You are on page 1of 22

21

CHAPTER 2

MARKET ANALYSIS AND ECONOMIC

2.0

INTRODUCTION

Acrylonitrile was predominantly used for production of plastics such as acrylonitrilebutadiene-styrene (ABS) and styrene-acrylonitrile (SAN), nitrile rubbers, nitrile barrier
resins, adiponitrile and acrylamide. On the other hand, the by-products produced in the
production of Acrylonitrile which are Acetonitrile and Hydrogen Cyanide (HCN), were
also studied to be fully utilized. The demand of Acrylonitrile is rising over the years and
consume by various industries over the world. Therefore, in order to design an
Acrylonitrile chemical plant, thorough analysis on the market and the economic sector
must be properly done. The study is also consists of estimation of the lost and profit of
running the industry.

22
2.1

MARKET ANALYSIS

2.1.1

World Production of Acrylonitrile

According to Acrylonitrile and derivatives world supply/demand report 2009 done by


PCI Acrylonitrile Ltd. the acrylonitrile demand was increased in 2007 to reach the
highest total ever. However, in 2008 the demand is decreased due to the economic
problem. For the year of 2009, the demand and production of acrylonitrile is shown in
figure 2.1. World consumption of acrylonitrile is over 4 million tonnes. The USA is the
largest producer of acrylonitrile, with production of almost 2 million tonnes a year. Asia
is the largest consuming region of acrylonitrile, accounting for 39% of world
consumption, while production is growing fastest in North America. The USA and Japan
are the major exporters.

ACRYLONITRILE PRODUCTION AND


DEMAND
Thousand Tons

2500
2000

Demand

1500

Production

1000
500
0

Region

Figure 2.1 Acrylonitrile Production and Demand (Garmston, S., 2009)

23
Table 2.1 Main country in Asia produces Acrylonitrile

COUNTRY

COMPANY/LOCATION

PRODUCTION

TOTAL

CAPACITIES

PRODUCTION

(TONS)

CAPACITIES
(TONS)

INDIA

Reliance, Gujerat

50 000

50 000

SOUTH KOREA

Tong Suh Petrochemical

300 000

550 000

Tae Kwang

250 000

CPDC

200 000

Formosa Plastics

280 000

PTT Asahi Chemical Co

2203 000

2203 000

2415 000

2415 000

TAIWAN

THAILAND

480 000

Ltd
CHINA

Various company

(Garmston, S., 2009)

2.1.1.1 Forecast of Acrylonitrile Price and Demand

In this section, the production as well as the demand will be studied together for further
understanding the likelihood of the market balance to develop in the coming years. The
acrylonitrile supply and demand balance is forecast to improve over the upcoming
years. Thus, production of Acrylonitrile shows potential in attaining a profitable market.

Acrylonitrile demand growth is forecast to be increasing at 3.7% per year on


average for the period of 2008 - 2018. However, the forecast was a bit misleading as it

24
starts from a very low base. Total demand of acrylonitrile in 2018 was expected to be
6.516 million tonnes. (World Supply/ Demand report, 2009)

A market trend of acrylic fibre which is one of the main sources of demand was
observed. In 2004, acrylic fibre has lost market share mainly to polyester due to its
relatively high price. The extensive use of fabrics woven from polyester thread or yarn
in apparel and home furnishing were also the main concern. In 2008, a substantial
volume of 520 000 tonnes of acrylic fibre were lost. However, growth of 127 000 tonnes
was seen as the volume regained in 2009. Therefore, we are expecting of more
acquisition in years to come.

Below are the graphs that show the forecasted production and demand of
acrylonitrile in year 2013 and 2018 by various parts of the world. We can see clearly
from both the graphs, production of acrylonitrile in Asia / Far East countries are
overwhelming. The production is targeted to exceed the demand. Therefore, it is a wise
decision to build acrylonitrile plant in any part of Asia to satisfy the needs of the
demands.

25

103 tonnes

ACRYLONITRILE: PRODUCTION VS
DEMAND
2013
3500
3000
2500
2000
1500
1000
500
0

demand
production

Figure 2.2 Production and demand of acrylonitrile in 2013


(Garmston, S., 2009)

103 tonnes

ACRYLONITRILE: PRODUCTION VS DEMAND


2018
4000
3500
3000
2500
2000
1500
1000
500
0

demand
production

Figure 2.3 Production and demand of acrylonitrile in 2018


(Garmston, S., 2009)

26
2.1.2

Raw Material

2.1.2.1 Propane
Table 2.2 Propane pricing
Propane (US dollar / Gallon)
Year

Dec 2008

Dec 2009

Jul 2010

Prices

$0.603

$1.318

$1.080

(Petronas Gas Berhad, 2010)

Table 2.2 shows the propane pricing from December 2008 till July 2010. From
the observation, it shows inconsistent price of propane from 2008 to 2010. The rapid
increase of propane from December 2008 to December 2009 proves that the demands
of propane is getting higher but slowly decrease in July 2010.

