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

Session 1: Economics of the Worldwide Mercury Market & Materials Flow

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

World Virgin and By-Product Production of Mercury

0

1000

2000

3000

4000

5000

6000

1987 1989 1991 1993 1995 1997 1999

YearM

etr

ic T

on

ne

s

Algeria China Spain Kyrgyzstan/USSR Other

Source: Metal Statistics 1997 & 2000 U.S. Geological Survey Minerals Yearbook 2000

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 decline

since 1987

– Kyrgystan is exception

Virgin producers also broker secondary supply from non-mining sources.

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.

WORLD SECONDARY SUPPLY OF MERCURY(in Metric Tonnes)

Source Annual Supply

Chlor Alkali ~ 375

Mining By-Product ~ 300

Recycling MCDs 80 - 160

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)

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

U.S. and World Demand

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

U.S. Demand and Production

0

500

1000

1500

2000

2500

1980 1985 1990 1995

YearM

etr

ic T

on

ne

s

Secondary Production US Demand

Source: U.S. Bureau of Mines Circular 9412 and USGS Minerals Yearbook 1994 - 1997

Non-virgin supply in U.S.now exceeds total demand– U.S. not dependent on

world markets "Lumpy" supply,

internationalnature of trade preclude "closed" market

According to one expert, recent U.S. demand significantly lower than 400 tonnes

9

U.S. Trade Patterns: Net Imports/Exports

U.S. is often a net exporter, but patterns vary. Import/exports reflect market making, as well as balancing

domestic supply/demand.

US Net Imports/Exports

0

200

400

600

800

1,000

Year

Met

ric

Tonn

es

Imports

Exports

Source: US International Trade Commission

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

World Price and US Demand for Mercury

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

Years

$ p

er f

lask

0

500

1000

1500

2000

2500

Met

ric

To

nn

es

LME Platt's Metal Week Europe US 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.

Price Comparison (USA & Europe)

0

50

100

150

200

250

300

350

400

450

Year

$ p

er F

lask

NY Prices LME Platt's Metal Week Europe

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

CUMULATIVE DEMAND AND SUPPLY(in Metric Tonnes)

ScenarioCumulative

SupplyCumulative

DemandCumulative

Excess Supply

High Demand/Low Secondary Supply 38,018 38,018 0

Medium Demand/Secondary Supply 32,373 25,727 6,646

Low Demand/High Secondary Supply 35,337 9,689 25,648

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.