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Can the U.S. act alone on mercury?

Session 1: Economics of the Worldwide Mercury Market & Materials Flow. Can the U.S. act alone on mercury?. Some initial hypotheses from the analysis of commodity flows Edward Weiler, Economist (202) 564-8836 weiler.edward@EPA.gov U.S. Environmental Protection Agency May 1, 2002.

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Can the U.S. act alone on mercury?

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  1. Session 1: Economics of the Worldwide Mercury Market & Materials Flow Can the U.S. act alone on mercury? Some initial hypotheses from the analysis of commodity flows Edward Weiler, Economist (202) 564-8836 weiler.edward@EPA.gov U.S. Environmental Protection Agency May 1, 2002 Prepared for: Breaking the Cycle: Long-term Management of Surplus & Recycled Mercury & Mercury-Bearing Waste Hynes Convention Center, Boston, Massachusetts, May 1-3, 2002

  2. Key Questions to be Addressed • What do we know about world supply and demand for mercury? • What is the relationship between the U.S. and world markets? • What does the future hold for supply and demand? • What are the implications for environmental policy?

  3. World Supply and Demand:Primary Mine Production • Three key producing nations • Spain, Kyrgystan, Algeria(for export) • China (for domestic demand), but mines rumored to be closing • Production “lumpy” but declining • 9% average annual declinesince 1987 • Kyrgystan is exception • Virgin producers also broker secondary supply from non-mining sources. Source: Metal Statistics 1997 & 2000 U.S. Geological Survey Minerals Yearbook 2000

  4. World Supply and Demand:Secondary Production • Very dependent on rate of chlor-alkali shutdowns; large potential for year to year variability. • Mining by-product assumed to be all production in countries other than Spain, Kyrgyzstan, Algeria and China. • Recycling numbers for devices approximately 40-80 tonnes per year in U.S. Similar quantity assumed in Europe. • Flow from stockpiles could also be significant in a given year.

  5. World Supply and Demand:Demand Trends • World demand data very scarce • GOBI International data points are only summary available • North America, Europe dominate mercury use • 70% of total use in 1990 and 59% in 1996 • Northeast Asia is also important locus (China, primarily) • Data suggest downward demand trend • Total demand declined 33% from 1990 to 1996 • Not clear that northeast Asia is declining • Important continuing uses: • Artisanal gold mining: potentially significant quantities of Hg used, released • Lighting: expanding uses (small quantities)

  6. U.S. and World Demand Sources: U.S. Demand; U.S. Bureau of Mines Circular 9412 and USGS Minerals Yearbook 1994 - 1997, World Demand: GOBI International

  7. World Demand:Artisanal Gold Mining • Could represent an important contributor to world demand • Representative mercury use is 1 gram hg per gram of gold extracted • Estimates indicate 180 to 250 tonnes per year of artisanal gold production worldwide (Veiga, MMSD) • Suggests mercury used by miners would be several hundred tonnes per year, but estimate is highly uncertain • Demand for mercury by miners is insensitive to mercury price • Hg cost is very small relative to value of recovered gold (approximately 0.1%) • Amazon: mercury prices five times market rates; still affordable

  8. Domestic Supply and Demand:Secondary and By-Product Production • Non-virgin supply in U.S.now exceeds total demand • U.S. not dependent onworld markets • "Lumpy" supply, internationalnature of trade preclude "closed" market • According to one expert, recent U.S. demand significantly lower than 400 tonnes Source: U.S. Bureau of Mines Circular 9412 and USGS Minerals Yearbook 1994 - 1997

  9. U.S. Trade Patterns: Net Imports/Exports Source: US International Trade Commission • U.S. is often a net exporter, but patterns vary. • Import/exports reflect market making, as well as balancing domestic supply/demand.

  10. World Mercury Prices • Clear downward trend • data limitations do not alter this conclusion • Trend consistent across pricing sources • Bottom line: Mercury production and sale is significantly smaller and less profitable enterprise • Also, falling prices do not appear to increase demand Source: Platt Metals Week 1980-1998, Metallstatistik 1995

  11. Mercury Pricing: U.S. and World • U.S. spot prices track withEuropean prices. • U.S. market independent, but clearly linked to world markets through pricing. Source: Platt Metals Week 1980-1998, Metallstatistik 1995, and American Metal Market

  12. Primary Production: Response to Price Changes • Primary production tracks price • other mercury supplies driven by regulation, gold prices • Virgin mines very responsive to price Source: American Metal Market and Metal Statistics 1997 & 2000 U.S. Geological Survey Minerals Yearbook 2000

  13. Future Supply/Demand Scenarios:Possible Demand Scenarios • High-Demand • 50 percent decline in chlor-alkali world demand, and 50 percent decline in most mercury product uses over 20 years • Metal halide lamp growth of 15 percent per year • Medium Demand • 70 percent decline in chlor-alkali demand over 20 years, and 10 percent per year decline in product uses, consistent with recent trends • Halide lamp demand grows at 15 percent for next five years • Low Demand • All chlor-alkali plants phased out over next 10 years, most product uses decline by 20 percent per year. • Halide lamp demand grows for five years, then declines

  14. Future Supply/Demand Scenarios:Possible Supply Scenarios • Low Supply (consistent with high demand) • 50 percent decline in chlor-alkali plants over 20 years; no recycling increases • Medium Supply • 70 percent decline in chlor-alkali plants over 20 years • 5 percent per year increase in recycling of mercury wastes • High Supply (consistent with low demand) • All chlor-alkali plants closed over next 10 years • 10 percent per year increase in recycling of mercury wastes • Virgin production assumed to close gap between secondary supply and demand; byproduct production constant

  15. Future Supply/Demand Scenarios:Cumulative Future Demand and Supply

  16. Future Supply/Demand Scenarios:Key Insights • Excess Hg could exist in medium, low scenarios • Even "high demand" scenario results in 35 percent drop in demand from current levels. • Mines will be first to close • Mines highest cost source of supply • Other sources of supply unaffected by Hg demand • Excess supply may lead to further decline in hg prices • At some point, sale of Hg becomes impossible

  17. Implications for Policy • Storage/treatment option is needed • Excess mercury may have no market • Storage costs not insignificant • Initial estimate: $500-$700 per ton (NPV over 10 years) • Also lost revenue from sale of mercury plus future treatment costs • Extent of storage will depend on specifics of storage policy

  18. Implications for Policy:Stockpile Releases • Potential stockpile releases likely to reduce virgin production • Drop in Spanish production in mid-1990s coincided with stockpile releases; mining responsive to price and supply • Impact on Hg demand likely minimal • Could reduce emissions associated with Hg mining • Impact on U.S. suppliers limited in low and medium supply scenarios, as DLA releases only replace virgin production

  19. Conclusions • Can U.S. act alone on mercury? • No: Markets are integrated. • What does the future mercury market look like? • Structural decline in demand unaffected by price. • Likely to continue to drop to point where sale of excess mercury is difficult. • What are implications for policy? • Storage/treatment/disposal important for excess mercury. • Stockpile releases may offset virgin production or be used strategically to discourage virgin production.

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