Table 2.3 Propane Demand


Company

Country

Xinao Gas

Hong Kong

Gail India

India

Perusahaan Gas Negara

Indonesia

S-Oil Corp

South Korea

SUI Northern Gas

Pakistan

Pipeline

27
Petrochina Co.

Singapore

Petronas Gas Malaysia

Malaysia

(Petronas Gas Berhad, 2010)

Table 2.3 show the supplier of propane market in Asian. Primary suppliers in the
propane market include Xinao Gas (China), Gail India (India), Perusahaan Gas Negara
(Indonesia), S-Oil Corp (South Korea), SUI Northern Gas Pipeline (Pakistan),
Petrochina Co. (Singapore) and Petronas Gas Malaysia (Malaysia). (Petronas Gas
Berhad, 2010)

2.1.2.2 Ammonia

Ammonium hydroxide, also known as ammonia water, ammonical liquor, ammonia


liquor, aqua ammonia, aqueous ammonia, or simply ammonia, is a solution of ammonia
in water. It can be denoted by the symbols NH3(aq).

Table 2.4 Ammonia Purchase Price


Chemical compound

Unit Size

Unit Price (RM)

Ammonium Hydroxide

500 ml

110.459

(2010)

2.5 L

157.607

Ammonia, solution 32%,

2.5 L

284.846

25 L

1,714.86

(Year)

reagent grade
(2008)

(Chem Supply Price List 2008 and Integra Chemical Catalog 2010)

28
Since the general economis crisis which heavily affected the downstream
fertilizer sector, as well as the reduces in industrial sector demand, ammonia prices has
drop $700-800/tonne from the peaks achieved in September 2008. In 2009, this
ammonia market is expected to change shape as a result of the dramatic fall in prices.
(The Market- Fertilizer News and Analysis, 2008)

Table 2.5 Ammonia Supplier in Asia Region


Company

Country

Petronas Ammonia Sdn Bhd

Malaysia

Pt. Kaltim Pasifik Amoniak

Indonesia

Suzhou Industrial Park Yacoo Chemical

Jiangsu, China

Reagent Co., Ltd.


Shanghai Xunxin Chemical Co., Ltd

Shanghai, China

Manus Aktteva

Gujarat, India

Yongyi Chemicals Group Co., Ltd.

Jiangsu, China

Jinan Haohua Industry Co., Ltd.

Shandong, China

(www.chemicalregister.com, 2010)

From the Table 2.5, it shows that China is the largest ammonia manufacturer.
But, Pt. Kaltim Pasifik Amoniak which is located at Indonesia is one of the biggest
ammonia manufactures in the world.

29
2.1.2.3 Sulphuric acid

Table 2.6 Sulphuric acid purchase price


Sulphuric acid (RM / 500 ml)
Year

January 2010

Prices

RM 97.09

(Integra Chemical Catalog, 2010)

Table 2.6 shows the sulphuric acid pricing for years of 2010. According to ICIS
website, about 50 million tones of sulphuric acid was produced globally in 2009 over
90% being used in the production of sulphuric acid. It state that global prices of sulphur
and sulphuric was not stable starts in 2007 until 2008 driven by high demand in
industry. However, prices began to drop in the second half of 2008 in-line with the
global economic crisis and in late 2009, the demand in end use sectors improved
causing prices to rebound continuing into 2010. Compared to historical level prior to the
spike in 2007 and 2008, prices are currently at stable levels. At January 2010, the
prices start with the prices of RM 95.09 or US$ 30.34. (www.icis.com., 2009)

Table 2.7 Sulphuric acid major exporter and importer


Major Exporter

Major Importer

Middle East

China

Canada

North Africa

Soviet Union

India
United State

(Integra Chemical Catalogue, 2010)

30
Table 2.7 show the major exporter and importer of sulphuric acid around the
world. The major exporters were to Middle East, Canada and Soviet Union while the
major importer was India, United State, North Africa and China with 25% majority.

