21

CHAPTER 2

MARKET ANALYSIS AND ECONOMIC

2.0 INTRODUCTION

Acrylonitrile was predominantly used for production of plastics such as acrylonitrile-

butadiene-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.

0

500

1000

1500

2000

2500

Th

ou

san

d T

on

s

Region

ACRYLONITRILE PRODUCTION AND

DEMAND

Demand

Production

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

23

Table 2.1 Main country in Asia produces Acrylonitrile

COUNTRY

COMPANY/LOCATION

PRODUCTION

CAPACITIES

(TONS)

TOTAL

PRODUCTION

CAPACITIES

(TONS)

INDIA Reliance, Gujerat 50 000 50 000

SOUTH KOREA Tong Suh Petrochemical 300 000 550 000

Tae Kwang 250 000

TAIWAN CPDC 200 000 480 000

Formosa Plastics 280 000

THAILAND PTT Asahi Chemical Co

Ltd

2203 000 2203 000

CHINA Various company 2415 000 2415 000

(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

Figure 2.2 Production and demand of acrylonitrile in 2013

(Garmston, S., 2009)

Figure 2.3 Production and demand of acrylonitrile in 2018

(Garmston, S., 2009)

0

500

1000

1500

2000

2500

3000

3500

10

3to

nn

es

ACRYLONITRILE: PRODUCTION VS

DEMAND

2013

demand

production

0

500

1000

1500

2000

2500

3000

3500

4000

10

3to

nn

es

ACRYLONITRILE: PRODUCTION VS DEMAND

2018

demand

production

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

Pipeline

Pakistan

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

(Year)

Unit Size Unit Price (RM)

Ammonium Hydroxide

(2010)

500 ml 110.459

2.5 L 157.607

Ammonia, solution 32%,

reagent grade

(2008)

2.5 L 284.846

25 L 1,714.86

(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

Reagent Co., Ltd.

Jiangsu, China

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 Country

Hebei Domydo Co., Ltd 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

equipment

Price for 1 unit

(RM)

Price (RM)

Fluidized Bed

Reactor

1 459,773 459,773

Pump 5 200,000 1,000,000

Scrubber 1 119,504 119,504

Quench Column 1 282,744 282,744

Cooler 1 282,744 282,744

Heater 1 280,028 280,028

Distillation Column 3 1,650,000.00 4,950,000

Storage Tank 5 37,884 189,420

Compressor 1 214,368 214,368

Mixer 1 27,000 27,000

Total Equipment

Cost

20 7,805,581

(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

7,805,581

Equipment Installation (includes

insulation and painting) 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

Land RM 30.00 per metre square

( 323,748.80 metre square) 9,712,464.00

Yard Improvement 12% of total equipment cost 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 Direct Costs + Indirect Costs

51,797,939.58

2.4.2 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 1 2,400.00 2,400.00

Shift Team Leader 1 1,750.00 1,750.00

Panel Boardmen 4 1,300.00 5,200.00

Process Field Operator 8 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 Quantity Salary/Month (RM) Total

Safety Officer 2 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 4 2,400.00 9,600.00

Technician 11 1,300.00 14,300.00

TOTAL 23,900.00 (C)

2.4.2.2.3 Additional Worker

Table 2.16 Additional Worker Cost

Position Quantity Salary/Month (RM) Total

Contractor 20 900.00 18,000.00

Guard 3 x 4 shifts 600.00 7,200.00

TOTAL 25,200.00 (D)

2.4.2.2.4 Administration Team

Table 2.17 Administration Worker Cost

Position Quantity Salary/Month (RM) Total

Human Resource Manager 1 1,750.00 1,750.00

Human Resource Staff 6 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

Used TOTAL

Water

Water price :-

a) Industrial

Amount of water needed

for the first startup

RM 1.15 /m3 103 m3/day RM 118.45 /day

Total RM 42,405.00 /year

Electricity

electricity price :-

Tariff E1 Medium Voltage

General 6.6kV – 66kV

supply

RM 0.203

/kWh 5514.29 kWh

RM 1119.40 /day

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 tonne per year RM per tonne RM per year

Acrylonitrile 112,679.88 6,043.06 680,931,275.60

2.4.6 Break-Even Analysis

Contribution = selling price - variable cost

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

= RM 474,847,303.60

Breakeven Point = (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)

40

Table 2.22 Rate of Return on Investment

End

Of

Year

(K)

Investment

Dk

FCI-dk

R

COMd

(R-COMd-

dk)*(1-t)+dk

Cash Flow

Cumulative

Cash Flow

0

9,712,464.00

51,797,939.58

0.00

-9,712,464.00

-9,712,464.00

1

25,898,969.79

51,797,939.58

0.00

-25,898,969.79

-35,611,433.79

2

25,898,969.79

51,797,939.58

0.00

-25,898,969.79

-61,510,403.58

3

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

405174146.2

405174146.2

343,663,742.67

4

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

406106509.2

406106509.2

749,770,251.83

5

9,945,204.40

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

405111988.7

405111988.7

1,154,882,240.55

6

5,967,122.64

8,950,683.95

680,931,275.60 206,083,972.00

404515276.5

404515276.5

1,559,397,517.00

7

5,967,122.64

2,983,561.31

680,931,275.60 206,083,972.00

404515276.5

404515276.5

1,963,912,793.46

8

2,983,561.31

0.00

680,931,275.60 206,083,972.00

404067742.3

404067742.3

2,367,980,535.72

9

680,931,275.60 206,083,972.00

403620208.1

403620208.1

2,771,600,743.78

10

680,931,275.60 206,083,972.00

403620208.1

403620208.1

3,175,220,951.84

11

680,931,275.60 206,083,972.00

403620208.1

403620208.1

3,578,841,159.90

12

-14,892,257.96

680,931,275.60 206,083,972.00

403620208.1

388727950.10

3,967,569,109.00

41

������� ���� = �

0 − 343,663,742.67

749,770,251.83 − 343,663,742.67=

� − 3

4− 3

� = 2.15 ��� !

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

-100,000,000.00

0.00

100,000,000.00

200,000,000.00

300,000,000.00

400,000,000.00

500,000,000.00

600,000,000.00

700,000,000.00

800,000,000.00

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Ca

sh F

low

(R

M)

Year

Cumulative Cash Flow Diagram

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.