Chemicals variable costs

The cost price of a bulk chemical is determined primarily by the cost of raw materials, which could represent > 80% of the total costs. Process development/improvement in bulk chemicals is, hence, focused on decreasing these variable costs, e.g. for a product with a volume of 100,000 tpa and a raw materials quote of 2/kg, 1% increase in yield corresponds to savings of 2 million per annum. In fine chemicals, in contrast, emphasis is placed on the reduction of fixed costs, which are relatively high, by process simplification. For example, for a product with a volume of 100 tpa and fixed costs of 40/kg, if the volume yield (amount produced per unit reactor volume) is doubled, this corresponds to savings of 2 million per annum. 

The problem of optimizing production from several plants with different cost structures and distributing the products to several distribution centers is common in the chemical industry. Newer plants often yield lower cost products because we learn from the mistakes made in designing the original plant. Due to plant expansions, rather unusual cost curves can result. The key cost factor is the incremental variable cost, which gives the cost per pound of an additional pound of product. Ordinarily, this variable cost is a function of production level. 

Costs likely to be incurred in the design and installation of a standard soil-bentonite wall in soft to medium soil range from 540 to 750/m ( 5 to 7/tf) (1991 dollars). These costs do not include variable costs required for chemical analyses, feasibility, or compatibility testing. Testing costs depend heavily on site-specific factors (D109308, p. 2). The installation cost of a cement-based slurry wall ranges from 10 to 20 per vertical square foot for a 2-ft-wide barrier of less than 100 ft in depth (D18976I, p. 6). 

Overall, the clash between an increased number of players and a boost of global production capacity on one hand and an overall sluggish demand on the other hand has created a highly competitive environment. In order to avoid plant closures, hne-chemical companies accepted prices that covered only variable costs, in some cases even only part of them. 

Lower gross profits than 10% make Chemical Leasing even more attractive for the producer, because additional revenues are achieved which are not related to high variable costs (it is much likely that low gross profits of chemicals are caused by high raw material and/or utility costs). 

The total costs can be divided into fixed-capital- and variable costs. Fixed-capital costs have to be taken into account also when a plant is out of operation, whereas variable costs depend on the production rate. Fixed-capital costs are depreciation, maintenance, manpower, overheads, etc. Variable costs are utilities, monomers, and other chemicals such as initiators, modifiers, or stabilizers. The costs are presented in Table 8.2-3. The total costs are 1,491 DM/t LDPE for the lower-, and 1,431 DM/t LDPE for the higher-plant capacity. 

Chemical yield to product is most important for the economics of the process. Product yield is inversely proportional to the amount of reactants required per unit of product output. As the key substrate and other raw materials in most mature processes make up more than 50% of the variable cost, a high product yield is indispensable for an economic process. The yield of product y is linked to selectivity <7 and the degree of conversion % by Eq. (2.20). 

With bulk chemicals the feedstock costs are in general close to the theoretical minimum, due to the high selectivity achieved (90% and higher). The introduction of PI in this field can lead to a reduction in capital expenditure and of energy utilities by a factor 5 (38) a variable cost reduction factor of 1.4 is achievable. 

For the establishment of the realistic limit, one has to take account of the rates of processes in which mass, heat, momentum, and chemical energy are transferred. In this so-called finite-time, finite-size thermodynamics, it is usually possible to establish optimal conditions for operating the process, namely, with a minimum, but nonzero, entropy generation and loss of work. Such optima seem to be characterized by a universal principle equiparti-tioning of the process s driving forces in time and space. The optima may eventually be shifted by including economic and environmental parameters such as fixed and variable costs and emissions. For this aspect, we refer to Chapter 13. 

In an industry as capital-intensive as chemicals, the focus on operational excellence of the last two decades is understandable. However, a significant additional source of value creation potential exists which is largely untapped creating a revenue advantage. Excellence in sales and marketing can lead to a tangible incremental improvement in ROS. In addition, a one percent improvement in price leads to significantly more value than a similar reduction in variable costs (Fig. 21.1). 

