacity increases were insufficient to justify the capital investment. It appears, were it not for the regulatory requirement, the retrofits would not have occurred. Therefore, the greatest part of the capital cost is usually a regulatory expense. A discounted-cash-flow analysis of three smelter conversions was used to estimate the capital regulatory-cost component. At a 15% rate of return the capital regulatory cost was 5.6 [cents]/lb copper, at a zero return rate is was 2.5 [cents]/lb.

If the average capital regulatory cost at 15% rate of return, 5.6 [cents]/lb, is assumed to be representative of the industry and is added to the regulatory operating cost, 3.2 [cents]/lb, the total regulatory cost approaches 9 [cents]/lb copper.

In 1987, U.S. smelters produced about 2.7 tons of acid for every ton of copper. Any revenue received from sale or use of acid would partially offset the regulatory operating costs. Assuming an acid net-payback value of $10/st for U.S. smelters, and this figure has been indicated to be on the high side, the average acid-credit was estimated to be 1.3 [cent]/lb copper. Table 3 provides a summary of costs for a U.S. smelter, including acid credit.

Table : Table 3. Summary of Costs at 15% DCFROR
                            Costs, [cent]/lb copper
                        Regulatory   Non Regulatory   Total
Operating                  3.2             9.1         12.3
Less acid credit          (1.3)           (0.0)        (1.3)
Net operating              1.9             9.1         11.0
Capital at 15% DCFROR      5.6             0.0(*)       5.6
Net including capital      7.5             9.1         16.6

(*) Reinvestment capital costs not included.
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Title Annotation:Copper USA supplement; U.S. Bureau of Mines
Publication:E&MJ - Engineering & Mining Journal
Date:Jan 1, 1990
Previous Article:Montana Resources: richest hill once again yielding copper treasure.
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