Material Price

Hardly a raw material used by the chemical industry has been unaffected by the continuing ripple effect of on-and-off inflation. Raw material prices have not risen evenly. Shifts in relative prices of competing materials continue to occur. Healing with these shifts is a significant challenge to market research and chemical buyer personnel. It must be stressed that a total view of prices, availabiUty, and competing demands is now required and developments must be constandy monitored. 

LGP Economics. LCPs are expensive materials. Prices in January 1996 (248) ranged from 15.20/kg for mineral-filled resin, 15.73— 23.43/kg for glass-fiHed resin, and up to 48.40/kg for unfilled extmsion-grade polymer. One of the basic reasons is the fundamental high cost of monomers and intermediates which is a consequence of low volume. 

Raw-material costs are the largest cost items over the lifetime of a plant and typically make up between 40 and 90% of the total manufacturing cost. The placement of plants near production faciHties making alkenes and/or phenol is important to producers of alkylphenols. The raw-material costs are so important that a large fluctuation in a raw material price can drive a product from a reasonably profitable situation to a clearly unprofitable one. 

There are job shops and apphcators in the thermal spraying business and the annual value was about 1 x 10 in 1995. Up to 65% of the total company sales represented materials prices from 1— 25 /kg. Equipment prices for spray technology and the number of units sold per annum in the mid-1990s are given in Table 3. 

Raw material costs should be estimated by direct computation from flow rates and material prices. The flow rates are deterrnined from flow sheet material balances. The unit prices are obtained from vendors, company purchasing departments, or the Chemical Marketing Reporter. For captive raw materials produced internally, a suitable transfer price must be estabHshed. Initial catalyst charges can be treated as a start-up expense, working capital component, or depreciable capital, depending on the expected catalyst life and cost. Makeup catalyst is frequendy treated as a raw material. 

Sales and raw-materials prices may be affected by any of the following discounts and allowances, availabihty of substitutes, contract pricing, government regulations, quahty and form of the materials, and competition. Sales volume may be affected by any of the following new uses for the product, new markets, advertising, quahty, overcapacity, replacement by another product, competition, and timing of entry into the market. 

Ejfect of Raw-Materials Prices Raw materials for the chemical-process industries are subject to relatively wide variations in price. These effects on profits will now be considered. 

Thus, in a time of rising raw-materials prices, the FIFO method gives a higher value for the remaining inventory than will LIFO. In a time of falling prices, the FIFO method will give a lower value for the remaining inventory than will LIFO. 

Direct material cost Material price Material usage... 

From Eq. (9-219) we calculate the direc t-material-cost variance as — 24,920 per period. This variance is favorable. However, by using the relations of Eq. (9-220) we calculate a direct-material-price variance... 

Overseas Construction Costs Although Table 9-55 gives location factors for the construction of chemical plants of similar function in various countries at 1993 values, these may vaiy differentially over a period of time owing to local changes in labor costs and productivity. Hence, it is often necessaiy to estimate the various components of overseas construction costs separately. Equipment and material prices will depend on local labor costs and the availability of raw materials. If the basic materials have to be imported, costs in the source area become important and import duties and freight charges must be added. 

Table 1.3 shows a rough breakdown of material prices. Materials for large-scale structural use - wood, cement and concrete, and structural steel - cost between UK 50 and UK 500 (US 75 and US 750) per tonne. There are many materials which have all the other properties required of a structural material - nickel or titanium, for example - but their use in this application is eliminated by their price. 

Table 2.1 ranks materials by their cost per unit weight UK per tonne (i.e. 1000 kg) in the second column, US per tonne in the third. The most expensive materials - diamond, platinum, gold - are at the top. The cheapest - cast iron, wood, cement - are at the bottom. Such data are obviously important in choosing a material. How do we keep informed about materials prices change and what controls them ... 

