National Defense StockpileDisposal of Excess Zinc Gao ID: NSIAD-97-30 November 7, 1996
The American Zinc Association contends that the Defense Department's plan to sell excess zinc from the National Defense Stockpile will disrupt the usual markets for this strategic material. GAO found, however, that the government's determination was sound and that the military has policies and procedures in place to avoid unduly disrupting the zinc market. Specifically, it has publicized its policy on the timing of sales, amounts to be sold, and relation of sales prices to market prices; provided plans to the appropriate congressional committees for approval; sold less zinc than it was authorized to sell; and strived to sell at prices close to commercial market prices. Zinc is commonly used for everything from galvanizing to producing the penny. As of March 1996, the military has nearly 300,000 tons of slab zinc valued at $300 million stored at 15 facilities in nine states.
GAO found that: (1) the statute that governs sales from the stockpile does not define the usual markets for stockpile materials; (2) accordingly, executive branch officials have discretion in identifying the relevant market for particular sales; (3) the Defense Logistics Agency's Defense National Stockpile Center (DNSC) and the Market Impact Committee, the intergovernmental group that is statutorily required to advise DNSC on the U.S. and foreign effects of sales from the stockpile, have concluded that for stockpile sales of zinc, the usual market is the total U.S. market for all grades of zinc, not just the grades being sold from the stockpile; (4) AZA considers the usual market to be the U.S. market for only the particular grades being sold from the stockpile; (5) GAO believes the government's determination has a sound basis; (6) the determination is based on practices that exist in the zinc industry, and it is consistent with the views of zinc market participants with whom GAO discussed this matter; (7) DNSC has policies and procedures for selling zinc without unduly disrupting the zinc market; (8) specifically, it has: (a) publicized its policy on timing of sales, amounts to be sold, and relation of sales prices to market prices; (b) provided plans to the appropriate congressional committees for approval; (c) sold less zinc than it was authorized to sell; and (d) given increased emphasis to selling at prices close to commercial market prices; (9) the government recognizes that stockpile sales can affect some sellers more than others, despite its attempts to minimize disruption; (10) the sales may, for example, have a greater impact on the sellers of the grades being sold from the stockpile, and a seller of one grade could be more affected than a seller of several grades; (11) the increase in zinc supplies can lower prices and cause particular producers or processors to lose business; (12) however, the Market Impact Committee contends that this is normal commercial activity, not an undue disruption; and (13) DNSC plans to continue to closely monitor prices when accepting bids to ensure that the market is not unduly disrupted.