Winter 2005 OCMA NEWS - MEETING UPDATE

OHIO ATTORNEY GENERAL JIM PETRO ADDRESSES OCMA MEMBERSHIP

More than sixty (60) OCMA members attended Tuesday, January 18, 2005, meeting to hear Ohio Attorney General Jim Petro. The Attorney General began his presentation by stating that he had spent approximately twenty years as an attorney in the private sector before he entered the public sector in the early 1990’s. In fact, he indicated that he had represented several OCMA member companies during his former career. The key points of his presentation are summarized below.

1. As one of the few Republicans to ever be elected to the Cuyahoga County Commission he took great pride in his ability to work with his Democratic colleagues to achieve consensus on several very tough issues. During his first term, the County Commissioners were forced by economic conditions to cut more than $60 million from the county budget. At the same time, consensus was reached to move forward with several major projects that have had a tremendous impact upon the Cleveland economy. For example, Jacobs Field and the Rock & Roll of Fame were financed and built on his watch.

2. A theme that began early in his public sector career was his recommendation that government imitate the private sector in the use of technology and innovation. With his urging, Cuyahoga County initiated several technology upgrades that helped the county improve its operations and save money at the same time.

3. When AG Petro was elected to Auditor of State in 1995 he took over a department that was ranked 50th in the country for its effectiveness. Using the reoccurring theme of technology and innovation, he was able to improve the office to a point where it was recognized as 1st in the Nation in approximately three years.
4. He attributed his success to attaining operational efficiencies by developing a workforce that embraced innovation and change and became enthusiastic about these changes. This was very unlike most bureaucratic staff that are generally famous for their resistance to change. Notably, the improvements to the operations of the staff were accomplished despite a 15% reduction in the size of the workforce.

5. He became Ohio Attorney General in 2003 bringing the same enthusiasm for innovation and change to that office. Since that time he has consolidated the office space needs and saved the taxpayers $3 million per year. He has also established a Human Resource consolidation that is also saving taxpayers more than $1 million per year.

6. Since becoming Ohio Attorney General Petro has petitioned the U.S. Supreme Court four times. In all four cases the Court has approved the petitions and AG Petro will argue before the U.S. Supreme Court on behalf of the State of Ohio in March 2005.

7. Historically, the AG office has collected approximately $130 million in unpaid taxes. In his first year in office, the office collected $170 million with a smaller staff using innovation and an incentive program to boost collections.

8. As Attorney General he has embraced the use of technology to support law enforcement. When he became AG he learned that the 900 different law enforcement agencies in the state did not share information. He implemented the Ohio Law Enforcement Gateway where all law enforcement agencies can communicate with one another. All 900 agencies now share the servers at the Ohio Bureau of Criminal Investigation (BCI); this is the most advanced system in the country. With DNA sampling and profiling of all prisoners in the correctional system, the BCI was able to match sample of prisoners DNA to 900 “cold cases” and solved 254 of these cases. Of this group, there were eight murders and more than 80 rapes as well as other violent crimes.

9. State government must embrace technology and innovation. It needs to change. The State is spending too much and restructuring is needed. He proposes shrinking the number of cabinet offices from 23 to 9, eliminating many regulatory boards that duplicate tasks, and reducing state government employment by over 11,000 employees. This would save more than $1 billion per year and create a more efficient and effective state government.

10. Ohio needs tax reform. The present system was established more than seventy years ago when the manufacturing sector in Ohio dominated the world and competition was only from other states. The world has changed dramatically and Ohio needs to change as well. The tangible personal property tax on equipment and inventory must be eliminated. The corporate franchise tax is too high; it should be flatter say 5% with no exemptions. The personal income tax is also too high; it should be flat at a lower rate.

11. Economic development should be performed through a quasi-government entity that has a dedicated revenue source but is operated like a private sector entity. The head of the organization would not change with each new administration, but would be a professional economic development expert who would be allowed to develop business partnerships to encourage more development in Ohio.