2.1.3

Catalyst

Table 2.8 Vanadium Catalyst purchase price


Vanadium Catalyst (RM / 500 ml)
Year

January 2010

Prices

RM 259.884

(Integra Chemical Catalogue, 2010)

Table 2.8 shows the vanadium catalyst pricing for year of 2010. Over the last 20
years, vanadium prices have shown a high degree of volatility. As experienced between
1998 and 2003, the price fall to the low but this does not happen in the economic
downturn in 2009. Many producers cut output and limited the fall in price. In mid 2010,
the recovery in price stalled for ferrovanadium. In long term forecast, the price will rise
reaching RM234.675/kg by 2015. Over the last decade, China has become both the
main producer and main consumer of vanadium. In terms of supply, it now accounts for
almost 50% of the global total and planned expansion over the next two years will
consolidate this position. Chinese demand for vanadium grew at 13%pa between 2003
and 2009.(www.roskill.com, 2009)

Table 2.9 Vanadium Catalyst Supplier


Company
Hebei Domydo Co., Ltd

Country
China

31
International Trading (IT) Limited

United Kingdom

Angara Enterprise

Ukraine

Highveld Steel & Vanadium Corp

Witbank, South Africa

(www.alibaba.com)

Table 2.9 shows the supplier of vanadium catalyst around the world. Countries
with mature economies have much higher intensity of use of vanadium and in 2008,
intensity of use in USA was more than three times as great as that in China. Over the
next decade one of the main drivers for growth in vanadium demand will be a
combination of strong growth in steel output in Brazil, Russia, India and Canada
countries and an increasing emphasis n these countries on production of high strength
low alloy steels with their higher vanadium content. (www.roskill.com.,2009)

2.1.4

By-product Market Analysis

2.1.4.1 Acetonitrile

Acetonitrile is a co-product in the production of acrylonitrile and once purified, the


acetonitrile output is approximately 2.5-3% of acrylonitrile output and consequently the
acetonitrile supply/demand balance is totally governed by acrylonitrile output. There are
no commercial first intent producers of acetonitrile. As demand for acrylonitrile has
decreased owing to global economic slowdown, the production of acetonitrile has also
been decreased. A global shortage of acetonitrile is expected to remain the case well
into 2009.

Price for 1 tonne of acetonitrile = RM 6257.79 (HowTrade.com,2005)

32
2.1.4.2 Hydrogen Cyanide (HCN)

Hydrogen cyanide forms in at least limited amounts from many combinations of


hydrogen, carbon, and ammonia. Hydrogen cyanide is currently produced in great
quantities by several processes, as well as being a recovered waste product from the
manufacture of acrylonitrile. Hydrogen cyanide is largely used in the production of other
chemicals. Its largest use is in the production of adiponitrile which in turn is used in the
production of nylon. The other uses are in the production of methyl methacrylate,
sodium cyanide, methionine, chelating agents, and cyanuric chloride (Mannsville
Chemical Product Synopsis July 1999, Chemical Market Reporter January 10, 2005).

The market for hydrogen cyanide is expected to grow slightly slower than the
GDP growth rate (Chemical Market Reporter January 10, 2005 and February 26, 2001;
Mannsville Chemical Product Synopsis July 1999). This analysis assumes that future
hydrogen cyanide supply will be within the range of 0.75 to 1 million tonnes per year.

2.4

ECONOMIC ANALYSIS

2.4.1

Fixed Capital Cost/ Investment

Fixed capital investment is amount of money needed to make the plat operable. Fixed
capital investment includes total cost of equipments, land cost, equipment installation
cost, etc. Table 2.3 shows the list of equipment needed for plant and estimation of its
cost.

33
Table 2.10 Number of major equipment according to type
Type of Equipment

Number of

Price for 1 unit

equipment

(RM)

459,773

459,773

Pump

200,000

1,000,000

Scrubber

119,504

119,504

Quench Column

282,744

282,744

Cooler

282,744

282,744

Heater

280,028

280,028

Distillation Column

1,650,000.00

4,950,000

Storage Tank

37,884

189,420

Compressor

214,368

214,368

Mixer

27,000

27,000

Total Equipment

20

Fluidized Bed

Price (RM)

Reactor

7,805,581

Cost

(Source: http://matche.com and Perry, 1999)

Fixed capital investment consists of direct and indirect cost. Direct cost is cost
needed to install all the plant equipments and also for the surrounding of the plant but
for the indirect cost, it consists of all the legal activities and fees for contractors. Details
are shown in Table 2.4.

