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THE REFRACTORIES INSTITUTE THE REFRACTORIES INSTITUTE Reports to the Membership Fall Membership Meeting STOUFFER'S UNIVERSITY INN COLUMBUS, OHIO NOVEMBER 15, 1968 c. IN'DRX- Page .nlt'.nJ'.nCC ........................................................................................................................ 10 Genera! Counsel's Report............................................................................................... 7 History of Fellowship at Mellon Institute.................................................................... J Minutes of Meeting......................................................................................................... o Refractories Industry Research Center.......................................................................... 6 Transfer from Mellon to Ohio State............................................................................... 5 Treasurer's Report........................................................................................... .t.......... 9^_ - c or membership meeting OF THE refractories institute Held November 15, 1968 at Stoufar's University Inn, Columbus, Ohio. Attendance lift of 95 men is appended. President Max Muller presided and Executive Secretary Avery C. Newton acted as secretary' of the meeting. During the course of the meeting the chairman welcomed as distinguished guests: Dr. Harold A. Boh, Dean of the College of Engineering, Dp. J. Otis Everhart, Chairman of the D.-paitmcnt of Ceramic Eng:nccring"hnd'Dr. Ralston Ri::.-*n, Pjofeevjrof Ceramic Engineering, all of The Ohio Smte University. Minutes of the last Membership Meeting held at The H.-mestead, Hot Springs, Virginia on Juste 10T1, 1968, prc. iou-ly : .1 mitied by mail, were approved. Mr. William F. P-.-rter, Treasurer, thereupon presented a o.-ttir-cnt, copy appended, of The Institute's receipts and diibm.-.m.vnte for the six months' period from April I to September ?0, 196S. The ch.:iriv..in then reminded the members that the main purpocs of holJing this Membership Meeting in Columbus v. wt e to, (1) icvhw, especially for the benefit of vur newer members, the liist-.ry of our refractories testing and research activity A.tk.g back owr 50 yvms and, (2) inspect our ik\v f.:c:Iit\s on the campus of The Ohio State University. To review the history of our Refractories Fellowship, the chairman introduced Mr. Louis J. Trostel who retired in 1962 after 40 years of ><-tvice in the research department of General Refractories Co. He reminded the members that Mr. Trvstel !.;*d ?-.rwd as chairman of our Technical Ad' v-soiy C.:.vv,ittee from tire time The Refractories Institute w. :s founded in 1951 until his retirement in 1965. Since then he has served as secretary' of Committee C-8 on Re' fraetc-ries of A.S.T.M. and as judge in The Institute's An' nual Award Contest for the best papers on refractories. Mr. Trostel thereupon presented a most interesting report cm the history of the Refractories Fellowship at Mellon n-titutc, o.py .qq :nded. Tl'.e ehvh.nan tfareupon introduced Mr. Robert A. Barr, vice president and general manager of the Refractories Di' vision of The Babcock U Wilcox Co. and immediate past pres -Jent of The Refractories Institute. Mr. Barr was the h.-r rhabman of vur Mellon Institute Committee and was :ly inv Ned in all the problems relating t<-> the tr.msRr of .ur Fellowship from Mellon Institute to The Ohio State University. Copy of Mr. Barr's report is appended. The chairman thereupon called on Dr. Arthur J. Metz* gcr, profccsor of Ceramic Engineering and the Director of our Refractories Industry Research Center at The Ohio State University. Copy of Dr. Metzger's report on the or* ganiz.ttion and services to industry' of our R.I.R.C. is ap' pended. The chairman thereupon called on Mr. William J. Ken' ncy. General Counsel to The Institute, for a report on the current status of the depletion regulations. Copy of Mr. Kenney's report is appended. It being close to 10:20, the meeting was declared ad journed so that the members could board the buses for the trip to The Ohio State University for an inspection tour of the laboratories and testing facilities of our Refractories Tndvrury Research Center in Lord Hal! as well as an inspec- .' ., 1 ,U.. ..r 1 - The ,-r -up there-.returned to the N.tv! U-r a : :eepand luncheon, after w:i,;h the eiio:::r..-.n. unreduced cur guest speaker, Mr. Ralph C. Ptdficld of the research de partment of Bethlehem Steel Coiporation Fn his introduc tion, the chairman advised that Mr. Padfeld haj received a Batchelor of Science degree in Ceramic Engineering from The University of Missouri at Kolia in 1949 and the pro fessional degree of Ceramic Engineer from the same university in 1967. In 1965 lie was awarded a Master's degree in Business Administration from Lehigh University. Mr. Padfield currently is chairman of the Refractories Division -of the American Ceramic Society ?.n<fac4i3+?=>*n A.I.S.I. Technical C-mmiuec on Refractories. Summary of Mr. Padficld's remarks follow: Thanks were given to President Max Muller for the opportunity to speak and compliments extended to Dr. Arthur Metzger for progress in organizing the Research and Testing Center. Praises were given to the refractories industry for the new products developed in the past 15 years, among them direct-bonded basic brick and a variety of BOF refractories. The key point of the presentation was to enphasive the increasing sophistication of steel company research labora tories in applying, among others, all available techniques of micro-structural analysis in evaluating refractory prop erties and relating the results to service performance. The need for the manufacturer to relate Jus process variables to rnicrcstructural effects is clear. The Hand to higher purity materials eventually will rc.juire control of the process to achieve a desired microstructure. Knowledge existing in the fields of metallurgy and ma terials science will be applied in the bulk refractories indus try. Among those properties which may soon require control of quality are: grain growth, preferred crystal ori entation, and pore size distribution. Among tlie m.