SECTION 2

INDUSTRY PROFILE: LIGHTWEIGHT AGGREGATES

Lightweight aggregates (LWA) are expanded raw materials that are used in the production of lightweight concrete products. Raw materials commonly used in the production of LWA are clay minerals, sand, gravel, and rock materials. LWA serves as a bulk filler in products such as lightweight structural concrete, concrete building blocks, pre-cast structural units, and insulating fill (U.S. EPA, 1995). These concrete products are used primarily in the construction of homes, buildings, and structures. Lightweight concrete products are durable, yet lighter than their normal weight counterparts. Other uses of LWA are as inputs to the production of architectural wall covers, suspended ceilings, soil conditioners, and certain agricultural products. LWA manufacturing is classified within the Standard Industrial Classification (SIC) code 3295 - Minerals and Earths, Ground or Otherwise Treated. The production process of lightweight aggregate includes crushing, screening, and heating the raw material in kilns. During these stages of production, particulate matter (PM), volatile organic compounds (VOCs), and the hazardous air pollutants hydrogen fluoride (HF) and hydrochloric acid (HCl) are released into the air. Currently, the U.S. Environmental Protection Agency (EPA) is developing national emissions standards for the hazardous air pollutants.

This section provides an overview of the lightweight aggregate industry. Section 2.1 describes the production processes and costs associated with LWA manufacturing. Section 2.2 identifies the uses, consumers, and substitutes of lightweight aggregate. Section 2.3 summarizes the organization of the LWA industry, including a description of the manufacturing facilities and the companies that own them. In addition, the Agency identifies small businesses potentially affected by the proposed rule. Finally, Section 2.4 presents available market data and trends for the industry.

2.1	Production Overview

Lightweight aggregate manufacturing is a way to create a lighter concrete product. The process requires expanding raw material to approximately twice its original volume. First, raw material is mined and quarried. It is then crushed, screened, and heated in a kiln. Once heated, the product develops gas bubbles and is then cooled. The resulting porous product is lightweight aggregate. The following section describes the stages of production in greater detail. Information in this section was taken from EPA (1995).

2.1.1 Stages of Production

Production of LWA begins with the mining of raw materials such as common clay and shale, fire clay, and slate. Most LWA is produced with these materials, however blast furnace slag, natural pumice, vermiculite, and perlite are used as substitute inputs. LWA producers acquire their raw materials either by mining it themselves or by purchasing it from mineral processing plants.

After the material is mined or purchased, it is then crushed using hammermills, pugmills, or jaw crushers. The crushed material is then screened for size. Any oversized material is returned to be crushed and screened again until it is small enough to pass through the screens. This material is transferred to the hoppers and fed into a rotary kiln, which is heated to a temperature of 1200 degrees Celcius. The kilns are fired using coal, coke, natural gas, or fuel oil.

In the kiln, the material is heated until it liquefies. The heating process causes a chemical reaction in the material thereby creating gas bubbles. These gas bubbles expand the material by forming voids or pores. The material in this state, now called clinker, is then cooled by air. This hardens the clinker into a porous product. The end product is lightweight aggregate. See Figure 2.1 for a flow diagram of the stages of production.

2.1.2 Emissions from the Production of Lightweight Aggregate

Production of LWA requires a number of steps that result in the emissions of several pollutants. The rotary kilns, clinker coolers, and the crushing, screening, and material transfer operations all result in PM emissions. Kiln emissions specifically include sulfur oxides (SOx), nitrogen oxides (NOx), carbon monoxide (CO), carbon dioxide (CO2), VOCs, chromium, lead, and chlorides. Emissions from the clinker coolers specifically include CO2 and VOCs.

Mining or Quarrying

Crushing

Oversize material

Screening

Fuel	Rotary Kiln

Cooling

Screening	Crushing

Oversize material

Stockpiling

Shipping

Figure 2-1. Lightweight Aggregate Production Process

Source:	U.S. EPA. 1993. AP-42 Mineral Products Industry - Lightweight Aggregate Manufacturing

Section 11.20.