Operational costs include fixed and variable costs per year. The following items have been assessed maintenance, which is the main contributor, labour and raw materials. Energy costs are not considered in this study. Maintenance is estimated with ratio of capital investment for chemical... 

Computers may be used to monitor and store experimental data, particularly in the case of very fast variations of a physico-chemical variable. As the cost of obtaining experimental results is often very high, an efficient strategy of experimentation can be required and a computer can help in this (see Sect. 5). 

Industry experts today suggest conversions of 40-50 percent and selectivities above 80 percent based on methane and oxygen as the minimum needed for commercial consideration after fixed and variable costs are added. Nonetheless, methane oxidative coupling holds the most promising combination of process simplicity, product slate versatility and low cost, and worldwide raw material availability not offered now by practiced fuel and chemical feedstock technologies. 

The utility cost is about 10% of the variable cost of production. This is typical for many commodity chemical processes. 

Variable costs usually increase sharply with production rate as plant design capacity is reached and exceeded. Chemical conversions and yields may sharply decrease, utility and labor costs may increase, and special operating measures may have to be undertaken... 

Variable costs are proportional with the production rate, as raw materials, various chemicals, utilities and transport costs, but also some royalties and maintenance costs. 

Cumene peroxidation is the preferred route to phenol, accounting for more than 90% of world production. The Sunoco/UOP Phenol process features low feedstock consumption (1.31 wt cumene/wt phenol). High phenol and acetone product qualities are achieved through a combination of minimizing impurity formation and efficient purification techniques. Optimized design results in low investment cost along with low utility and chemicals consumption for low variable cost of production. No acetone recycle to the decomposition section and simplified neutralization make the Sunoco/UOP Phenol process easier to operate. 

The design of a water-treatment plant and the selection of chemicals is a complex operation. They depend on the levels and variabilities of the impurities in the raw water, the cost effectiveness of alternative treatment chemicals, the cost of waste disposal and the required quality of the treated water. Consideration also needs to be given to the interactions between the various treatment processes [28.1,28.2]. 

The first consideration is to determine the fixed and variable costs involved with every product manufactured. Some items are obvious, others are not. A variable cost is directly proportional to the quantity of a product manufactured such as raw materials and auxiliary chemicals used in the synthesis. For each kilogram of product, a specific amount of each raw material is required. If production of that product ceased, there would be no expense for that raw material. Similarly, the labor used to run the batch is also variable the labor used is directly proportional to the number of batches run. On the other hand, an essentially fixed cost is independent of the quantity of a product made. This would include supervision at the factory level and clean out chemicals used for turn around of the equipment. However, there are many classes of costs that have both a fixed and a variable component. 

The costs involved in packaging and transport of a chemical product to the consumer are largely variable costs. However, such factors are not regarded as forming part of the production cost/income comparison. When considering process economics and profitability they are usually deducted from the money paid by the consumer to leave a net sales income which forms the revenue inflow to the producer to set against the production costs. 

Example 1. A company proposes to invest 500000 this year in a plant to make a speciality chemical on a scale of 500 tonnes/year. Working capital is estimated to be 100000 at full output and would be spent proportionally to output. Sales are forecast as 300 tonnes in year 1 rising to 400 tonnes and 500 tonnes in subsequent years. Product market life is expected to be five years before being replaced. A scrap value of 100000 is expected for the plant after shutdown. The variable cost of the product is 350/tonne and fixed costs are 155 000/year. Depreciation allowance and tax rate are 52% payable one year in arrears and sales income is 1100/tonne. The company needs a 15% return is the project viable What is the DCF rate ... 

Variable costs increase with production rate. Thesecosts-are computed on a per-unit (usualty tonne)-of-product basis. Common variable costs include those of raw materials, chemicals, and catalysts utilities and contract labor. 

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