-.nufacluring processes that may be required are hot pressing, hot forging and perhaps even hot rolling. In a nutshell: much must be learned about the character of microstructurc of refractory grain within refractory' products and its relation to physical properties and per formance. This will uliimaiely require that the qualityeuntrol programs of the modern refractory manufacturer be extended to assure desired nu'crcslrucnarcs and crystal orientation with the grain. The CfiAi! man the:reuron expressed the thanks of the nv.m'v rship for Mr. Padre Ids instructive and i.boughtpre-vek mg re marks. The::c fab?g no fur.:her bnsiiiess o come K:;ore tl:,e meeting, on motion, adiou: ned. Avery C. Newtos BRIEF HISTORY OF THE REFRACTORIES FELLOWSHIP AT MELLON INSTITUTE Presented by: LOUIS j. TROSTEL A brief history of the Fellowship as this title suggests cannot tv. expected to be more than a portrayal of seme of the mere salient features of its nearly 50 years of existence. There is no question that its accomplishments far exceeded the hopes of its early sponsors and that it lias been w-ne ot the important factors in developing the technical con.-e.ous- ness so apparent in the industry today. The Fellowship w:l first established in 1917 by the then five-vear-old Refractories Manufacturers Association in !' !v, :M :iJ .> .> transferred to Oh:<_ S' nc U:v . :r. Howe who died prematurely in 1922. He was followed by MacDonald Bcozc who remained until 1926 and left to ex j'lcit the then new mineral r.ullitc with Chas. T.-v'or U S-rr :r. C:r.::~rx:: Ther. cr.m.c Stair. T'-'-'n v.h: v-.ra to rcjr,a:r. until his retirement in 1962. The las: Fellow was Frank McRttchie until the transfer to Columbus in 1965. The first facilities were located in a few small rooms in the old buildings of the University of Pittsburgh on top of the hill in Sehenley Park. In 1927 the Fellowship moved into more spacious quarters about four times larger located in Mr. Mcll>n`s K.tubful, new Doric temple on Fifth Avenue next to the pre ent Cathedral of Learning. The Fellowship was to remain here for 25 years. What sort of an industry did we have back in 1917? It was concerned mostly with clay and silica and a little basic. Brick and mortars were the thing and plastics and eatables unheard of . The hand made and stiff mud processes dominated in clay brick manufacture with slop mud and hammered brick in silica. The dry press and tun* ncl kiln were still just over the horizon. Large tonnages of clay brick were still in use for locomotive arch tile, for lining power stations and in rotaries. Silica made from ganister was the open hearth roof brick. It was a craft industry with few engineers in either manufacture or useage of the prod' uas. The chief testing tools were the rule and hammer for determining sice and burn. World War I ended at the close of 191S and with it the frenzy of high production and high prices. The inJustry became highly c..repetitive and a new v.ord was introduced into selling -quality. A prominent ssce! man complained that the superintendents and managers of the brick companies were most interested in making the cheapest product possible and gave only trifling attention to quality; and futhcr, the chief bricklayers, skilled as they were in laying brick, knew very little abcut quality or of those things which affected refrac tories in service. Pressure began developing from the steel industry and coke even builders for controlled size and quality. For one thing, Carnegie Steel had actually set up a small laboratory with a chemist and a ceramic engineer to test refractories for quality and to determine the causes for their failure at times. For ; i- ther thing, a committee called C-S bad been organized in the Amcrcan Society for Testing Materials in 1914. Its purpose was to design and standardize tests, speci fications and nomenclature for refractories. The committee was to be formed of producers, general interests and con.-;mcrs with the latter two to dominate in the membership list. The committee was small at first and comprised of 19 members, but included such knowledgeable experts of the time as J. S. Unger of Carnegie Steel, C. L. Norton of MIT, who was later to invent the silica drop machine for molding brick, Albert Blcininger of the Bureau of Standards, who had devised the first hot compressive or load test for evalu ating brick for the Panama Canal job, Edward Orton, founder of the first Ceramic School in this country and Dean of Engineering at The Ohio State University in addi tion to being the manufacturer of the famous Orton Pyrometric Cones, Ross Purdy, then Manager cf the Research Laboratory at the Norton Co. and later the long-time Sec retary of the American Ceramic Society and w. H. Fulweilcr of the United Gas Improvement Co. of Philadelphia. Some of the well known industry men were Kenneth Seaver of Harbison-Walkcr Co., Arthur Taylor, Charles Clai borne of the Union Mining Co., George Balz of the Sea board Refractories Co. and R. D. Hatton of LaclcdeChristy. The only actual refractories tests the start were the hud test and the 3'CE test, then called the fus-on test. This s.T.a'i group of men and its few tests have v.ncc gn..