12. The system of higher education in Ohio needs to be examined and restructured. The system is no longer economical – universities are all things to all people with serious duplication of effort. For example, there are four universities where one can major in aviation and these programs have 20-30 aircraft. The Ohio Board of Regents needs the authority to mandate a reduction in programs. The community college experience should be improved.

13. With regard to primary and secondary school funding, it is important to dedicate a source of funding to this system. However, school districts must learn how to reduce spending when economic conditions reduce the dedicated funding, just like businesses do.

Dan Navin, Director of Legislative Affairs, Ohio Chamber of Commerce, provided the audience with a preview of what the Ohio General Assembly is likely to do with the two major issues confronting them in 2005 – tax reform and the state budget. Key points of his presentation are presented below:

1. Dan provided a brief summary of the Ohio tax system which includes the following taxes:

Ø Corporate Franchise Tax;
Ø Sales Tax;
Ø Personal Income Tax;
Ø Real Property Tax;
Ø Business Real Property Tax;
Ø Tangible Personal Property Tax; and
Ø So-called “Sin Taxes” on alcohol, tobacco, etc.

2. The Ohio state budget has been deteriorating since 9/11. In June 2003, a temporary sales tax of an additional 1% (total 6% with local levies excluded) was imposed to avoid a substantial budget deficit. This tax generates approximately $1.4 billion of the total revenue intake of $24 billion. Without this temporary tax, the state budget is facing an annual deficit of between $2.0-2.5 billion.

3. Although there is strong desire on the part of the Governor and the legislative leadership to enact tax reform, it is a very difficult task. For example, although it is nearly unanimous that the tangible personal property tax should be eliminated, the consensus disintegrates on how to replace this revenue that provides nearly 70% of local school district revenues.

4. Dan believes that the Taft Administration’s proposals will include the following:

· Personal Income tax – an across the board reduction of 15-25% phased in;
· Corporate Franchise tax – eliminate;
· Tangible Personal Property tax - eliminate;
· Gross Receipts tax – impose to replace personal, corporate franchise, and tangible personal property tax revenue loss;
· Sin taxes on alcohol and tobacco – double the present amounts;
· Sales tax – continue some portion of the 1% temporary tax;
· KWH/Energy tax – increase by 20-40%.

5. The Administration proposal would be beneficial to those companies that have high levels of machinery, equipment, and inventory, with significant margins, and sell a high proportion of their products to out of state customers. The Gross Receipts Tax would apply to all business entities in the state broadening the tax base and reducing the disproportionate share now paid by manufacturing.

Mike Collins, National Director of Ferrous Sales, Metal Management, Inc., presented his views on the scrap market including a review of the factors that created the “perfect storm” in 2004 as well as his insight on what the 2005 scrap markets may look like. The key points of his presentation are presented below:

1. In 2004, factors affecting the supply and demand of scrap metal greatly influenced the pricing of the commodity. Prime industrial scrap rose in price from $227 a ton in January 2004 to $455 a ton in November 2004. From January to March 2004 a continual increase in demand both domestically and worldwide drove U.S. steel makers to enter the scrap substitute market. However, they found that the largest producer of pig iron, Brazil, and the largest producer of DRI & HBI, Venezuela, had contracted to supply their total production in the 2nd &3rd quarters of the year to Pacific Rim countries.

2. U.S. steel makers were attempting to fill strong order books. Their inventory of raw materials was low and delivery times of raw materials were extended. The steel makers were concerned about not having the residual raw materials to produce the steel to meet their customers demand. This caused many steel makers to engage in panic buying.

3. Other scrap metal buyers had always looked to alternate sources of material when this had happened previously. Scrap consumers with deep water or barge capabilities had traditionally looked to the European Union countries for supply. However, the high cost of ocean freight normally $22-27 a ton was now $47-52 due to the high cost of fuel and they found no takers. Former Soviet countries had previously supplied the world scrap market with hundreds of thousands of tons of scrap metal when shortages occurred. This time Russia and Ukraine imposed high tariffs on the export of scrap to discourage export of the materials.

