An extract report without figures (one example included), footnotes and other references and appendices (written September 1995).
It should be noted that some complex technical assessments crucial to the conclusion, such as the value of propylene to competing plants, purification and transport costs have been premised on part assessments normally undertaken in a more comprehensive feasibility study. Though these are not anticipated to substantially vary the general conclusions, some require further validation. The most significant issue is the cost of propylene as negotiated with the refinery. As discussed on page 67, its cost could be sensitive to the ownership of the purification plant.
A consideration in any feasibility study is the anticipated return on investment used to consider alternate investments and optimum scale of operation. This report uses such assessment though in the opinion of the consultant, it should be secondary to strategic considerations. As shown on page 79, even a 45 000 tonne per year plant can show an acceptable return, but in the end, it is whether the project has a comparative advantage, an edge, that is not readily eroded or influenced by short term market influences. For this project the main source of competitive advantage is propylene - the raw material feedstock from the Kwinana refinery. Distance from alternative markets for propylene has created a significant raw material cost advantage for the manufacture of acrylic acid. As shown on page 64, the advantage from access to competitively priced propylene does not compensate for the small local market and scale until the plant has a scale of around 70 000 tonnes per year. Given the small domestic market, the ability of the operators to support overseas sales is therefore very important.
Sample graph - the sources of comparative advantage.
Another application is the water soluble form of polyacrylic acid used as a replacement for phosphates in surfactant preparations. Given an interest in zeolite production in WA, often used to complement polyacrylic acids in surfactants, the manufacture of polyacrylic acid, (in close co-operation or equity with a surfactant manufacturer), should be reviewed (see also pages 30 and 36) .
Anti-dumping duties by inflating raw material costs, would have two effects in the market. The primary effect raises raw material prices and by that reducing the incentive to export. The other effect would be evident if one of the suppliers assumed an interest in the acrylic acid plant. In such case with its Australian competitors paying consequently higher prices for acrylic acid raw material (whether imported or local), its increased competitiveness could help its market share or profitability.
Confirming industry assessments, the extreme circumstances that promoted a world production overcapacity may not re-occur in the short to intermediate term. However it serves to stress the dependent link between the supplier and the user that should be quantified in the more comprehensive feasibility study. As shown by industries such as the synthetic resin sector, there is often a close working relationship with raw material suppliers where technical support and other measures are provided to help the local user industry.
Acrylic acid (CH2=CHCO2H), less commonly referred to as propenoic acid, is a colourless, slightly water soluble carboxylic acid with an acrid odour, a melting point of 13.5C, a boiling point of 141C and relative density of 1.06. The acid may be transported stabilised with inhibitors (such as hydroquinone derivatives) to prevent polymerisation. Functionally acrylic acid may be regarded as a derivative of ethylene in which one hydrogen atom has been replaced with a carboxyl group (though this is not the basis of its synthesis).
Acrylates are derivatives of acrylic acid (such as methyl and ethyl acrylate) whose properties have been sufficiently modified to enable of acrylic acid to be used in different media as emulsion and solution polymers. As emulsions, these products may be used as coatings, finishes and binders leading to applications in paints, adhesives, and polishes with solutions used for industrial coatings. Two-third of the world's production of acrylic acid is used to produce acrylic esters (acrylates) primarily for use in emulsions and solution polymers for latex-based paints, coatings, adhesives and textiles.
Polymers of acrylic acid can be produced as superabsorbent materials, and soluble as a replacement for phosphates in detergents. Both of these represent fast growing applications for acrylic acid.
The chemical and physical properties of the polymers can be modified through controlled variation in the selection and balance of the monomers, the extent of cross-linking and molecular mass. This flexibility is complemented by high resistance to chemical and environmental degradation, strength, clarity, and being readily available in high purity forms.
Acrylic acid must be used within about three months of manufacture as it degrades by polymerisation by at least 0.5 per cent per month - even faster if not held in a narrow temperature range during transport and storage. This instability requires more frequent and hence costly turnover of inventories especially for users in WA relying on more distant suppliers.