%n to a b.dv cf U''"1 v. ^-Vi' ,, . .. . ^ seasons and 90 `.me standards of all types ayphing to refractories. The Fellowship from the start was to play a leading part in the investigations and formulation of these many stand ards and point c>ut their usefulness to the industry. In fact, all the several Fellows were members of C*S, not only serv ing as chairmen of sub-committees but also as officers. The third Fellow, for instance, was secretary for a long time and the Vice Chairman. Somewhere, presumably,.tka-objectiiresucfqhe Fe4k-v.mp"wcrc spelled out but such a statement is not now available. It could have been to furnish a service by winch the manu facturers could gel their pi-, duets and pncc*-cs under the technical control Icing urged by the consumers. New prod ucts and processes Could be expected to develop to meet customer demand. To attain these objectives, the Fellowship had to have both a (cuing and a research laboratory as well r.s furnish consulting service. The early Fell^wdup was conscious of two problems. One was the fear of s^inc producers that their raw materials and mixes might be disclosed to their competitors. The other was the dearth of engineers by users and their inability to suggest tests for the control of properties of refractories which affected their behavior in service. Accordingly, there was little of the cooperative testing of roof and wall panels that is new so ccnmv.r,place. It was part of the job of the first Fellows to overcome these problems. In 1925 the Technical Advisory Committee cf what was now called American Refractories Institute w?.s (-.-.med under the leadership of j. Spoils McDowell. It was c:-mprised of 10 technical men .representing a'! read crosssection of the preducing industry-. One of its major func tions was to consult and cooperate with (he Fellowship in its research programs. The Fellowship, the TAC and Committee C-S were to form a triad of immense technical importance to the in dustry-. Many of the details of the early C-S standards were hammered out in meetings of the Fellowship and the TAC. The latter have further conducted numerous round robins of testing required before test procedures cviiiJ be stand ardized. One result of this close liaison was to prevent the Fellow ship fr-.-m working in a vacuum insofar as an appreciation of manufacturing problems were concerned. The productivity of the Fellowship over the y-ars, \wnle not always a matter of record, is well known. Its name is not attached to any of the C-S standards but it is recognized that many of the tests originated or were revised as the re sult of Fellowship investigations. It is not the intent to catalog herein all the tests which originated in the Fellowship. It is interesting, however, to direct attention to one procedure which from its inception was to prove of inestimable value to the industry- This was the Panel Spalling Test. The apparatus, as many of us know, is composed of large panels of brick representing a wall section. In the test these arc subjected to high temperatures to produce incipient vitrification. They are then cooled and taken by an over head trolley system to another furnace where they are re heated and blasted with an air-water spray to induce spal ling. After cooling the panels arc taken apart and the spalled fragments measured. Several days arc required for 4 the complete procedure. The rppamus is costly and the operation :$ expensive. In spue of this, the Fcllow.-hip had ^urm-.'.cc i-.hout 125 sets uf drawings for pre-pective The practical results of this one test should not he lost Sight of. In this connection it is important to remember that this test was able to prove for the first time that dry press brick were more superior in spalling resistance than hand made and stiff mud as well as furnishing a means of distinguishing super duty from high duty brick. A fact to be renumbered is the highly ethical manner in which the Fellowship testing work was always handled. For this reason, it developed into a national reference laboratory and its certificates of list accepted by-puf-elvisors every" where including government, state and municipal agencies. Tnc tests riginaiing in the Fellowship, diverse in charactcr and usefulness as they were, give only a hint of the basic conceptions which stimulated so much of the rc.-carch carried out over the years. For trounce, it goes without saying that the unit opera' tions of mining the raw materials, grinding and screening, mixing, proving, diving and burning have always been the .-pcci.il skill and responsibility of the operating departments. What they did not always fully understand in the past was the effect of variations in pertaining these unit processes on thcppipuiicsof their products. Someone had to investigate how variations in such prop* ertics as h-.ni'a) composition, screen analysis, porosity, strength :>nJ thcjmal conductivity- affected such furnace be' hatiur p'n. iv.m:na as shrinkage or expansion, subsidence under load, .-palling, wear from abrasion or slag and heat k*s through walls. Many studies were made not only to iel-ue the piop-ntics as made to the ultimate furnace be' b.avior but also to the devising of appropriate tests. While those facts are rather well undcrstn>>d today, their determi nation v.as to serve as the tody of most of the research of the Fellowship for many years. The many researches of the Fellowship have been re' corded in The Institute Technical Bulletins, the American Ceramic Society and ocher technical journals. Besides their specific vvlue to the industry, they have enhanced the tech' n*cal !iur.-f.nc <-n refractories technology in general. A t./tal of 115 of these papers were published, about 70 of which are attributed to the third Fellow, Stuart Phelps, during h:s long tenure of service of about 40 years. History is not ..mp'-sed entirely of the recording of mom: .'