December 6, 2007

**[MEMORANDUM]{.underline}**

**SUBJECT:** Economic Impact Analysis for Iron and Steel Foundries Area
Source Rule

**FROM:** Tom Walton

> Economist
>
> ABCG (C439-02)

**TO:** Conrad K. Chin

> Engineer, MMG (D243-02)

This document addresses Number range CHAPTER the economic im­pacts of
Iron and Steel Foundries Area Source Rule. The economic impact analysis
focuses on changes in market prices and output levels. If changes in
market prices and output levels in the primary markets are significant
enough, impacts on other markets are also examined.

Both the magnitude of control costs needed to comply with the rule and
the distribution of these costs among affected facilities can have a
role in determining how the market prices and quantities will change in
response to rule. In this case, at the facility level, we estimated
revenues based on average prices (see Table 1).

This analysis covers two alternatives. Under the first alternative, the
threshold for large foundries would be set at 10,000 tpy. Under the
second alternative, the threshold for large foundries would be set at
20,000 tpy.

For each alternative, the revenues, described above, were combined with
Monte Carlo results facility control cost estimates to estimate
cost-to-sales ratios at a facility level. Mean estimates are used from
the Monte Carlo results for estimating total annual costs and average
costs-to-sales estimates. For highest costs-to-sales estimates and
number of firms above 1% and 3% thresholds the mean is provided with the
95% confidence intervals in parentheses immediately after the mean. This
makes the second number in the parenthesis the number corresponding to
the 97.5 percentile, which should be interpreted as a number that has
only a 2.5 percent chance of being exceeded.

**10,000 tpy threshold**

**Iron Foundries**

For iron foundries, the total annualized costs associated with the
regulation are 6.0 million dollars. The facility level average
cost-to-sales for iron foundry facilities is 0.2%. The following table
shows more about the distribution of costs. The highest cost-to-sales
for an iron foundry facility is 3.4% (2.3% - 4.5%).

+-----------------+-------------+------------------+------------------+
|                 | Facilities  | cost/sales \>=   | cost/sales       |
|                 |             | 1%               |                  |
|                 |             |                  | \>= 3%           |
+-----------------+-------------+------------------+------------------+
| Small Entities  | 188         | 13 (8-17)        | 1 (0-3)          |
+-----------------+-------------+------------------+------------------+
| All             | 242         | 18 (12--23)      | 1 (0-3)          |
+-----------------+-------------+------------------+------------------+

**Table 1**

  -------------------------------------------------------------------------------------------------------------- ---------- ---------- ----------- ---------- ------------ ------------ ------------
                                                                                                                 Ductile    Gray iron  Malleable   Steel      Steel        Iron total   Iron total
                                                                                                                 iron       castings   iron        castings   investment                Steel total
                                                                                                                 castings              castings               castings                  

                                                                                                                                                                                        

  Value of shipments (millions) 2003                                                                             \$3,203    \$3,213    \$145       \$1,417    \$1,562      \$6,561.1    \$2,979.1

  Shipments for sale (thousands of short tons) 2003                                                              3,630      3,160      49          726        31           6,838.5      756.9

  Price per short ton 2003                                                                                       \$882      \$1,017    \$2,982     \$1,951    \$51,044     \$959.44     \$3,935.97

  Marshal & Swift 2003 cost index                                                                                1123.6                                                                 

  Marshal & Swift 2005 cost index                                                                                1244.5                                                                 

  Price 2005 (\$/ton)                                                                                            \$977      \$1,126    \$3,303     \$2,161    \$56,536     \$1,062.67   \$4,359.48

                                                                                                                                                                                        

  [[http://www.census.gov/industry/1/ma331a03.pdf]{.underline}](http://www.census.gov/industry/1/ma331a03.pdf)                                                                          

  Value of shipments as reported in Table 2.                                                                                                                                            

  Shipment quantities taken from Table 3.                                                                                                                                               

  Note: for sale quantity for malleable not reported directly                                                                                                                           

  obtained through subtraction of ductile, grey iron, and                                                                                                                               

  steel (non-investment) from Iron and steel castings                                                                                                                                   

  (except investment castings) for sale quantities in Table 3.                                                                                                                          
  -------------------------------------------------------------------------------------------------------------- ---------- ---------- ----------- ---------- ------------ ------------ ------------

For iron foundries, these costs are not projected to impose a
significant impact on a substantial number of small entities. No
significant market impact is expected because of the small total
national cost and the small cost increase compared to revenues whether
the costs are absorbed or passed on to the buyers.

**Steel Foundries**

For steel foundries, the total annualized costs associated with the
regulation are 1.2 million dollars. The steel foundry facility level
average cost-to-sales is 0.05 %. The following table shows more about
the distribution of costs. The highest cost-to-sales for a steel foundry
facility is 1.6% (0.81% - 1.9%).

+-----------------+-------------+------------------+------------------+
|                 | Facilities  | cost/sales \>=   | cost/sales       |
|                 |             | 1%               |                  |
|                 |             |                  | \>= 3%           |
+-----------------+-------------+------------------+------------------+
| Small Entities  | 132         | 1 (0-2)          | 0 (0-0)          |
+-----------------+-------------+------------------+------------------+
| All             | 186         | 2 (0-5)          | 0 (0-0)          |
+-----------------+-------------+------------------+------------------+

For steel foundries, these costs are not projected to impose a
significant impact on a substantial number of small entities. No
significant market impact is expected because of the small total
national cost and the small cost increase compared to revenues whether
the costs are absorbed or passed on to the buyers.

**20,000 tpy threshold**

**Iron Foundries**

For iron foundries, the total annualized costs associated with the
regulation are 4.2 million dollars. The facility level average
cost-to-sales for iron foundry facilities is 0.1%. The following table
shows more about the distribution of costs. The highest cost-to-sales
for an iron foundry facility is 2.0% (1.6% - 2.3%).

+-----------------+-------------+------------------+------------------+
|                 | Facilities  | cost/sales \>=   | cost/sales       |
|                 |             | 1%               |                  |
|                 |             |                  | \>= 3%           |
+-----------------+-------------+------------------+------------------+
| Small Entities  | 188         | 4 (1-6)          | 0 (0-0)          |
+-----------------+-------------+------------------+------------------+
| All             | 242         | 9 (5-13)         | 0 (0-0)          |
+-----------------+-------------+------------------+------------------+

For iron foundries, these costs are not projected to impose a
significant impact on a substantial number of small entities. No
significant market impact is expected because of the small total
national cost and the small cost increase compared to revenues whether
the costs are absorbed or passed on to the buyers.

**Steel Foundries**

For steel foundries, the total annualized costs associated with the
regulation are 0.63 million dollars. The steel foundry facility level
average cost-to-sales is 0.03 %. The following table shows more about
the distribution of costs. The highest cost-to-sales for a steel foundry
facility is 0.5% (0.18% - 0.80%).

+-----------------+-------------+------------------+------------------+
|                 | Facilities  | cost/sales \>=   | cost/sales       |
|                 |             | 1%               |                  |
|                 |             |                  | \>= 3%           |
+-----------------+-------------+------------------+------------------+
| Small Entities  | 132         | 0 (0-0)          | 0 (0-0)          |
+-----------------+-------------+------------------+------------------+
| All             | 186         | 0 (0-0)          | 0 (0-0)          |
+-----------------+-------------+------------------+------------------+

For steel foundries, these costs are not projected to impose a
significant impact on a substantial number of small entities. No
significant market impact is expected because of the small total
national cost and the small cost increase compared to revenues whether
the costs are absorbed or passed on to the buyers.