4. Land-locked consumers who looked to springboard scrap from the Western States discovered that transporting that material was not the answer. Rail rates were $35-50 per ton with fuel surcharges and if you were prepared to pay that “freight”, rail cars were not available for immediate shipment!
5. With the cost of raw materials rising, steel producers imposed scrap surcharges and prices for flat-rolled steel reached $600 per ton, double the price steel producers were receiving prior to the scrap price increases.

6. Transportation of scrap metal was a key factor in the price increases. The International Scrap Recycling Institute (ISRI) surveyed their members and found that railroads were only supplying 75% of the required equipment to make shipments. Some scrap producers ended up purchasing their own railcars to make up the shortfall. Similarly, in November 2004, barge companies were charging 200% of standard rates due to equipment shortages and excess demand for barges. Lastly, trucking companies had difficulty finding qualified drivers.

7. The end result of these factors was a extremely high scrap metal price. It is expected that consumers of scrap will be looking to scrap substitutes, HBI, DRI, and purchasing pig iron. With the arrival of 320,000 tons of pig iron from Brazil in December supply concerns were being met. Although the pig iron was costly at $385 MT it was still cheaper than prime industrial scrap.

8. As a result of the buildup of inventories, material in transit, decreased demand in December due to the Holidays, and softer order books, the price of ferrous scrap fell by $30 per ton in December and is expected to decline an additional $40 in January.

9. What does the future hold? World markets will continue to have a significant impact on domestic supply and demand and thus prices. Even though China steel production has increased from 151 million tons to a projected 2005 figure of 278 million tons China will continue to be a net importer of steel, the largest importer of steel in the world! Because of the low capital cost of construction, abundance of iron ore, coke, and other raw materials, the majority of increased production is expected to come from the Basic Oxygen Furnace (BOF) process that uses only 25% of the scrap used by the Electric Arc Furnace (EAF) process. China’s expanding production of steel will therefore have less of an impact on the scrap metal market than otherwise.

10. The situation in India does not bode well for the scrap metal market. Many economists are predicting that India with its low costs and more than one billion population will be the next China. However, since India does not have vast sources of iron ore and coke, the steel making process will be EAF. As a developing country without a backlog of scrap, they will be dependent upon imported scrap and scrap substitutes and their demand could influence world markets.

11. Recent purchases of second quarter production of Brazilian Pig iron at prices of $307 MT NOLA or $320 delivered will put a cap on the price of Prime Industrial Scrap. It is expected that prime scrap will drop to levels equal or slightly below that of Pig Iron. We also expect the spread between that of Prime scrap and secondary grades such as shredded, plate, and structural will narrow, meaning these grades will drop less in price. Do not expect prices to drop significantly to 2003 levels or before due to the lower value of the dollar, transportation costs, world market demand, and export tariffs of other countries.

Ryan Burke, Environmental Manager, OSCO Industries, Inc., discussed the MACT Work Practices Standards §63.7700 and actions his company was taking to comply with the standards. The key points of his presentation are presented below:

1. The MACT Work Practices Standards initially called for a company to choose between either certification or a scrap metal inspection plan. Proposed changes to the standards would allow a company to choose both actions as long as the scrap is kept segregated.

2. Under the certification requirement a company must prepare and operate at all times according to a written certification that the foundry purchases and uses only certified metal ingots, pig iron, slitter, other materials that do not include post-consumer automotive body scrap, post-consumer engine blocks, oil filters, oily turnings, lead components, mercury switches, plastics or organic liquids.

3. Under the inspection plan scenario the company must:

Ø Prepare and operate at all times according to a written plan;
Ø Minimize to the extent practicable, organics and HAP material;
Ø The plan is subject to approval by the USEPA Administrator;
Ø A copy of the plan must be kept on-site for purchasing and inspection personnel; OSCO Industries, Inc. will change work instructions to incorporate items in their quality plans;
Ø You must provide to your vendor material specifications. OSCO Industries, Inc. plans to send a letter to scrap suppliers outlining the exclusions that must be removed from the delivered scrap.
4. The inspection plan must include the following:

Ø If you charge to a scrap pre-heater, electric arc furnace or electric induction furnace:

Ø You must deplete the following to the extent practicable:
1. Used oil filters;
2. Plastic parts;
3. Organic liquids;
4. And have a program to ensure scrap materials are drained of free liquids.