.ns ever is but must include the men who influenced ttam. A*.* (.rdiegly, in this brief history', the outstanding ".flu-cnee vf Phelps must not be overlooked. He was a teach' cr amongst other things. Under his rigorous tutorage, an ap preciable number of young ceramic engineers, acting as assistants, received the cquilavent of a post graduate train ing. TV*e men were eagerly .-.Might by both manufacturers and users of refractories .>nd today hold important techni cal positions. They carried away with them some of the concepts of how furnace behavior patterns are related to pr<*Juct properties and how to measure them. The professional reputation of the Fellowship is in part reflected in the honors awarded to Phelps. He was made a Tnistee and Fallow and received the Alfred Blcininger Award of the American Ceramic Society. He received the Award of Merit of the American Society for Testing and Materials. Further, following World War II, he was part of the team of Technical Intelligence experts on refractor ies sent to Germany. Visiting foreign experts on refractories always included a visit to the Fellowship laboratories and Phelps as part of their t<ur m this country lean:-: cf the lab -rntury s reputation U-.r technical excellence. Then, in the 50s the end of an ep<>eh in the life of the Fellowship conic be detected M.ntv ot the < bjeetr-es of the original sensors of the Fellv.vdiip had been achieved represented by the technical *- -phistication of the industry. Practically all the manufacturers of refractories and many of their custe>mcrs had engineers and technical men on their staffs, many of them in executive positions. Further, they had their own laboratories. Kmc in the million dollar class. The income from the Fellowship testing work, which had previously supported the research investigations, had de clined considerably. It Iveanic necessary' to make deficit ap propriations for the Fellowship mainicasccs--and-spovwil-apprepriations for research. Spiraling overhead charges by the Mellon Institute management of the order of 50-60 percent for the use of their- facilities were encountered. An assessment of the situation indicated a change was required preferably to one of the universities with a well established department of ceramic engineering. Here the resources of The Refractories Institute could be employed in assisting in the training of more engineers, still in short supply, and where the faculty' could supervise the more sophisticated research in demand. The transfer of the Fellowship from the Mellon Institute in Pittsburgh to The Ohio State University in Columbus might be looked upon as only a transitory phase in the fur ther developments of the overa.Il objectives of the original Fellowship sponsors. While the transfer may be coupled with some sentimental regret, there cannot be any regret over the thousands of dollars spent over the years at Mclh-n Institute. The returns arc represented in the transformation of this early craft industry into the highly specialized and scientific one of today. Of all the numerous Fellowships which have inhabited Mr. Mellon's Doric temple, the one on refractories was the second oldest, but this distinction is far outweighed by its contributions to the industry'. TRANSFER OF FACILITIES FROM MELLON INSTITUTE TO THE OHIO STATE UNIVERSITY Presented by: RoSERr A. BaRR Lou Trostel has given you a brief history of. our Refrac tories Fellowship at Mellon Institute, from its inception in 1917 to its closing in 1965--4S years of continuous opera tion--perhaps a record for any industry association. Now, particularly ta the benefit of our newer members, I am going to briefly review the problems we faced in the early 1960's which led us finally to transfer our testing and research center from Mellon Institute to The Ohio State University'. Under our agreement with Mellon Institute, they hired and supervised the .-`.ail, dci:imined the salaries, furnished the supplies and proviJed the space. In lieu of rent. The Refractories Institute reimbursed Mellon for all salaries paid, supplies and equipment purchased, plus 60% over head. In 1951, when tin's refractories association was found ed, the overhead charge w.is ?3l/j%. In 1957 it was in creased to 43% and in 195S it went to 60%. Tie Institute received all income from tests and this service was limited strictly to members of T.R.I. During the years 1960 to 1964 the average net cost of operating the Fellowship rose to $50,000 a year and further increases could be anticipated. All efforts to cut the losses were to no avail. We increased test charges, wc discontin ued the research department .of our Fellowship, wc cxtended the privilege of tests to all government arvneies, esre.T.ie engineering vncols and research institutes, we con stantly appealed to our members to give us more of their test business. Gross income kept dropping and costs kept mounting. The Directors of The Institute felt and they still do, 1 fcdicvc. that our industry- and its customers need an unbi ased and independent laboratory' for tests on refractories. There was no where else that a company could go for a test if it did not have the equipment in its own laboratory, or to provide a double-check on its own lab results, or to furnish proof of compliance with customer specifications,' commercial or governmental. Wc explored many avenues of relief during 3964: 1. We offered to give Mellon Institute our equipment plus $10,000 a year. They to receive all income from tests and to extend the service to anyone interested, regardless of m~nl- rship in The Institute. The answer was "No, thank you.