2.1.3 Costs of Production

The sources of variable costs of LWA manufacturing are capital expenditures, energy costs, labor costs, and the costs of materials. Variable costs for LWA production are not readily available, therefore they must be estimated. To estimate the variable costs of LWA production, 1997 production cost data for the entire Minerals and Earths, Ground or Otherwise Treated manufacturing industry (SIC 3295) is used. LWA manufacturing is included in SIC 3295, therefore it is a logical choice to base variable cost estimates on the costs incurred by the mineral and earths industry. The sources of variable costs all firms in SIC 3295 are first defined, and then calculated as a share of the total value of shipments of this industry. The largest source of variable costs is the cost of materials, which represents 34.25 percent of the value of shipments for SIC 3295. Next is labor costs, which represent 15.33 percent of SIC 3295 value of shipments. Capital expenditures and energy costs each represent approximately 5.9 percent of the value of shipments.

These cost shares for the different sources of variable costs are then multiplied by the value of product shipments of lightweight aggregate manufacturing in order to acquire estimates of the variable costs of producing LWA. This gives an indication as to the magnitude of the variable costs associated with lightweight aggregate production. The 1997 value of product shipments for LWA is equal to $416.69 million. Using this figure, it is estimated that for the year 1997 the cost of materials are $142.71 million, labor costs are $63.88 million, capital expenditures are $24.83 million, and energy costs are $24.63 million.

The most common raw materials used to produce LWA are common clay and shale. The average value of common clay and shale used in lightweight aggregate over the years 1994 to 1997 was $12.32 per ton, however the average value for all common clay and shale produced and sold in the U.S. over this same time period was only $5.70 per ton. This higher value of the common clay and shale used to produce lightweight aggregate is perhaps due to the use of higher quality clay minerals in LWA manufacturing.

A less common clay mineral used in LWA is fire clay. The average value of fire clay used in LWA manufacturing is unavailable, however, the average value of all fire clay produced and sold in the U.S. over the years 1994 to 1997 was $20.78 per ton. As a substitute input, fire clay is more expensive than common clay and shale. This explains why fire clay is used infrequently in LWA production relative to common clay and shale. In fact, over the years 1994 to 1997, the average annual quantity of common clay and shale used in LWA production was almost 4.0 million metric tons while the average annual quantity of fire clay used for LWA over the 1994 to 1996 period was only 75,167 metric tons (1997 data on the quantity of fire clay used in LWA was unavailable and therefore not included in the average annual quantity of fire clay used in LWA).

Table 2.1 shows the differences in values of common clay and shale used in LWA production, all common clay and shale produced and sold in the U.S., and all fire clay produced and sold in the U.S. for the years 1994 through 1997. The values of common clay and shale used in LWA production as well as fire clay show a downward trend over the years, but the value of all common clay and shale shows an upward trend. As the table shows, however, the value of all common clay and shale does not vary much over this time period.

Table 2.1. Average Value of Common Clay and Shale and Fire Clay from 1994 to 1997

Clay Mineral	1994	1995	1996	1997	Average
Common Clay and Shale

(in LWA production only)	$14.63	$12.11	$12.11	$10.43	$12.32
All U.S. Produced Common

Clay and Shale	$5.31	$5.90	$5.50	$6.08	$5.70
All U.S. Produced Fire Clay

$25.44	$21.96	$21.19	$14.56	$20.79

Source:	Virta, Robert. 1999. "Clays," In: Minerals Yearbook, Metals and Minerals 1997: Volume 1.

U.S. Geological Survey. U.S. Government Printing Office.

Virta, Robert. 1998. "Clays," In: Minerals Yearbook, Metals and Minerals 1996: Volume 1.

U.S. Geological Survey. U.S. Government Printing Office.