Ø If you charge to a cupola;

Ø You must deplete plastics to the extent practicable;
Ø You must have a program to ensure the scrap materials are drained of free liquids. They anticipate that at OSCO the scrap will be drained of free liquids by the use of the magnetic bridge crane to pick up and move the scrap.

Additional requirements for the inspection plan:

Ø You must also have a materials acquisition program specifying that the scrap supplier will remove accessible mercury switches and lead components including batteries and wheel weights.
Ø You must have a visual inspection plan that includes:

1. A representative portion (not less than 10%) of all incoming scrap shipments. This requirement applies to each individual supplier.
2 Identification of location(s) where inspections are to be performed for each type of shipment;
3 Location must provide a reasonable vantage point considering worker safety;
5. Record keeping that documents each visual inspection and the results;
6. Provisions for rejecting/returning entire or partial shipments;
7. Purchases from vendors who fail more than three (3) inspections in a calendar year must be limited.

6. Existing plants with scrap pre-heaters must install, operate, and maintain a gas-fired pre-heater where flame directly contacts the scrap metal. These plants must also charge only material subject to and in compliance with scrap certification requirements. Alternatively, the plant can meet the VOHAP emission limit in §63.7690 (a)(9).

Ryan’s PowerPoint presentation is available from the OCMA office. If you are interested in a copy please call at 614-876-5100 or e-mail at ohiocastmetals@sbcglobal.net.

Larry Boyd, Energy Industries of Ohio (EIO), provided an update on EIO’s project funded by the U.S. Department of Energy (DOE) for a training program for employees in the metal processing industries including metal casting. The initial project, to develop a proposal that would be submitted to DOE for an additional grant, is scheduled for ten months. OCMA is a subcontractor on the project and will be eligible for payments up to $5000 for assisting EIO in its efforts to achieve active participation by representatives of the metal casting industry. Highlights of his presentation are presented below:

1. Last year, U..S Department of Energy (DOE) solicited proposals to obtain monetary grants to promote the education and training of the next generation of technical workers in plant operation and maintenance to replenish the current manufacturing workforce.

2. EIO’s successful proposal received funding to study the viability of a 1-2 year training program for employees in the “Metal Processing” industries including steel, metal casting, and forging.

3. Guiding principles of the EIO grant proposal are;

a. An industry-guided effort to define training needs and program structure;
b. Active participation of state and national industry associations;
c. Develop a structure that allows flexible access for students and companies;
d. Leverage existing investments in training curriculum and course development;
e. Develop a program consistent with existing educational standards.

4. Project partners include:
a. General: Energy Industries of Ohio (EIO), Stark State College, Ohio Department of Development, and Kent State University;
b. Metal Casting: OCMA, FEF, CMI, NADCA, General Aluminum, Thompson Aluminum Corporation, Tri-Cast, Ltd., and Fairmount Minerals Ltd.
c. Steel: Ohio Steel Council, Timken, Republic Engineered Products;
d. Forging: Forging Industry Association, Viking Forge.

5. Participation from the industry will be requested. Examples of opportunities for assistance include:

a. Assist in defining program content and structure;
b. Provide responses to questionnaires associated with the project;
c. Provide letter of support for follow-on funding to develop curriculum/deliver initial training.

6. The grant EIO has received is to be used putting together a plan to achieve the training program. The next step is to create an entire package that will be submitted to DOE for funding of the training/curriculum program. The deadline for this application will be March/April 2006.

7. The next steps will be to convene a meeting of representatives of each industry to begin to determine the type of training programs needed by each industry. OCMA will be coordinating these meetings for the metal casting industry. If you are interested in participating please call the OCMA office at 614-876-5100 and speak with Russ.