** 2. We offered to donate our equipment to a commercial hloratory- -Pittsburgh Teeing Laboratory. They to con duct . full line of tests in accordance with A.S.T.M. stand ards as a part of their business. The answer again was, "No." 3. We then explored possibilities with three universi ties having Ceramic Engineering Departments. The University of Missouri was interested but they did not have space for our equipment at the moment, and we needed some 5,000 sq. ft. If we could wait two years until their new engineering building was completed, they would be glad to work out a deal with us. We could not wait. The University of Illinois was interested and agreed to accept our equipment and run the tests but we had to guarantee a minimum contribution of $64,000 fer the first year of operation alone to meet their estimate of operating deficits. That would he like jumping out of the frying pan into the fire. Wc finally r.egoriafed an agreement with The Ohio State University, effective April 1, 1965. Under that agreement we gave the university all of our equipment--some 60,000 pounds--paid the cost of trans portation- -some $3,500 --and gave the university $15,000 to cover the cost of equipment renovation and set-up. The university receives all income from tests, available to any interested company regardless of membership in The In stitute anj was to meet all expenses of operation. By the way, when we terminated our agreement with Mellon Institute and moved out, we contributed $17,500 to Mellon, matched by an equal contribution from them, to provide reasonable severance pay for the staff of our Fe'lowship--and remember, they were not our employees. One of the principal objectives of the agreement with O.S.U., in addition to the test service, was the establish ment of a substantial research program concerned with im provement of refractories evaluation and performance. To that end. The Refractories Institute agreed to provide funds' at the earliest possible date and the university agreed to provide personnel and facilities. It soon became apparent that even with the extension of the test facilities to any producer or consumer regardless of membership in T.R.I., and continuing publicity and pro motional efforts by the university and The Institute, the testing division was not going to be self-supporting. At the end of the first year of operation and for each succeeding ye*r, The Institute has c :.:r:b-toJ up to a tr.exi.r.um. of 3 t -v.- ,r* I;?.;::. rrtly because of this unexpected obligation. The In stitute has not yet organised and financed a specific rcse.-.rch and test development program and that is one of the rea sons for our being here in Columbus today. However, as Art Metzger, the Director of our Refractories Industry Re search Center at O.S.U. will probably tell you tc*day, our Foundation in Refractories Education (F.I.R.E.) has made some contributions to research and test development at the university. F.I.R.E. has contributed $10,000 for the pur chase of thermal c.`>n>jucii\gty test cquiprrsiiiand-has-rmrr tributed $33,000 to support thr^e graduate fellowships at the university. That is a brief run-down of cur pr-'-blcms - mainly fi nancial- -in transferring our testing and research center from Mellon Institute to The Ohio State University. R F.FR A CTORI ICS IN rt I'STRY RESEARCH CENTER April 1 -Scpft-i.-.bcrSn, 1068 I would like to introduce this report by thanking, pub licly, all of th-'-sc member o-mptnics who have sent refrac tories to the Research Center for the rcVnins of the furraces in our new hNiratory. An analysis of the use of the testing service of the Re search Center show? tlut members of T.R.I. have been the backbone of our support. Wc should point out, however, that a few of the "vertebra** have Veen missing recently. The following tabulated figures show the percentage ibution of our bill ings between member and non.her companies: Year Member Non-Member 1965 1966 1967 196$ (1st half) 12% 76 57 67 zs% 24 43 33 While the change in the precentages might appear to in dicate a k:-ser.::ig of the work sent to us by T.R.I. snondvrs, this is not actually the case. The dollar figures for member companies has held rather vtonstant wfch the' percentage shift being due, mainly, to an increase in work done for iKcvm.cmrer con-prnies. The level cf c-poratirns for 3963-69 continues at a'fav orable pace. Although the billings for the first six months are slightly behind those for the s*me period a year ago, we have orders completed through October which will put us ahead of the equivalent period a year ago. On the basis of these figures and the rate at which work is being booked we are hopeful that total billings for the year will equal or exceed thoseof last year. Wc arc engaged in .an analysis of our test work by type and frequency to better enable us to plan for equipment automation as well as make decisions relative to the advis ability- of adding new equipment. As an example, even if the Foundation In Refractories Education bad not under written the construction of the thermal conductivity appar atus, the number of inquiries wc have received for this service would have fully justified its acquisition. Many people, wc fear, think only in terms of our texting services. Actually, the Research Center is designed to ren der many more services to (he Refractories Industry-. A rethese are res vr.-k-s ....~..,s .. -v - - - v lishment of fellowships by F.I.R.E., companies, or individoals. We can alo handle work of a proprietary nature through the medium of research protects es^bbshed ;:.:^.gn t;.c Department o; Ceramic Engineering. The tour which will follow this morning's session will serve to show you the location of the R.I.R.C. Laboratory Areas. Those in Lord Hall being devoted principally to the more conventional and heavier items of refractories testing equipment, while the facilities of Watts Hal! and Mac* Quigg Laboratories arc in the realm of more sophisticated testing. Here arc housed X-Ray, D.T.A., recording thermal expansion, and other similar items of equipment. In these l.