Virta, Robert. 1997. "Clays," In: Minerals Yearbook, Metals and Minerals 1995: Volume 1.

U.S. Geological Survey. U.S. Government Printing Office.

Virta, Robert. 1996. "Clays," In: Minerals Yearbook, Metals and Minerals 1994: Volume 1.

U.S. Geological Survey. U.S. Government Printing Office.

2.2 Uses, Consumers, and Substitutes

Lightweight aggregate is used as an intermediate good in the production of several final goods, the most common of which are concrete block, structural concrete, highway paving material, plaster aggregates, and insulating fill. Data on the quantities of LWA used in the production of these final goods is unavailable. However, there is data on the amount of common clay and shale used in lightweight aggregate production, by end use. Since common clay and shale are the most common inputs to LWA, this information may provide an indication as to which end uses require relatively large quantities of LWA. It also gives an indication of the indirect demand of LWA by consumers. Table 2.2 lists the amount of common clay and shale used in LWA production, by end use over the years 1993 to 1997.

Table 2.2. Common Clay and Shale Used in LWA Production, by End Use from 1993 to 1997

End Use (in thousand metric tons)	1993	1994	1995	1996	1997	Avg.
Concrete block	2,210	2,400	2,530	2,450	2,550	2,428
Structural concrete	787	801	869	887	740	817
Highway surfacing	243	247	248	245	277	252
Other	286	305	521	471	430	403
Total Quantity	3,530	3,750	4,170	4,050	4,000	3,900
Estimated Value of Total Quantity ($103)	36,100	39,100	50,500	51,200	58,400	47,060
Annual Growth Rate of Total Quantity (%)	6.23	11.20	-2.64	-1.72	3.27
Data are rounded to three significant digits.

Source:	Virta, Robert. 1999. "Clays," In: Minerals Yearbook, Metals and Minerals 1997: Volume 1.

U.S. Geological Survey. U.S. Government Printing Office.

Virta, Robert. 1998. "Clays," In: Minerals Yearbook, Metals and Minerals 1996: Volume 1.

U.S. Geological Survey. U.S. Government Printing Office.

Virta, Robert. 1997. "Clays," In: Minerals Yearbook, Metals and Minerals 1995: Volume 1.

U.S. Geological Survey. U.S. Government Printing Office.

Virta, Robert. 1996. "Clays," In: Minerals Yearbook, Metals and Minerals 1994: Volume 1.

U.S. Geological Survey. U.S. Government Printing Office.

As Table 2.2 suggests, concrete block is the product that uses the most LWA produced from common clay and shale as an input, with the other uses following far behind. By taking the average amount of common clay and shale utilized in each of the end products over the years 1993 to 1997 and dividing by the average total quantity of common clay and shale used over the same time period, the average shares of common clay and shale used in each end product can be calculated. Of the average quantity of common clay and shale used from 1993 to 1997 in lightweight aggregate, over 62 percent was used in the production of concrete block. The shares of common clay and shale used for structural concrete, highway surfacing, and other uses are 21 percent, 6.5 percent, and 10 percent respectively. When examining this data, it is important to keep in mind that it represents the total quantity of common clay and shale used to produce lightweight aggregate that is in turn used in the production of final goods.

The total quantity of common clay and shale used in LWA production rose to a peak of 4.17 million metric tons in 1995 and then gradually declined to 4.0 million metric tons by 1997. Evidence of this increase and decrease in the quantity of common clay and shale can be seen by examining the change in the average growth rate of total quantity. From 1994 to 1995, the growth rate increases from 6.23 percent to 11.20 percent. It then decreases in the years 1996 and 1997 to -2.64 percent and -1.72 percent respectively. Over the entire time period examined, however, there is a positive average growth rate of 3.27 percent of the total quantity of common clay and shale used in LWA production.