CH2=CHCH3 (propylene) + O2 CH2=CHCHO (acrolein) + H2O
CH2=CHCHO + 1/2 O2 CH2=CHCO2H (acrylic acid)
Conversion rates of up to 90 per cent are achievable at commercial scales of production depending on the technology, catalysts and conditions.
Typical process inputs per kilogram of acrylic acid produced (ie. at 90 per cent efficiency) are:
Propylene 0.63 kg
Natural gas 0.23 Mj
Ethyl acetate 0.01 kg
A technical grade of acrylic acid may be produced by a simple distillation to produce a grade of acid suitable for the manufacture of acrylic esters, but unsuitable for polymerisation. For esters, whose manufacture is normally integrated with an acrylic acid plant, the purification step is undertaken after the esterification process. The technical grade of the acid is therefore not traded (or imported into Australia).
A high purity form (often referred to as glacial acrylic acid) is produced by a second distillation or crystallisation that reduces aldehyde impurities (especially furfural) which inhibit polymerisation. Different grades of glacial acrylic acid are available with flocculants requiring higher purity levels than dispersants and some other applications.
It is worth noting that technical difficulties have been reported as for example during 1995, Idemetsu Petrochemical Company, and the Sumitomo Chemical Company failed to operate above two-thirds capacity after adding to plant capacity.
The manufacture of acrylic acid is less sensitive to the cost of raw materials than many other petrochemicals. For example, for semi-purified (ie. technical grade) acrylic acid (as used for the production of esters), propylene represents about 90 per cent of input material costs but only about 35 per cent of production costs. That ratio is even lower for the glacial form. It is therefore important to note, (and detracting from the appeal of potentially cheap propylene in WA), that the low significance of raw materials means competitiveness is more sensitive to construction costs than most commodity petrochemicals.
With new technology, ethylene represents the most competitive alternative to propylene for the manufacture of acrylic acid. All assessments however indicate propylene will trade at about 80 per cent of the price of ethylene for several decades, having ranged between 70 and 85 per cent. As ethylene, like other competing hydrocarbon feedstocks, requires more complex technology (involving a carbonylation step) it has to be at a discount to propylene to be competitive. This status is unlikely to occur in WA.
Acrylic acid plants can use chemical-grade of propylene that is typically 95 per cent propylene while polymer-grade (99.5 per cent propylene) is reserved for the manufacture of polypropylene and its co-polymers.
Propylene is produced as a by-product in naphtha crackers and petroleum refineries, and by the dehydrogenation of propane.
Clearly the price of propylene will be determined by international competition adjusted for freight and its opportunity value (that may be assumed to be for polypropylene synthetic resin). Given uncertainty about the intentions of ICI and Hoechst, and reserve production capacity at the Shell plants, a best estimate is that propylene will be transacted at the international price plus the cost of freight.
Regional propylene production imbalances are increasing so that world trade, currently about 800 000 tonnes per year, is projected to increase to 1 million tonnes by year 2000. Europe is projected to import 500 000 tonnes per year, with a deficit in Asia by 1998. The USA will remain the dominant, and most competitive exporter of propylene with prices about 10 per cent lower than Japan and Asia, and at least 5 per cent lower than Europe.
Demand for propylene is projected to grow at 3.2 per cent per year compared with ethylene at 2.1 per cent. The growth, though well below the 5 to 7 per cent experienced in the mid 1980s, is being driven by the firm demand for propylene's main uses, namely polypropylene synthetic resin and propylene oxide.
The value of propylene to BP is therefore between its current value to produce gasoline (less the cost of production in a catalytic polymeriser installed 1986), and its value as chemical or polymer-grade propylene (less the substantial cost of preparing and transporting this gas to markets).
The BP refinery may be reasonably anticipated to negotiate the supply of propylene at substantially lower prices than negotiated by refineries located nearer major petrochemical centres. This status underpins the viability of the acrylic acid plant and analysis has been undertaken by Fluor Daniel indicates a price of around A$235 (as crude propylene, see page 79) could be anticipated. This deduced price would be significantly below that anticipated to be available to competing acrylic acid plants. The benefit is illustrated by Figure 20.