-.loratorics, too, our F.I.R.E. and other refractories fellow ship holders carry out their researches. _ ___ Respectfully submitted, . A. J. Metzger Director REPORT OF GENERAL COUNSEL F'-nal Regulations were issued July 26, 1968 covering methods of arriving at gross income (valuation) for the pcKcniage depletion wmputation. A portion of the regula tions covering ordinary treatment processes included in mining (cut-off jxint) had been re-proposed. The Institute protc4tcJ these proposals at the public hearing on Septem ber 25, 196S. It was indicated that the re-proposed regula tions would be revised to meet this protest and to allow cru.-h'-ng and grinding to the refractories industry without any icquircmcnt that the crushing and grinding be neces sary to bring to shipping grade and form. It is anticipated that final cut-off regulations wall be published before DecernK'r 31, 1968. IVnhV.Afion of final regulations will trigger completion of Internal Revenue Service audits of the tax returns of the icfr.tctcri<`s industry for 1961-1967, which have been sus pended pending Ena! regulations. I Cul-OfT Point Regulations If, as anticipated, the Final Regulations covering cut-off ;nt embody the changes and modifications urged by The R. factories In:itutc, the following rules will apply to the i efractories industry: Refractory Clay will be entitled to "crushing" and "coarse grinding" tj, ordinary treatment processes, viz., grinding no finer than the pvint at which at least 5% of the p:\-Juet w ill bo retained on a 30 Mesh U. S. Stand ard Sieve. Reffactory Silica wall be entitled to "crushing" only as an ordinary treatment process, viz., grinding no finer than the point at which at least 5% of the product will he retained on a 20 Mesh U. S. Standard Sieve. II Vnlinwon id the Cut-Off Point The value of the mi/jeral for depletion purposes at the cut-off point is to be established in the following order of preference: 1. Actual receipts from sales by taxpayer of the mineral sold at or prior to the cut-off point must be used for all mineral so sold by taxpayer (1.613-3 (b) (2)). 2. Where all or part of the mineral is processed beyond the cut-off point, the value of the mineral so processed measured at the cut-off point will be: a. Representative market or field price for the mineral at the cut-off point as shown by weighted average of competitive sales by other producers in the market area of minerals of like kind and grade to that of taxpayer ().6)3-3(e)). Taxpayer's own sales .-re to be cnns-GcrcG, 11 reps crcm<>:vc; cr b. If no representative field price exists, or if a field price exists but its use is prohibited by the regula tions, then the value of the mineral at the cut-off point wall be determined by use of the proportionate profits method applied to taxpayer's sales of its "first tnjr^etb'ble product or group of products" processed beyond the cut-off point as expressed by the formula (1.613-3(d) (1)): mining to (xros: i-aLci matkcuble. eut o font______ ^ J product nd constructive sale* of total ccr.s to first marketable product ) rfl,cJuct recessed beyond first ^ marketable product. The value at the cut-off point thus reached cither by the use of the field price or proportionate profits will then be the value of all minerals processed and sold beyond the cut-off point. The foregoing simplified outline is complicated by two limitations up^.n the use of the field price method: 1. Sales at Cut-off PointJ^ot Representative (1.613-3(c) (4)). "(4) Type of sales which may be considered in deternining the . epyetentative market or field price for the taxpayer's o>e or mineral.''*** "For the purpose of de termining the representative umr^et or jfield price for the taxpayer's ore or mineral, exceptional, insignificant, unusual, lie-in, or uccoimnodation ssles shall be disregarded. ..." Thus sties at the cut-off point will not be regarded as cst.ih'i-hing a representative field price if they are "insignfjlcent," which is defined in Webster's Third \ew International Dictionary (1968): "insigni^cant" --"of little size or importance." "signi/icantM--is not defined in terms of size or quantity. 2. Denial of Field Price If Manufacturing Loss Results From its Use (1.613-3(c) (6)). "(6) Limitation on gross income from the property computed under the provisions of this paragraph. It shall be presumed that, a price is .oflt a representative market or field price for the taxpayer's ore or mineral if the sum of such price plus the total of all costs of the uouminiV.g processes (including the r.cnmining trans portation) u-kich the taxpayer applies to his c-Ve or mineral regularly exceeds the taxpayer's actual sales price of his first marketable product or group of prodcuts. .. "For example, if the total of all costs of nonmining processes applied by the taxpayer to coal for the purpose of making coke is $12 per ton, and if the taxpayer's actual sale price for such coke is $18 per ton, a price of $7 per ton would not be a representative market or field price for the taxpayers coal." Application to Refractory Clay and Silica The Regulations are not designed to liberalize the deple tion deductions for the refractories industry or any other industry. Indeed, the contrary is true. However it will be possible for the refractories industry to chart a course under the Regulations which will produce, a reasonably satisfactory depletion result. If a field price at the cut-off point exists in an area which is not based upon '`insignificant" tonnage, its use will prob- ably not produce a manufacturing loss where tested by the taxpayer's costs and sales of refractory- specialties as the "firs: marketable product or group of p;-\iucts." Further, i --*< re rc:r.jor..w cy ;;,c poritor.atc profits computation applied to refractory specialties as the ''first marketable product.'