34
Table 2.11 Fixed Capital Investment of the Acrylonitrile Plant
Component

Estimation

Cost (RM)

TOTAL

Direct Cost
Total Equipment Costs
Equipment Installation (includes

7,805,581
40% of total equipment cost

3,122,232.40

Piping System Installation

50% of total equipment cost

3,902,790.50

Instrumentation and Control

20% of total equipment cost

1,561,116.20

Electrical System Installation

15% of total equipment cost

1,170,837.15

Service facilities

50% of total equipment cost

3,902,790.50

Building, process and auxiliary

40% of total equipment cost

3,122,232.40

insulation and painting)

RM 30.00 per metre square

Land

( 323,748.80 metre square)

Yard Improvement

12% of total equipment cost

9,712,464.00
936,669.72

TOTAL

35,236,714.00

Indirect Costs
Engineering and supervision

10% of total direct cost

3,523,671.40

Construction expenses

10% of total direct cost

3,523,671.40

Legal expenses

10% of total direct cost

3,523,671.40

Contractors fee

5% of total direct cost

1,761,835.70

Contingencies

12% of total direct cost

4,228,405.68

TOTAL

16,561,225.58

FIXED CAPITAL INVESTMENT

2.4.2

Direct Costs + Indirect Costs

51,797,939.58

Operating Capital Cost

Raw materials, labor cost, catalyst cost, and Utilities cost plus fixed capital cost are the
needed for operating capital cost. Whereas, raw materials, labor, catalyst, and utilities
cost are the ingredients to make variable cost. All the calculations are shown below.

35

2.4.2.1

Annual Cost of Raw Materials


Table 2.12 Annual costs for Raw Material

Reactant

tonne per year

RM per tonne

RM per year

Propane

96,360.00

1,409.09

135,779,912.40

Ammonia

74,460.00

915.39

68,159,939.40

Sulphuric Acid

185.84

TOTAL

203,939,851.80

2.4.2.2 Estimation of Operating Labor Cost

2.4.2.2.1

Operation Team

2.4.2.2.1.1

Shift Worker
Table 2.13 Shift Worker Cost

Position

Quantity

Salary/Month (RM)

Total

Chemical Engineer

2,400.00

2,400.00

Shift Team Leader

1,750.00

1,750.00

Panel Boardmen

1,300.00

5,200.00

Process Field Operator

1,300.00

10,400.00

TOTAL

19,750.00

4 shifts = RM 19,750 x 4 = RM 79,000 (A)


2.4.2.2.1.2

Non-Shift Worker
Table 2.14 Non-Shift Worker Cost

Position
Safety Officer

Quantity

Salary/Month (RM)

Total

2,200.00

4,400.00 (B)

36

2.4.2.2.2

Maintenance Team
Table 2.15 Maintenance Labor Cost

Position

Quantity

Salary/Month (RM)

Total

Engineer

2,400.00

9,600.00

Technician

11

1,300.00

14,300.00

TOTAL

2.4.2.2.3

23,900.00 (C)

Additional Worker
Table 2.16 Additional Worker Cost

Position

Quantity

Salary/Month (RM)

Total

20

900.00

18,000.00

3 x 4 shifts

600.00

7,200.00

Contractor
Guard
TOTAL

2.4.2.2.4

25,200.00 (D)

Administration Team
Table 2.17 Administration Worker Cost

Position

Quantity

Salary/Month (RM)

Total

Human Resource Manager

1,750.00

1,750.00

Human Resource Staff

1,000.00

6,000.00

TOTAL

7,750.00 (E)

Total Labor Cost = A + B + C + D + E

= RM 140,250 per month

= RM 1,683,000 per year


2.4.2.3 Catalyst Annual Cost
The catalyst used for production of acrylonitrile is vanadium catalyst
Table 2.18 Annual cost for catalyst
Reactant

tonne per year

RM per tonne

RM per year

37
Vanadium

16.06

631.00

10,133.86

2.4.2.4 Estimation of Utilities Cost


Table 2.19 Estimation of Utilities Cost
Utilities

Rate

Quantity

TOTAL

Used

Water
Water price :RM 1.15 /m3

a) Industrial

103 m3/day

RM 118.45 /day

Amount of water needed


for the first startup
RM 42,405.00 /year

Total
Electricity
electricity price :Tariff E1 Medium Voltage
General 6.6kV 66kV

RM 0.203
/kWh

5514.29 kWh

RM 1119.40 /day

supply
Total power required

RM 408,581.32 /year

Total utilities

RM 450,986.32 / year

So, Total of Variable Cost =


= Raw Material + Labor Cost + Catalyst + Utilities
= RM 203,939,851.80 + RM 1,683,000 + RM 10,133.86+ RM 450,986.32
= RM 206,083,972.00 per year
Operating Cost

= Fixed Capital + Variable Cost


= RM 51,797,939.58 + RM 206,083,972.00
= RM 257,881,911.60

38
2.4.3

Start-Up Costs

Start-up costs are the cost for the plant to start operating. Start-up costs will cover
process modifications, start-up labor, and loss in production. Estimation of start-up cost
is usually 10% from the fixed capital investment
Start-up Costs