Ethyl and methyl acrylates are manufactured on a continuous basis by passing acrylic acid and a small excess of the alcohol in a reactor bed at elevated temperature extracted at a yield of about 90 to 95 per cent. The ethylhexyl and other esters are produced on a batch basis reflecting smaller markets, (sometimes even produced by transesterification from ethyl acrylate).
Acrylic esters may be polymerised, catalysed by heat and oxidising agents in solution or emulsion methods to form long-chain thermoplastic resins. Broadly, acrylic ester polymers are colourless, insoluble in aliphatic hydrocarbons and resistant to alkali, mineral oils and water so that with good resistance to degradation, adhesion and electrical properties, they are widely used.
Extensive research is applied to acrylic chemistry and with a very broad range of alternative processes, this activity has become specialised with patents and proprietary knowledge. There are now more manufacturers of specialty acrylic esters (that do not themselves manufacture acrylic acid) than there are manufacturers of the acid. The esters are generally produced near major traditional markets and suppliers of acrylic acid.
Produced in batch processes, the normal concentration of acrylate in the emulsion or solution is in the range of 30 to 60 per cent. Emulsions are produced near markets to avoid the cost of freighting the liquid medium and, being unstable, to minimise the risks of sediments, skins or other changes in form. The production of ester emulsions in WA is nevertheless not precluded, though reflecting the disposition of Australia's paint industry, probably a marginal activity with freight costs weighing heavily against any possible offsetting raw material advantage.
The technology to produce acrylonitrile is dominated by BP Chemicals based on the Sohio process that reacts propylene with ammonia and oxygen.
CH2=CHCH3 (propylene) + 3/2O2 + NH3 CH2=CHCN (acrylonitrile) + 3H20
Major manufacturers of acrylonitrile include BP America (350 000 tpa), Cytec Industries (210 000 tpa) and Sterling Chemicals (330 000 tpa) with producers in Europe and Asia at scales of plant ranging down to just 30 000 tpa. Reflecting the high cost of transport (and being hazardous), acrylonitrile is normally manufactured where it is primarily required sometimes justifying smaller plants in more isolated markets. It is relevant to note that Australia imports about 6 000 tpa acrylonitrile for the manufacture of ABS and SAN synthetic resins by Huntsman Chemicals (at their West Footscray and Dandenong sites in Victoria).
A variant is the small scale manufacture by Allied Colloids of acrylamide (see next page) from acrylonitrile reacting the acrylamide sulfate intermediate with alcohols to produce acrylic esters.
Worldwide, about 53 per cent of acrylonitrile production is used for acrylic fibre, 30 per cent for ABS/SAN synthetic resin with the balance of 17 per cent used for other applications including the manufacture of nitrile rubber and polyacrylonitrile.
Clearly the absence of a local market for acrylonitrile (including for acrylamide, see next) precludes its consideration for manufacture in WA.
In Australia, acrylamide is used with glacial acrylic acid to manufacture flocculants and viscosity modifiers, especially the powder form. Acrylamide is manufactured simply by hydrating acrylonitrile using water and sulfuric acid (with the most expensive part being its recovery from the reaction mixture). Transport costs require the location of acrylamide plants where the acrylonitrile is produced.
Acrylamide is most commonly transacted as a 50 per cent solution with the freight penalty offset by the avoided cost of drying. However being more isolated from major suppliers, Australian companies import acrylamide in the costly dry form, dissolving it in water prior to use. Australian users would clearly benefit from its local manufacture but, contingent on acrylonitrile production, this prospect is clearly unlikely.
In the USA, typical of other major industrialised regions, applications for acetic acid are, vinyl acetate monomer (42 per cent), acetic anhydride (18 per cent), solvents (16 per cent), terephthalic acid (5 per cent) and other purposes (19 per cent). There are no comparable applications for acetic acid in Australia with most used for food and industrial uses. Australia imports about 3 500 tonnes valued at $3.3m (imports into WA are not recorded by ABS but are believed to be less than 300 tonnes).
Acetic acid is a common industrial acid generally produced by the carbonylation of methanol using technology owned by Hoechst, Celanese and BP Chemicals. Other technologies are under development that begin with ethane or methane.