* These opportunities are created by the definitions of ''first marketable product or group of products" (1.613*3 (d> (1) (iv)) : "(iv) As used in this section, the term `first marketable product or group of products' means the proJuct (or group of essentially the same products) produced by the taxpayer as a result of the application of nonmining processes, in the form or condition in which such product or products are first .marketed in significant quantities by tlie taxpayer or by others in the taxpayer's marketing area. For this purpose, bulk and packaged products are considered to be essentially the same product. The first marketable product or "group ofproducts does not in clude a product or group of products additionally refined, . bencficiatcd, altered, or manufactured as a result of the application of additional nonmining processes. For ex ample, if a cement manufacturer sells his oven finished ce ment of various types in bulk and hags and also sells con crete Hocks or dry ready-mix aggregates containing addi tives. the finished cement of various types, in bulk and Fags, constitutes the first marketable product or group of prr*ducfs produced by him. Similarly, if an integrated iron ore and steel producer sells both pig iron in various sizvs and rolled sheet iron or shapes, his first marketable product is the pig iron in its various sizes. Further, if an integrated clay and brick producer sells both ung'azed Hicks and tiles of various shapes and sites and addition ally manufactured bricks and tiles which are specially glazed, the unglazed products, both packaged and unpackagcd, constitute his first marketable pre-duct or group e-f products." Thus refractory clay plants which produce and sell re fractory' specialties such as mortars, ramming mixes, plastic fire brick, castables, gunning mixes, etc., in "significant" quantities may well be able to justify the field or market price by proportionate profits applied to specialties. Like wise, under the Regulations, competitors' area plants which do produce and sell specialties but not in significant quan tities are entitled to look to sales of area plants which do manufacture and sell specialties to establish "significant" sales. Summary The Regulations, so far as the refractories industry is * neerned, create a "springboard" from which it is possible to launch an approach to a reasonably satisfactory' depletion deduction for post-1960 tax returns. The approach would be as follows: (1) There is a field price for crushed and ground clay and filicabascd upon "significant" sales. (2) The use of the field prices does not produce a manu facturing loss when applied to taxpayer's sales of spe cialties as the "first marketable product." (3) Proportionate profits when applied to taxpayer's sales of specialties will produce a constructive value at the crushed and ground stage reasonably justifying the field price. The two most critical concepts of the Regulations in this approach are: (1) "Li\e Vd ^nd grade." Under the Regulations (1.613-3(c) (2)), this is determined by reference to similarity of chemical, mincralogieal or physical char acteristics and end-use of the mineral. (-) Jnsigni/iccnr"--"Significant" which arc r.oc defined by the Regulations. ?>:&. of rW t-y.i -us: be me; in the cvriu-n-n of the field u: market price a; the cut-off point. Thus the sales of clay and silica at th:s point, to be representative must both be of "like kind and grade" in quality (1.613-3 (c) (3)) and "significant" in quantity (1.613-3 (c) (4)). Only the latter test must be met for the purpose of (a) establishing the "first marketable product or group of products" by which the manufacturing loss test is to be measured (1.613-3(c)(6)), and (b) establishing the "first marketable juwJuct yr products" to which to apply the proportionate profits formula prescribed to cstahlisK a constructive value of clay and silica at the cut-off point. (1.613-3 (d) (iv)). it is difficult to evaluate the quantity of sales (measured either as percentage of total tonnage or of t-ual sale dollars) which wjil be accepted by the Internal Revenue Service as being significant or refused as being "insignificant." The indications are that previous efforts of Treasury to estab lish a uniform percentage have now been aband.med in favor of a ease by ca*c determination. However the Regulations do provide that "significant" for both purposes (a) or (b) above is to be determined not by taxpayer's sales alone, but by sales of all producers in taxpay er's market area. Thus in the ease of a particular taxpayer, while its indi vidual sales of refractory specialties may he rcgnided as "insignificant," the taxpayer may, nevertheless, he entitled to measure the value of his ground clay and silica by pro portionate profits applied to the few sales of specialties it may have. This is due to the provision in the Regulations that the problem of whether the specialties sales are "sig nificant" is determined not by a particular taxpayer's sales, but by -sales of specialties by its competitors in its market area. It seems evident that Treasury' is determined notwith standing certain pressures, to finalize depletion regulations quickly, a matter which has been in ]imK> since 1954. Tnis, in view' of the political changes, must be done within the next thirty days. Thus the refractories indu-try may well be quickly in the throes of Internal Revenue Service examina tions. It