Lightweight aggregate is an intermediate good used in the production of building and construction materials. The immediate demanders of LWA are the producers of concrete block, structural concrete, highway paving materials, insulating fill, and other building materials. These immediate demanders are usually construction material producers. Once they produce building materials using LWA as an input, they then sell these products to construction companies and contractors. The construction companies then use these building materials to construct the homes, buildings, and structures that are demanded by final consumers. These final consumers, therefore, have an indirect demand for lightweight aggregate.

Substitutes for LWA are?

2.3 Industry Organization

This section provides an overview of the market structure of the lightweight aggregate manufacturing industry, including the facilities, the companies that own them, and the markets in which they compete.

2.3.1 Market Structure

Market structure is of interest because it determines the behavior of producers and consumers in the industry. In perfectly competitive industries, no producer or consumer is able to influence the price of the product sold. In addition, producers are unable to affect the price of inputs purchased for use in production. This condition is most likely to hold if the industry has a large number of buyers and sellers, the products sold and inputs used in production are homogeneous, and entry and exit of firms is unrestricted. Entry and exit of firms are unrestricted for most industries, except in cases where the government regulates who is able to produce output, where one firm holds a patent on a product, where one firm owns the entire stock of a critical input, or where a single firm is able to supply the entire market. In industries that are not perfectly competitive, producer and/or consumer behavior can have an effect on price.

Concentration ratios (CRs) and Herfindahl-Hirschman indices (HHIs) can provide some insight into the competitiveness of an industry. The U.S. Department of Commerce reports these ratios and indices for the four-digit SIC code level for 1992, the most recent year available. In Table 2.3 below, the four- and eight-firm concentration ratios, as well as the Herfindahl-Hirschman index, are provided for the Minerals and Earths, Ground or Otherwise Treated manufacturing industry (SIC 3295). The CR4, the percentage of sales of the top four companies in the industry, was 28 percent in 1992. The CR8, the percentage of sales of the top eight companies in the industry, was 40 percent.

Table 2.3. Measures of Market Concentration for the Ground or Treated Minerals and

Earths Industry (SIC 3295)

Value of Shipments

($106)

CR4

CR8

HHI
$2,316.94	28%	40%	412
Notes:	CR4 denotes four-firm concentration ratio.

CR8 denotes eight-firm concentration ratio.

HHI denotes Herfindahl-Hirschman index.

Source:	U.S. Department of Commerce, Bureau of the Census. 1999. Concentration Ratios in

Manufacturing. <http://www.census.gov/epcd/www/concentration.html>.

The criteria for evaluating the HHIs are based on the 1992 Department of Justice's Horizontal Merger Guidelines. According to these criteria, industries with HHIs below 1,000 are considered unconcentrated (i.e., more competitive), those with HHIs between 1,000 and 1,800 are considered moderately concentrated (i.e., moderately competitive), and those with HHIs above 1,800 are considered highly concentrated (i.e., less competitive). In general, firms in less concentrated industries are more likely to be price takers, while those in more concentrated industries have more ability to influence market prices. Based on these criteria, the Ground or Treated Minerals and Earths industry (SIC 3295) can be classified as unconcentrated.

2.3.2 Facilities

As of 1996, there were 23 LWA facilities in the United States. The facilities can be classified as one of two types of producers: independent producers and captive producers. Independent LWA producers purchase the clay mineral inputs used in production and then complete the manufacture of the final product. Captive LWA producers are vertically integrated, which means they mine their own clay mineral inputs which are then used in the production of their final product.

The size of facilities will depend on whether they are independent or captive producers. Those plants that perform their own mining operations will tend to be larger in size than those that purchase their inputs from a minerals processing plant. Even if facilities are independent producers, it is likely that they are located near sources of clay minerals so that the transportation cost of this essential input is kept low.

The location of the 23 facilities is affected by where common clay and shale can be found. These facilities are located across 18 states. No single state has a disproportionately larger number of facilities. Table 2.3 lists the states in which facilities are located as well as the number of facilities within each state.