Manufacturing plants range in scale from 5 000 tpa to 700 000 tpa with most about 300 000 tpa. Industry production capacity is estimated for the USA at about 2.2Mtpa, in Western Europe at 1.3Mtpa and in the Asia Pacific region about 1.5Mtpa.
The current value of acetic acid in the USA is about US$500 per tonne (with spot prices about US$800 per tonne). Imports to Australia are valued at about A$900 per tonne FOB.
An import tariff of 8 per cent applies, phasing down to 5 per cent by 1996. All imports are under a Tariff Concession Order that could be revoked by application of an Australian-based manufacturer inflating the price in Australia by about A$45 per tonne.
Therefore, with an acrylic acid plant producing one tonne of acetic acid for every 20 tonnes of acrylic acid produced, at a scale of say 60 000 tonnes of acrylic acid per year, about 3 000 tonnes of acetic acid would be available. Refined acetic acid would therefore be worth about $3m per year.
One possible application for acetic acid is the manufacture of cellulose acetate synthetic resin using waste cellulose (say straw). Though there is a small Australian market and an import tariff, its production at small scale is clearly uneconomic. Cellulose acetate is generally manufactured in regions with a supply of cheap cellulose (bagasse, grain straw etc.) and a large market for the resin and acetic acid. Countries such as China, that meet those criteria, have therefore also become very competitive exporters of this resin. With only a limited market in WA, this mildly corrosive acid could be railed to other parts of Australia taking advantage of import tariff and international freight costs savings to defray intra-state transport costs (helped by backloading rates often available from WA).
Broadly, polyacrylic acid may be water soluble (molecular mass in range of 2 000 to 5 000), or insoluble being of higher molecular mass and or cross-linked. The two major uses are as superabsorbents and for water treatment and surfactants.
The superabsorbent polymer is made from a 30 to 40 per cent aqueous monomer mixture of sodium acrylate and acrylic acid, with initiators and additives. Control of conditions are important to achieve appropriate polymerisation to minimise excessive cross-linking. The product as used in disposable diapers is supplied as moderately dense granules.
The following table outlines the major acrylic acid producing centres.
Location Operator Scale (tonnes pa) Germany BASF 430 000 (three units) (Ludwigshafen) Belgium (Antwerp) BASF 270 000 Germany (Marl) Hüls 60 000 Aktiengesellschaft Czech Republic Sokolov Chemical 25 000 (being doubled to 50 000) Works France (Carling) Elf Atochem 220 000 UK (Bradford) Allied Colloids 15 000 (acrylonitrile hydrolysis) Japan (Kawasaki) Ashahi Chemical 18 000 (acrylonitrile hydrolysis) Japan (Aichi) Idemetsu Petrochem 80 000 Japan (Yokkaichi) Misubishi Yuka 110 000 Japan (Hmeji Hyogo) Nippon Shokubai 210 000 Japan (Oita) Oita Chemical 60 000 Japan (Niihama) Sumitomo Chemical 80 000 Korea (Naju) Lucky Ltd 65 000 Taiwan (Linyuan City) Formosa Plastics 65 000 (expanding to 120 000) USA (Freeport) BASF 150 000 (doubling by 1996 to 300 000) USA (Deer Park) Rohm and Haas 400 000 USA (Clear Lake) Hoechst Celanese 200 000 (increasing to 275 000 in 1998) USA (Taft) Union Carbide 95 000 China (Shanghai) Gao-Qiao 30 000 Various: Brazil, Various Oxitena, 25 000 to 70 000 Mexico etc Oxiquimica Celanese Mexicana Petroleos Mexicanas etc.The table indicates a range of production capacities from 25 000 tpa to around 400 000 tpa with a mean size of around 100 000 tonnes. A 70 000 tpa scale being considered for WA would therefore be near the the middle of the range.
Three years later in 1995, even with plant expansions, utilisation rates rose substantially with the USA at 90 per cent, Japan 80 per cent and Europe 90 per cent.
Whereas during the early 1980s nearly all acrylic acid was used as a lower technical grade to produce acrylic esters, typically about one-quarter of world production today is sold as the high purity glacial form. This major shift reflects faster growing demand for polyacrylates in the superabsorbent polymers, detergents and for water treatment compared to the now more mature and slower growing markets for acrylic esters.
