Acid Rain and Smelter Agreement

Acid Rain and Smelter Agreement

In July 1985, as the U.S. copper industry contracted and the Mexican industry expanded, a transborder pollution agreement was signed which included smelter air pollution control in the “Gray Triangle”: Cananea, Nacozari and Douglas. Since then the Douglas smelter has been closed, a year earlier than initially required; though its new smelter is operating, SO2 collection and acid disposal at Nacozari is yet to come; and the Cananea smelter has been untouched. Nacozari and Cananea copper mining have expanded while a reduced U.S. copper industry has rationalized to a point of fragile profitability. As a paradigm of U.S. copper competitiveness, this paper attempts to explain the differential fortunes of copper in the two countries, to project the future of the smelter agreement as a function of acid disposal, and to consider the consequences of the politicized application of smelter pollution control in Arizona.

Copper Price Changes and Profitability

As neighbors, copper deposits in Sonora and southern Arizona are, on average, similar in ore grades, stripping ratios, and by-products. Mine equipment and mining methods are also smiliar. Significant wage differentials have existed for decades, partially offset by greater U.S. productivity and, more recently, by domestic wage bill reductions and sharp productivity increases, some of which is due to leaching. Until quite recently both capital costs and the cost of capital were lower in the U.S. contributing to productivity. Air pollution control is an added domestic cost (far less than in Japan), but some is offset by increased smelter productivity in smaller furnaces of which some were built before the recession. APC did not cripple the U.S. industry, but its mode of application differentially affected producers.

The strong dollar limited U.S. copper exports, but with an open market led to increased imports. As neither the Bureau of Mines nor the Department of Commerce collects data on the export or import of semi or manufactured copper, much less make estimates of the trade in copper embodied in manufactured assemblies, net imports cannot easily be documented from existing data. But domestic manufacturing firms increasingly used imported refined copper while increased imports of cars and electrical equipment further limited the U.S. market for domestic primary producers. The result was excess capacity, increased unit costs, producer losses, and a need for rationalization and increased productivity. Unfortunately, downstream manufacturing capacity was also reduced, losing assured market advantages of vertical integration.

The Mexican copper mines are neither more efficient nor intrinsically lower cost than those in Arizona. As employment havens they, like most state-run organizations, tend to be overstaffed. Local operating decisions made in Mexico City are unlikely to be optimally efficient. Their lower costs are, and will be, financially derived. Mexican copper mining, with its new investments, is the beneficiary of the proposed and existing solutions to the debt crisis. Note that it is not necessary for the mine expansions or smelter and concentrator construction to have been directly financed either by foreign loans or by Mexican government loans.

A depressed dollar will yield a higher dollar denominated copper price. It should be noted that the increase in copper prices has been far less when valued in yen or D.M. But long run, copper prices will remain low even without recession. Inventory short-falls are, by definition, short-term. Zambian copper may find its way to the sea.

The Mexican-American Smelter Agreement

The typical problem facing a flash smelter operator is acid disposal. Reverbs do not provide a sufficiently rich SO2 effluent-concentration to meet the minimum 4% SO2% (vol.) required for an acid plant. The San Manuel smelter produces acid from converter aisle, not furnace aisle, exhausts. The Cananea smelter, like the former Douglas smelter, does not collect effluent gas from either aisle. But if acid is produced it must be disposed. If it cannot be sold at a profit or profitably used, negative net acid production and disposal revenues are charges against copper revenues. The profitable acid market is limited by distance as net acid revenues are very sensitive to transport costs.

The La Caridad smelter (also listed as El Tajo or Nacozari) has a current capacity of 1800 tonnes/day concentrate yielding 525 tonnes/day anode copper. A final capacity of 2250 tonnes of concentrate/day may be possible. Its owner, Mexicana de Cobre S.A., is a 44% government firm. Smelter construction, which began in 1979, has been completed at a cost of $332.7 million. It is currently operating. The input concentrate is 31.5% copper and 30.57% sulfur.

The amount of acid to be shipped will be reduced by acid consumption at Nacozari and Cananea. As the former mine is new, dumps are not extensive and leaching involves the oxide ore. This is acid consumptive. Cananea oxides have been leached in the past. There is an SX-EW plant in operation. The dumps, however, while they represent years of mining, also represent the scale before the triple expansion. And some sulfide dumps (chalcopyrite) produce acid.

U.S. Leaching Acid Disposal and Smelter Avoidance

In the U.S., copper leach operations have been touted as the saving of the industry. Long-run they are nothing of the sort. Short-run they are low cost, profitable, and maintain cash flow. As precipitate leaching plus smelting and refining give way to SX-EW for cathode production, smelting and refining, with their attendant problems, are reduced. Leaching success depends on the ore type, when mined and how disposed, permeability, solubility and other factors.

The success of the PD operation depends on low electric costs, a 40 year mining dump requiring no additional mining to provide material, and an ore that is primarily chalcocite which is about four times as soluble as chalcopyrite. Acid must be used, but SX-EW recycles acid. Oxide ores, which use acid completely, are 1.7 times more soluble than chalcocite. Unfortunately, oxide ores comprise at most 8% of U.S. reserves. Their preferential leaching at Inspiration and San Manuel represent a special depletion, a form of high grading and a foreshortened future. The predominant U.S. ore, chalcopyrite, leaches slowly, but produces acid sometimes in excess, as at Bingham Canyon.

SO2 Pollution Control

Copper smelter APC may be environmentally based, but it has unfortunately become all too politicized. Because the industry saw short-term local advantages due to the ill fortune of some members, a united front was not presented. Here it is useful to note the highly selective application of APC standards at both the federal level and by the Babbit administration in Arizona. Their general commitment to air pollution control is open to serious question.

E.P.A. has refused to impose sanctions on non-complying cities and has claimed that the states are supposed to decide how to meet federal .air pollution control standards. In Arizona, the relevant organizations are the Departments of Environmental Quality, of Health Services, and of Transportation; all stem from the Governor’s office. After years of lack of effort, in 1986 Phoenix attained a premier national position for ozone and carbon monoxide pollution.

Impacts of Early Smelter Closure

NSPS regulations would have forced the closure of the Douglas smelter by 1 January 1988. A performance bond executed by PD was a further guarantee. Its forced closure by 15 January 1987, had a number of adverse local, statewide and some national impacts. As these were not widely publicized at the time the decisions were made, it is worth noting them.

Closure cost 347 smelter jobs, a direct annual payroll of $9.5 million (about 25% of aggregate city payrolls), and a reduction in full cash value of the plant from $10.4 to $1.5 million. At constant assessed valuation percentage and tax rate, PD real estate taxes would be reduced by $269,000 for 1987. This affects the city, Cochise County and the school district, none of which would see an immediate drop in costs. Intra-state revenue transfers would be needed.

acid acid rain and u.s. copper competitiveness the mexican-american smelter agreement