Plant location factor costs

Cost Fa.ctors, The dehvered costs of the phosphate rock and sulfuric acid raw materials often account for more than 90% of the cost of producing NSP, thus the production cost varies considerably with plant location. Because the rock is richer in P2O5 than is the low analysis NSP product, NSP need not be produced near the phosphate mine. However, deUvery of sulfuric acid and shipment of product to market are important cost factors. Most United States NSP plants have been located east of the Mississippi river, with concentration in the southeastern and extreme southern parts of the country where the largest use of the product has occurred. Production and use of the product also has been high in California. 

The primary siting factors which influence the selection of a plant location are as follows environmental considerations, labor avadabihty and productivity, raw material avadabihty, proximity to market, property cost, accessibdity to transportation, tax iacentives, electric power avadabdity and cost, and living conditions. 

The cost of transportation has an important effect on the marketabiUty of chemicals. For that reason, transportation, along with numerous other factors, is often a significant consideration in determining the location of chemical production faciUties. In addition, convenient and economical access to water and rail transportation and the interstate highway system, as well as proximity to raw materials and markets, may influence the choice of warehouse and terminal sites for storage and redistribution of chemical products (see Plant location). 

A study has been made by A. V. Bridgwater [Chem. Eng., 86, 119-121 (Nov. 5, 1979)] of the geographical variations in capital costs. He concluded that because of trade and competition basic equipment costs do not vaiy significantlv in the industrialized countries of the western world. The main differences in construction costs at various international locations are due to variations in labor costs and productivity, the use of specialized equipment, and sundry local factors. Table 9-55 gives location factors for the construction of chemical plants of similar function in various countries (1993 values). The factors have been corrected by Bridgwater for location variations in labor costs and efficiency and converted at the average value of the exchange rate. 

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. 

For many processes, one or more predominant factors effectively minimize the number of possibilities for plant location. Raw material and transportation costs may be such that a plant must be located near a source. Thus, only the sites near to sources of raw material need be studied and these may be few in number. Similarly, labor requirements may be hear y enough to eliminate cities below a certain size. These and other factors serve as effective screening agents that save both time and money. 

A large portion of the cost of any manufactured item is represented by labor. Although labor rates are more and more becoming similar in most parts of the country, factors such as skill, labor relations, and the general welfare of the work force affect labor productivity and efficiency. Each region being considered for plant location must be suiveyed to determine the availability and the skills of the labor market. The skills need not exactly match with those... 

A common problem encountered in large chemical companies involves the distribution of a single product (30 manufactured at several plant locations. Generally, the product needs to be delivered to several customers located at various distances from each plant. It is, therefore, desirable to determine how much Y must be produced at each of m plants (Yv Y2,..., Ym) and how, for example, Ym should be allocated to each of n demand points (YmV Ym2,. Ymnl The cost-minimizing solution to this problem not only involves the transportation costs between each supply and demand point but also the production cost versus capacity curves for each plant. The individual plants probably vary with respect to their nominal production rate, and some plants may be more efficient than others, having been constructed at a later date. Both of these factors contribute to a unique functionality between production cost and production rate. Because of the particular distribution of transportation costs, it may be... 

The network design phase already determined the countries where plants should be located or closed. Thus, site selection takes place within an individual country. As the location factors pertinent to the site selection phase are different from those used in the network design phase, the first step again is to establish the relevant location factors. These are mostly of qualitative nature but also include quantitative factors such as local factor cost differences, property and construction costs. Findings from industrial location science (cf. Chap. 2.2.2) can be used as a starting point to define the location factors, but industry-, company- and project-specific factors... 

Once the investment expenditures for plants/production lines are established for a single country, they have to be localized to account for cost differentials between countries. To this end, location adjustment factors can be employed (cf. McMillan and Humphreys 1990). Location factors for chemical industry can for example be obtained from SRI Consulting. A comprehensive overview of commercial sources for cost, inflation and location factors is published in Remer and Mattos (2003). Kohn et al. (1997) discuss how to construct country-specific factors from the U.S.-based Chemical Engineering s Plant Cost index. 

Chemical economics. The preceding problems must always be approached in relation to economic considerations. One must consider the availability, location, and cost of raw materials. The cost of equipment and its maintenance, labor, power, and so forth, are only a few of the factors that govern the feasibility of the process. The actual location of the plant must be considered in relation to the cost of transportation of raw materials to the plant and of finished products to the market. 

The percentages indicated in the following summary of the various costs constituting the capital investment are approximations applicable to ordinary chemical processing plants. It should be realized that the values given can vary depending on many factors, such as plant location, type of process, complexity of instrumentation, etc. 

The choice of an overseas manufacturing site involves tlie consideration of many political and economic factors in addition to costs. Table 9-64 gives a hst of 92 items which should be taken into account when choosing a plant location for manufacturing abroad. 

The capital investment for any FBC plant depends upon several factors, including the cost of capital, size of unit, geographic location, and coal type. EPRI has completed several economic evaluations and projects the following costs, in 1994 US dollars, for plants located in Kenosha, Wisconsin, burning Illinois No. 6 bituminous coal contain-ing 4 percent sulfur 200-MWe circulating AFBC, 1520/kW 350-MWe bubbling PFBC, 1220/kW 350-MWe circulating PFBC, 1040/kW 320-MWe advanced PFBC, 1110/kW. The advanced PFBC has the most potential for cost reduction, and capital investment could be reduced to below 1000/kW. 

The ISBL cost is on a U.S. Gulf Coast basis, so we need to convert to a Northeast Asia basis. If we look up the location factor in Table 6.7, then it is not clear what factor we should use. The location factor for Japan is 1.26, while for China it varies from 0.6 to 1.1, depending on the amount of indigenous vs. imported equipment used. Since the exact location of the plant has not yet been specified, we are not able to make a definitive assessment of what the location factor should be. As a first approximation, we therefore assume it is 1.0 and note that this should be revisited as part of the sensitivity analysis. 

The adipic acid plant described in Examples 6.11 and 6.12 is to be built in China, with a location factor of 0.85. Up to 45% of the total investment can be secured as a low-cost loan at an interest rate of 1%. 

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