Again as elsewhere, there are substantial variations between regions such as Government regulations in some countries imposed on the sale and use of preparations containing volatile organic compounds (VOCs) promoting water-based preparations for coatings, adhesives and sealants that often use acrylic esters.
Figure 3 summarises the applications for acrylic acid in the USA with indicative growth shown in Figure 4. It is important to note that size and growth rates vary substantially between countries. For example, in newly industrialised countries, acrylics for textiles and superabsorbents for disposable diapers are growing faster. In Australia there is little demand for acrylates for surfactants as there is (currently) little concern about detergent phosphates in waterways for which they substitute.
For Australia, the important issues for intending manufacturers are market size and comparative advantage.
The Australian market in 1995 is estimated at 4 000 tonnes of acrylic acid as polyacrylic acid valued at about $16m growing at about 8 per cent per year.
Acrylates are used in a broad range of applications directly as a resin, or as solution or emulsion. The following provides an indication of typical applications with the market share expressed as a percentage of all acrylic acid applications as acrylic acid (ie. including the previously described polyacrylic acids). Figure 3, page 35 is a graphical representation.
The Australian surface coating industry is dominated by ICI Australia, Wattyl and Taubmans using emulsions made by companies such as Rohm and Haas and BASF from imported ethyl and other acrylic esters. The paint industry in Australia, like in other developed countries, is growing at about 2 per cent per year.
In Australia, this sector is dominated by Selleys owned by ICI which imports most functional specialised ingredients.
Australia's small textile industry uses solutions or emulsions prepared from imported esters by companies such as Rohm and Haas and BASF.
According to industry estimates, about 15 000 tonnes of such acrylic ester products are imported and manufactured in Australia.
Projection year 2000 for Australia
There are two manufacturers in WA; Ondeo Nalco - a subsidiary of Exxon with manufacturing facilities around the world including at Botany, New South Wales; and Ciba Specialty Chemicals operating one plant as a division of Imdex Ltd - a publicly listed Australian industrial company. Both WA facilities are located in Kwinana (within three kilometres of the BP oil refinery) where there is adequate industrial land, good services, gas and support infrastructure and port facilities.
Broadly, at one end of the spectrum are flocculants that are polyacrylamide nonionics and copolymers of acrylamide and acrylic acid, and on the other are viscosity modifiers made from acrylates as anionics. Considerable experience and research is required to produce the required functional characteristics often developed in close liaison with the user.
The liquid forms contain between 30 and 50 per cent active ingredients with a shelf life of only about 6 months and are more expensive to transport than powder forms.
Powder forms are more difficult and costly to produce involving solution polymerisation using costly additives, with a risk of failure until dried and require special equipment and more energy to remove the liquids. However, with over 90 per cent active ingredients, powders are more efficient to transport and store with an indefinite shelf life so that they are the only source of overseas competition. In early 1995, Imdex commissioned a powder manufacturing plant while Nalco, like other suppliers to WA, imports the powder form.
Some users anticipate a growing preference to the powder form for reasons of lower distribution costs, convenience and stability. Partly in response and reflecting its interest for increasing exports, Imdex has installed a powder plant to supply the local and Asia/Pacific markets. Their new plant reflects a confidence in the product given that powders are inherently more expensive to produce and, with a lower freight component, more open to international competition. Access to competitive raw materials is clearly important to their success in international markets.
It is probable that if powders are increasingly produced in WA, helped by access to competitive acrylic acid, they will grow by displacing the liquid forms especially at more distant locations where freight costs are significant. A local acrylic acid manufacturer could therefore stimulate the expansion of powder manufacturing helped by the current import tariffs and freight savings.
The manufacturing process increases the raw material (ie. acrylic acid and acrylamide) value from about $3 per kg to a finished product between $5 and $6 per kg equivalent dry weight.
On a dry weight basis, the liquid form is priced at a small but declining premium to the powder form reflecting customer preference and increasing competition between the suppliers of liquids and growing preference for the powder form.
Import tariffs directly raise the margin available to Imdex as the only Australian manufacturer of powders. The tariff is therefore particularly helpful as their powders are more exposed to overseas competition (ie. by incurring lower freight costs). Of course Australian tariffs are irrelevant for exports to international markets (though providing a mild stimulus).