2.3.2 Companies

The Agency identified 14 ultimate parent companies for the 23 potentially affected lightweight aggregate manufacturing facilities and obtained their sales and employment data from either their survey response or one of the following secondary sources:

Dun's Financial Record Plus (Dun & Bradstreet, 1999)

Dun and Bradstreet Market Identifiers (Dun & Bradstreet, 1999)

Appendix A provides a listing of the 14 companies that own and operate the 23 potentially affected facilities within this source category. Annual sales and employment data were available for 100 percent of the firms. The average (median) sales of companies were $375.56 million ($49.08 million). This includes revenue from operations other than LWA manufacturing. The average employment for these companies was 1,798 (350) workers. The top three companies in annual sales are:

Wisconsin Energy Corporation - $1.98 billion with 4,500 employees

Texas Industries - $1.2 billion with 4,100 employees

Oldcastle, Incorporated - $1.01 billion with 10,000 employees

Table 2.3. Location of Potentially Affected Facilities by State

State	Number of Facilities
Alabama	1
Arkansas	1
California	2
Colorado	1
Indiana	1
Kansas	1
Louisiana	1
Maryland	1
Missouri	1
North Carolina	2
New York	2
Ohio	1
Oklahoma	1
South Dakota	1
Texas	2
Utah	1
Virginia	2
Wyoming	1
Total	23

LWA companies can also be grouped into small and large categories using Small Business Administration (SBA) general size standard definitions for SIC codes. Although responses by brick and other structural clay product facilities to the industry survey indicated four different SIC codes, there are fourteen different SIC codes across the ultimate parent companies owning these facilities. For these SIC codes, the small business definition ranges are 100 to 1,000 employees and $5 million to $18.5 million in annual sales. Using these guidelines and available data, the Agency has identified 76 small businesses, or 82.6 percent of the BOSC product companies. The annual average (median) sales for these companies are $11.44 million ($6.00 million) and the average (median) employment for these companies is 95 (75) employees.

2.4 Market Data and Trends

At this point, no information.

2.5 References

Dun and Bradstreet. Dun's Financial Record Plus Electronic Database. 1999.

Dun and Bradstreet. Dun and Bradstreet Market Identifiers Electronic Database. 1999.

U.S. Department of Commerce, Bureau of the Census. 1999. Concentration Ratios in

Manufacturing. <http://www.census.gov/epcd/www/concentration.html>.

U.S. Department of Commerce, Bureau of the Census. 1999. 1997 Census of

Manufacturing Industry Series: Ground or Treated Mineral and Earth Manufacturing.

<http://www/census.gov/prod/ec97/97m3279c.pdf>.

U.S. Environmental Protection Agency. 1993. Emission Factor Documentation for

AP-42 Section 11.20 - Mineral Products Industry: Lightweight Aggregate

Manufacturing. Office of Air Quality Planning and Standards. Emission

Factor and Inventory Group.

U.S. Environmental Protection Agency. 1995. Lightweight Aggregate Production and

Air Pollution Control Wastes: Technical Background Document Supporting the

Supplemental Proposed Rule Applying Phase IV Land Disposal Restrictions to

Newly Identified Mineral Processing Wastes. Office of Solid Waste.

Virta, Robert. 1999. Clays, In: Minerals Yearbook, Metals and Minerals 1997: Volume

1. U.S. Geological Survey. U.S. Government Printing Office.

Virta, Robert. 1998. Clays, In: Minerals Yearbook, Metals and Minerals 1996: Volume

1. U.S. Geological Survey. U.S. Government Printing Office.

Virta, Robert. 1997. Clays, In: Minerals Yearbook, Metals and Minerals 1995: Volume

1. U.S. Geological Survey. U.S. Government Printing Office.

Virta, Robert. 1996. Clays, In: Minerals Yearbook, Metals and Minerals 1994: Volume

1. U.S. Geological Survey. U.S. Government Printing Office.