= 0.10 x fixed capital investment


= 0.10 x 51,797,939.58
= RM 5,179,793.96

2.4.4

Total Investment

Total capital investment

= Operating capital investment + Start-up costs


= RM 257,881,911.60 + RM 5,179,793.96
= RM 263,061,705.60

2.4.5

Total Revenue
Table 2.20 Total Sales

Product
Acrylonitrile

2.4.6

tonne per year

RM per tonne

RM per year

112,679.88

6,043.06

680,931,275.60

Break-Even Analysis

Contribution

Breakeven Point

selling price - variable cost

RM 680,931,275.60 RM 206,083,972.00

RM 474,847,303.60

(fixed cost/ contribution) x selling price

(RM 51,797,939.58 / RM 474,847,303.60) x


RM 680,931,275.60 /year

RM 74,278,271.78 /year

39

Figure 2.4 Break-even analysis

2.4.7

Cash Flow Analysis


Table 2.21 Cash Flow
Variable

Value (RM)

Cost Of Land

9,712,464.00

FCI

51,797,939.58

FCI1

25,898,969.79

FCI2

25,898,969.79

Working Capital

5,179,793.96

Yearly Sale Revenue

680,931,275.60

Cost Of Manufacturing

257,881,911.60

Salvage Value Plant

9,712,464.00

FCI

= total investment

FCI1

= 50% from total investment for the first year

FCL2 = 50% from total investment for the second year


t

= tax of government (15% in Terengganu)

25,898,969.79

16,575,340.67 24,863,010.99 680,931,275.60 206,083,972.00

9,945,204.40

5,967,122.64

5,967,122.64

2,983,561.31

680,931,275.60 206,083,972.00
680,931,275.60 206,083,972.00
680,931,275.60 206,083,972.00
680,931,275.60 206,083,972.00

10

11

12

680,931,275.60 206,083,972.00

680,931,275.60 206,083,972.00

680,931,275.60 206,083,972.00

0.00

2,983,561.31

8,950,683.95

14,917,806.59 680,931,275.60 206,083,972.00

10,359,587.92 41,438,351.66 680,931,275.60 206,083,972.00

51,797,939.58

51,797,939.58

-14,892,257.96

25,898,969.79

-25,898,969.79
405174146.2
406106509.2
405111988.7
404515276.5
404515276.5
404067742.3
403620208.1
403620208.1
403620208.1
388727950.10

405174146.2
406106509.2
405111988.7
404515276.5
404515276.5
404067742.3
403620208.1
403620208.1
403620208.1
403620208.1

-25,898,969.79

-9,712,464.00

Cash Flow

0.00

0.00

0.00

51,797,939.58

9,712,464.00

COMd

dk)*(1-t)+dk

FCI-dk

Investment

(K)

Dk

(R-COMd-

Year

Of

End

Table 2.22 Rate of Return on Investment

3,967,569,109.00

3,578,841,159.90

3,175,220,951.84

2,771,600,743.78

2,367,980,535.72

1,963,912,793.46

1,559,397,517.00

1,154,882,240.55

749,770,251.83

343,663,742.67

-61,510,403.58

-35,611,433.79

-9,712,464.00

Cash Flow

Cumulative

40

41
 
= 

0 343,663,742.67
3
=
749,770,251.83 343,663,742.67 4 3

 = 2.15  !

Cumulative Cash Flow Diagram


800,000,000.00
700,000,000.00

Cash Flow (RM)

600,000,000.00
500,000,000.00
400,000,000.00
300,000,000.00
200,000,000.00
100,000,000.00
0.00
-100,000,000.00

10 11 12 13 14 15 16 17 18 19 20
Year

Figure 2.4 Cumulative Cash Flow Diagram

2.5

CONCLUSION

From the research done, it is clear that, the demand of acrylonitrile is relatively high
especially in Asia countries. Therefore, the production of acrylonitrile will focus on
the Asia/Far East market.
This chemical plant producing acrylonitrile will be the first plant built in Asia.
Asia is the largest consuming region of acrylonitrile which accounts 39% of world

42
consumption. Therefore, it is a wise idea to produce acrylonitrile in order to cater the
demand of acrylonitrile.
As for the breakeven point, the sale that has to be made in one year is
actually lower that what the plant expected to sale. Hence it is clear that, the plant is
making profit every year.
From the market analysis, we know that, it takes about 2.15 years for the
company to get back its investment, which is generally very fast for a chemical
plant. Hence this is one of the advantages of this plant as it is very profitable.