In the end, import tariff provides a small advantage to the local manufacturers, somewhat more for low freight-incidence products like the powders produced by Imdex. At a 5 per cent tariff as applicable from 1996, the benefit is a vestige of Australia's protection system, is small and perhaps best described as an offset for the fact that Australia, unlike competing regions, provides no rebate for taxes incorporated in goods for export sale. (See also page 103 on import tariffs.)
The Australian market is broadly evenly divided between liquid and powder forms on a dry weight basis (the liquid forms are between 30 and 50 per cent solids). Powder forms are imported and supplied by SNF (Floerger), Rhone Poulenc, Stockhausen, Cytec, and Allied Colloids. Since 1995, Imdex has begun to manufacture powders.
As shown in Figure 13, the demand for powders has been growing at about 5 per cent per year whereas the demand for emulsions (ie. locally supplied given little or no imports) have shown little growth. Nevertheless, WA production has been growing about 16 per cent per year part due to the expansion of Imdex. The demand for locally manufactured liquid forms is indicated by the volume of imports of acrylic acid (Figure 11) used in their manufacture.
The Australian market for viscosity modifiers and flocculants is growing slowly, around 2 per cent per year because any growth in the volume of minerals processed is being offset by the use of more efficient products. The combined effect is there is no increase in the market for liquid forms which are losing market growth to the powders. Against this, WA suppliers have been substantially increasing their market share being furthered by the entry of Imdex into the faster growing powder market.
During the 1970s through the 1980s, world production increased around 20 per cent per year. However from the early 1990s, and contrary to projections, growth slowed to about 4 per cent resulting in production overcapacity, especially in Japan. To minimise the penalties of underutilising installed capacity, the 1990s recession was marked by particularly aggressive price discounting especially in smaller markets like Australia.
Prices also vary substantially between the major acrylic acid production centres. In early 1995, European prices were 7 per cent higher than in the USA (84 to 86 cents per pound), and 20 per cent higher in Asia (94 to 96 cents per pound). Such differentials between regions are enabled by international freight costs and sometimes non-tariff barriers.
Figure 7 summarises the relative price of acrylic acid during early 1995 at three sources of supply and Australia. The FOB price to Australia was below the contract price in the USA and even after including freight and distribution costs, the price delivered to the gate in Australia was still below the US list price, (and only marginally above the US home market contract price). As discussed on page 52, imports of acrylic esters supplies to Australia have also been substantially discounted.
Figure 8 shows the average annual FOB prices of acrylic acid to Australia for the seven year period ending June 1995. The economic downturn beginning 1990 promoted export sales at heavily discounted levels (to minimise underutilising installed capacity). With growing demand beginning 1992, the incentive to discount reduced with prices returning to pre-recession levels.
Figure 9 shows FOB import prices on a monthly basis. During the 12 months ending June 1995, prices increased some 70 per cent (with the trend continuing in subsequent months).
Both price graphs indicate WA companies have negotiated more favourable prices than other Australian acrylic acid users.
It is relevant to note that though described as a 'glacial' grade of acrylic acid, there are different specifications and prices - the manufacture of flocculants requiring the purer grade. It is not clear what the implications are on technology and feedstock conversion efficiency. This issue will require consideration in a more detailed feasibility study.
There is no import tariff on acrylic esters, though there is a tariff of 8 per cent on polymers and preparations of acrylic acid and acrylic esters (phasing down to 5 per cent July 1995).
The average 1994-95 FOB prices to Australia, in equivalent US cents per pound, with current list and contract prices in the USA in cents per pound in brackets are as follows;
The low prices of acrylic acid and acrylates in Australia clearly represents an important consideration for the acrylic acid plant.
Not surprisingly, most imports of acrylic acid have been sourced from Japan which has experienced the world's lowest capacity utilisation rates. The pursuit of markets to utilise excess production capacity, has seen Japan's manufacturers negotiating prices about one-third below those in their home market. More recently prices appear to have returned to normal values and with increasing imports from other sources including the USA.