is of utmost importance that .thasa-exaruinations- be coordinated through the office of General Counsel. I will be able to furnish information and suggest approaches which have been successfully used. There are many pt.'hlcm areas in the use of the ptvpor- tionate profits method as applied to refractory' specialties sales. We have had no prior experience in this area and new and unforeseen problems may arise in each member's audit. It is important that, to the extent possible, these problems be handled on a uniform basis. We, of course, will attempt to develop an industry pattern in the interest of uniformity and equality of treatment for all refractory producers. Respectfully Submitted, William J. Kenny General Co;;jise! TREASURER'S REPORT Six Months, April 1 * September .'0, 1968 Receipts " Dues .................................................................................$88,695.00 Operator's Meeting Fees......................................................... 5,050.00 Miscellaneous .................................................................. 696.77 Disbursements $92,441.77 AuJit and Legal............................................................. $ 5.5S1.60 Committee C-S......................................................................... 554.51 Dues and Subscriptions........................................................... 57S.31 F.I.R.E......................................................................................... 7,500.00 Firesphere Exhibit .......................................................... 2,149.55 Furniture and Fixtures............................................................. 1*164.68 Meeting Expense ............................................................ 7,976.45 Office Expense ................................................................ 5,491.06 Operating Reserve .......................................................... 12,500.00 Pension Premium and Reserves.............................................. 2,$26.15 Printing and Publishing........................................................... 5.10S.85 Refracioncs Industry Research Center.................................. 10,000.00 Rent ................................................................................ 2,124.00 Salaries, net...................................................................... 3 1.452.S8 Travel .............................................................................. 1,252.98 1- ----- Telephone ........................................................................ 475.19 Taxes and Insurance ...................................................... 4,411.04 Miscellaneous .................................................................. 4S.44 $79,155.47 Add to Reserve.....................................................................................................$13,2SS.50 C.ish on hand April 1, 1968 ................................................................................ 77,429.67 CASH BALANCE SEPTEMBER 30, 1968 ................................................... $90,717.97 The Eahcock if Wilcox Co. R. A. Barr W. C. Bohling C. L. Norton Basic Incorporated Max Muller H. N. Bairctt A. M. Cairo C 'E Refractories L. J.Jacobs F. C. Ft--i'likc R. T. H-gcman The Catforunduni Co. C. R. L.\nJSack Cedar Heights Clay Co. M. E. Morgan D. E. Morgan Chicago Fiic Brick Co. H. R. Pcd.rscn Dolomite Brick Cot rotation of America C. C. Abraham E. E. Childs. Jr. Ehetro R fract'/rics K. S. Cv*wlin J. G. Mntchulat Abrasives General Refractories Co. J. P. Rhein F. Catr.phcll D. L. Garrison L. R. Lebauer W. M. Troutman Globe Refractories, Inc. W. F. Porter Alean Sales Inc. R. M. Mathieson J. G. Lindsay The Abury Graphite Mills F. H. Murphy B.v.tcl'c Memorial Institute L. S. O'Bannon Chisholm, Boyd If White Co. R.F. Poole ATTENDANCE LIST Active Members A. P. Green Refractories Co. W. s. Lowe J.J.Offutt Inland Fire Brick Co. M. F. Myers L. A. Bennett Interface Corp. R. V. Laurence J'. hns-Mar.rille Sales Corp. H E. Konrad S. E. \V.!cy Kaicr Refractories J. F. Knight J. C. Hicks Lavino Division A. H. Eergey H. M. Miknmi I -vet. nee Refractories Co. ip.t w* , ct._ni_y L. E. Williams R. Wolh nsperger Louisville Fire Erick Works N. C. Updegraff C. W. Stcv*.ns Maryland Rcfraetvi ies Co. R.T. Oxnard R. T. Oxnard, Jr. Monofrax Corp. E. L. O'Meara J. E. Coffman Ncgley Refractories John Perry Associate Members M. H. Detrick Co. C. B. Edgar Dow Chemical Co. J. A. Kelly Kyartic Mining Corp. Carroll Kay Mining Machine Parts, Inc. J. D. Gibson R. M. Wilson Oak Kill Fv.:nd:y if Machine Works G. T. Needham North American Refjaetories W. R, Ramsay Norton Co. B. F. Meyer R. A. Alliegro Ohio Lime Co. George Judd J-E*.b`rtlow t J'librieo Co.' R. W. Schaefer S. B. Pieters Quigley Co. F. H. McRitchie Roseo Pr<-Jucts, Inc. W. T. TrcJcnnick C. R. Enoch R. F. Pv'lustny Shenango Refractories R. C. Seholts D.Spore The Chas. Taylor Sons Co. R. W. Knauft AdJison Maupin Valley Dolomite Corp. H. P. Day J. P. Holt Wr-h! Refractory Products Co. D. H. Lease Wollsvillc Fire Brick Co. W. R. Weiss H. D. Smith Philadelphia QuartaXo. J. R. Forrest W. B. Esmonde R. W. Holmes C. W. Klein Republic Steel Corp. R. W. Limes SuindeH-Drcssler Co. F. Eyman K. Lange H A. Boh, Dean, The Ohio State University G. C. BrviJer.bach, T. J. Cundhch Machine Co. J. O. Everhart, The Ohio State University W. J. Kenney, T.R.I General Counsel A. J. Monger, The Ohio State University A. C. Newton, T.R.I. Executive Secretary j W. Norwood, Forrest Paschal Machinery Co. Others E. Obcr.'Ch;-..id;, Brick and C.l.iy Record h C. Thdftcld, B.hlehem Steel Co.p., Guest $p. D. D. Phelps, Daren Corp. Ralston Russell, Jr., The Ohio State University R. F. Tntnall, Ceramic Age L. J. Trostel, Guest S- ;.;.er