Second, there are considerable short-term fluctuations in material prices. Copper dropped 15% in the month of September 1993 gold, in the same period, rose 38%. Aluminium changed in price by nearly 10% in a single day in December 1993. These are large changes, important to the purchaser of materials. 

Once the volume of raw material is set. the price must be estimated. In some studies, a captive source is available with a set transfer price. In other studies, contracts for raw materials will be far enough along to establish the price. However, in some studies, contacts with vendors and the literature is the only source of raw material prices. 

Relatively low raw material prices, since special preparation and handling devices during raw material production are not needed... 

Today most plants use butane as a feed stock because of the lower raw material price. Whilst, at the design stage, the choice of butene over benzene would appear obvious, the two routes do have differing selectiv-ities, negating some of the atom economy benefits of the butene route. 

Inflation depreciates money in a manner similar to, but different from, the idea of discounting to allow for the time value of money. The effect of inflation on the net cash flow in future years can be allowed for in a similar manner to the net present worth calculation given by equation 6.9, using an inflation rate in place of, or added to, the discount rate r. However, the difficulty is to decide what the inflation rate is likely to be in future years. Also, inflation may well affect the sales price, operating costs and raw material prices differently. One approach is to argue that a decision between alternative projects made without formally considering the effect of inflation on future earnings will still be correct, as inflation is likely to affect the predictions made for both projects in a similar way. 

Substrate material Price per unit area (arb. units) Dielectric permittivity of insulator Maximum working temperature (K) Resistivity of dielectric layer (fl-cm) Density (g/cm3) Linear expansion coefficient x i[Pg.490]

In view of rapidly increasing raw material prices and plant construction costs, as well as more stringent environmental standards, it is likely that future practices will favor high-efficiency processes which operate under mild reaction conditions with few by-products. Modified rhodium is advantageous in these respects, as shown in Tables XXXIII and XXXIV. In view of the recent successes with commercial rhodium systems (103, 104, 130, 131), it is likely that these will find more extensive use in the next few years. 

This relatively stable system now faces increasing volatility and complexity due to volatile demand and raw material prices as well as globalization in markets and company networks. Specifically, price-volatile commodity products within the chemical industry require planning volumes together with values across sales to procurement. In this context, the work of Matthias Kannegiesser focuses on two research questions ... 

Additional challenges exist specifically for chemical commodities. Commodities are standard products with a defined quality, where price is the key buying criterion. Commodities are often volatile in sales and purchasing prices as well as volumes increasing crude oil prices lead to higher raw material prices in procurement while dynamic customer markets specifically in Asia lead to a sales price and volume volatility. These dynamics in volumes and values through the value chain directly impact company s profitability as shown in fig. 1. 

Raw material prices are volatile e.g. on a daily, weekly or monthly basis if not contractually fixed... 

Now, future inventory value planning as a specific chemical commodity value planning requirement reflecting the volatility of working capital and capital costs influenced by volatile raw material prices is described. 

Lababidi et al. (2004) incorporate uncertainty and stochastic market prices and raw material costs for a petrochemical case. They modeled market price and raw material price uncertainty as given and analyzed the effects on production utilization. They initially observed that prices can have significant influence on production plans and utilization. 

The planning objective is to plan global value chain volumes and values. Initially, the value planning model with the objective function to maximize global profit is presented. The objective function also includes a relaxation concept for hard constraints leading to potential plan infeasibility. The future-oriented inventory value planning concept based on volatile raw material prices is presented at the end of the subchapter. 

Future capital costs considered in the objective function rely on future capital values - in this scope future inventory values. The planning of future inventory values in all future periods and in all network locations is a complex task. As described in the requirements, future inventory value is determined by the future product values of the products on stock. These product values change, if the included material costs of the product change, which is regularly the case due to volatile raw material prices. The task now is to calculate the future inventory value throughout the value chain network and product steps considering the raw material price forecast for the planning horizon. The problem is illustrated in fig. 57. 

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