1. 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. 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. 3 World Supply and Demand: Primary Mine Production 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. 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. 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. 6 Sources: 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. 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. 8 Domestic Supply and Demand: Secondary and By-Product Production 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, international nature of trade preclude "closed" market According to one expert, recent U.S. demand significantly lower than 400 tonnes

9. 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. Source: US International Trade Commission

10. 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. 11 Mercury Pricing: U.S. and World U.S. spot prices track with European 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. 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. 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. 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. 15 Future Supply/Demand Scenarios: Cumulative Future Demand and Supply

16. 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. 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. 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. 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.