ENVIRONMENTAL UPDATE

Chairman of the OCMA Environmental Affairs Committee, Dennis Baker, Flowserve Corporation, presented the environmental report. The PowerPoint environmental report is available from the OCMA office just call or e-mail. Key issues are outlined below:

Iron and Steel MACT Standards

* The Iron & Steel Foundry MACT was published in the Federal Register on April 22, 2004. If you are a major source (10 tons/yr of any one HAP or 25 tons/yr of any combination of HAPs) you should have filed a notice to the Agency. If you have not, it is long overdue.

· By April 22, 2005, your scrap inspection program should be filed with the Agency. It is not clear whether it must be approved by the Agency by then, but it is clear that it must be filed by that date.

· By April 23, 2007, companies must either be in full compliance with the rules or be a minor source either naturally or by entering into a FESOP whereby the company agrees to production restrictions etc.

Generally Available Control Technology

· USEPA is preparing to introduce the Son of MACT or GACT. GACT will apply to area sources; those with a potential to emit less than 10 tons/yr for a single HAP or less than 25 tons/yr for any combination of HAPs. USEPA views area sources as important contributors of HAPs especially in urban areas. The USEPA is operating under Section 112(k)(1) which states that USEPA shall “achieve a substantial reduction in emissions of HAP from area sources”. Section 112(k)(3) requires USEPA to prepare a national strategy for urban air toxics.

· The rules contain seventy (70) area source categories. Only fifteen (15) standards have been promulgated so far with fifty-five (55) categories remaining. Unlike MACT, GACT has no floor to calculate, it has more flexibility in rule making, and costs and other factors must be considered..

· USEPA believes about 500 foundries (300 iron & 200 steel) will be affected by this rulemaking. More than 70% of these companies are small businesses and 65-85% have production levels under 10,000 tons/yr. This information was taken from the 1998 survey that Ohio foundries completed.

· Emission Sources that will be studied include:

Ø Cupolas;
Ø Electric Arc Furnaces (EAF);
Ø Induction furnaces & scrap preheaters;
Ø Pouring, cooling, and shakeout;
Ø Mold & core-making;
Ø Other (scrap handling, finishing operations)

· USEPA is considering alternative GACT regulatory options and impacts. Revised control devise costing algorithms include smaller process sizes and account for fewer average operating hours per year.

· GACT emission limits may accommodate wet scrubbers for cupolas, thermal oxidizers or condensers for TEA coldbox. Concentration vs. production-based emission limits (e.g. gr/dscf vs. lb/ton).

· GACT is likely to include overall opacity limit for a foundry’s building and vents as well as a foundry-wide emission limit. Evaluating impacts on small businesses is required under the SBREFA process. A kickoff meeting with USEPA was held at Research Triangle on October 6, 2004. Dennis participated by conference call and other OCMA members along with AFS representatives were able to attend the meeting in North Carolina.

· USEPA suggested that they plan to have the new rule completed within the next three (3) years. If you are not affected by MACT, the chances are very high that you will be affected by GACT. OCMA will be participating in the rule making process and will be looking for volunteers to participate in a subcommittee whose responsibility will be to monitor and advocate for the Ohio metal casting industry.

Rule Changes in Hazardous Fluorescent Light Disposal

· New rules applying to the disposal of hazardous fluorescent lamps became effective December 7, 2004. Used hazardous lamps that were recycled were previously characterized as byproducts. Now they are listed as a Universal Waste. (They must be a hazardous waste to be listed as a universal waste.) Lamps must now be managed under the universal waste rules (UWR) or as a hazardous waste.

· What does this mean?

o UWR prohibits handlers from crushing lamps;
o Lamps must be packaged in containers that will minimize breakage (packaging that they came in is acceptable;
o Broken, damaged or leaking lamps can be sent to a permitted recycling facility packaged in a closed steel drum or closed wax fiberboard drum.

· Labeling requirements;

o Container must be clearly marked “Universal Waste Lamps”, “Waste Lamps” or “Used Lamps”.
o Date the container when the 1st lamp was placed in the box.
o Maintain an inventory system to identify the earliest accumulation date.

· Miscellaneous

Ø You can accumulate the lamps for 1 year;
Ø No manifests are required;
Ø No record keeping is required unless you are a large quantity UW handler i.e., you accumulate more than 5000 kg of UW at any time;
Ø Lamps must be delivered to a permitted facility.

Join Us This Spring

· Please mark your calendars for Tuesday, May 3, 2005 for the next OCMA foundry tour. Jim Flanagan, Babcock & Wilcox Company, has invited us to tour the foundry in Barberton. We will plan to have a luncheon meeting nearby so please plan to attend. The OCMA Foundry Tour is one of our most popular events. Contact Russ Murray at 614-876-5100 for more information.

EMTEC Report

Nick Cannell, EMTEC, provided the report. Highlights are outlined below:

· EMTEC has continued to expand; it now has thirty-two (32) employees;

· EMTEC received an additional $3 million grant to continue its fuel cell research;

· EMTEC has established a Small Business Development Council (SBDC) which is responsible for helping small businesses in the Dayton area;

· EMTEC has also received a grant of $120,000 for a project using moldable ceramic to make missile nose cones. It is also exploring an investment casting program that would predict shrinkage.

Beneficial Reuse Update

OCMA Secretary John Kurtz, Kurtz Bros., Inc. provided an update on developments in the beneficial reuse of foundry residuals. John is presently serving as a Board Member on both FIRST, Inc and the AFS Board of Directors. If something is going on in this area, he knows it. Key points of his update are outlined below:

· OCMA was contacted by the office of Solid Waste, Ohio EPA, to determine whether we wanted any change to the definition of “spent” presently outlined in OAC 3745-30-01 (D). After polling the OCMA Beneficial Reuse Subcommittee and Environmental Affairs Committee Russ Murray reported to Annette DeHavilland that the definition was OK as is. There has been no further progress on the composition of a beneficial reuse regulation incorporating OEPA Policy 400.007.

· John and Russ attended a FIRST Steering Committee meeting in Chicago where USDA Agricultural Research Service (ARS) project manager, Rob Dungan, reported on the progress of the ARS study investigating the viability of using spent, non-toxic foundry sand in agricultural and horticultural applications. The study is moving forward and all tests so far have been positive.

· Dan Harris, Solid Waste, OEPA, attended a beneficial reuse conference in Kansas City where Tom Dunne, Acting Administrator, USEPA Office of Solid Waste, was a presenter. The presentation was quite a surprise with Dunne indicating that industrial by-product recycling had for too long taken a backseat to waste disposal. He indicated that he was prepared to lead an USEPA effort that would turn this around. John indicated that after that meeting Dan Harris had a more positive leaning on beneficial reuse programs.

TORT REFORM SUCCESS IN 2004

As reported earlier, comprehensive tort reform was enacted during the waning days of Ohio’s General Assembly legislative session. Most importantly, we now have a tort reform bill that should eliminate frivolous lawsuits and will minimize the need for settling lawsuits to prevent the possibility of that "outrageous" jury damage award.

Also in 2004, Sub. H.B. 342 and H.B. 292 were enacted and signed by the Governor. This legislation establishes medical criteria for tort actions claiming illness from exposure to silica. It requires a written report and supporting test results constituting prima facie evidence of an exposed persons' physical impairment to be filed with the Court. This new law should shelter metal casting companies and their suppliers from “asbestos-type” litigation where less than 10% of the plaintiffs have any physical impairment whatsoever.

So, for the first time in many years, I can report that we made enormous progress on issues important to Ohio metal casters and suppliers in this biennium.

On December 9, 2004, OCMA Past President Walt Chaput hosted a luncheon in Defiance to welcome several new member companies into OCMA. Walt recruited these new members while OCMA President and many of the representatives were unable to attend OCMA meetings in Columbus so OCMA went to the members. Walt and Russ gave brief presentations and a good time was had by all. The photo shows company representatives proudly displaying their new OCMA membership certificates.