As an indication of a base or normal price, European industry sources say their industry requires an acrylic acid price of DM2.60 per kg (ca. US$0.80 per pound ) to justify investment (Chemical Week, May 4, 1994). The significant investment currently being undertaken reflects the price being about that base level (and helped by projections for continuing firm demand). In June 1995 the FOB price for acrylic acid was A$2.20/kg (US$0.72 per pound) and with more recent increases, suggests import prices have risen to about the list price in the USA. Freight costs, say 5 per cent, further reduce any previously held advantage for the Australian acrylic acid manufacturers.
With plant expansions, typically by 20 per cent in Europe and the USA predicated on projections of sustained demand, there is of course potential for another downturn as occurred in the early 1990s that promoted discounted sales to smaller markets like Australia. Were this to occur, with a newly established acrylic acid manufacturer in Australia, such low priced (then 'dumped') imports would probably attract price-inflating anti-dumping duties through Australia's well-tested anti-dumping legislation (see page 105). This outcome should of course be compared with the probable stabilisation of prices with a local acrylic acid manufacturer.
The complexity and significance of pricing suggests an in-depth sensitivity analysis should be included in a full feasibility study to quantify the effects on users and manufacturers of acrylic acid in WA.
Figure 11 shows national imports of acrylic acid with no overall growth fluctuating at around 3 500 tonnes per year. During 1994-95, the value of acrylic acid imports was $6m FOB (ie. $1.69 per kilogram, but currently about 80 per cent higher).
Given that all acrylic acid is used to manufacture flocculants and viscosity modifiers, it indicates there has been little growth in the Australian market for these products. Over the same period however, imports (ie. powders) to WA have risen three-fold increasing some 16 per cent per year to represent about one-half of Australian imports. Overall, in just seven years WA's industry has expanded from one-sixth to about one-half of Australia's viscosity modifier and flocculant industry.
Figure 13 shows that powders, in contrast to the slowly growing liquids market, have been increasing by about 5 per cent per year to now represent about one-half the market (dry weight basis).
As Figure 12 shows for 1994-95, imports are distributed through the year (reflecting also the instability of acrylic acid that requires a high turnover of inventories, ie. frequent purchases).
Figure 13 shows increasing imports of powder forms of flocculating agents and viscosity modifiers, currently about 6 000 tonnes per year. It also shows that most growth in imports has been in WA, increasing from 20 per cent to 33 per cent of national imports in the past seven years. It is relevant to note that though WA represents about 40 per cent of the national market for liquid forms, it represents only 33 per cent of powder imports. One conclusion is that import competition is most intense in WA, and a projection is the share of the market held by imports (powders) will increase to the national average within five years.
Users indicate that imported flocculants and viscosity modifiers (ie. as powders) are functionally equivalent to locally manufactured liquid forms. There is therefore significant potential for a local powder manufacturer like Imdex to grow by import displacement. With flocculant imports at 6 000 tonnes per year and acrylic acid typically one-third by mass of the powder, manufacturing for import replacement would enlarge the acrylic acid market by about 2 000 tonnes.
Figure 14 is an indication of the special nature of the Australian market for flocculants and viscosity modifiers faced by its manufacturing industry. It shows the acrylic acid price at FOB import value as a percentage of the viscosity modifier and flocculant price (FOB). The graph directly reflects the variation in the price of acrylic acid in Australia (see Figure 8) and shows its price reduction was not passed on by Australian manufacturers. It is therefore consistent with the observation that acrylic acid prices in Australia have been below world levels and more favourable than those faced by overseas competitors.
The significance of imports of acrylic acid and derivatives on a weight basis is shown in Figure 15, with average FOB values in Figure 10.
Geographic isolation precludes competitive uses for propylene at the BP Refinery other than as gasoline providing the acrylic acid plant its only advantage over competing plants. However, unlike most other commodity petrochemicals, the manufacture of acrylic acid is far more sensitive to the cost of plant than to raw materials. Lower construction and infrastructure costs at Kwinana help locate it here, over the say the north west, that advantage has to pay for the cost of freighting most of its production. The home market is clearly relevant.
The industry currently produces only the bulky freight-intensive liquid forms with increasing imports of powders. International freight and a small import tariff (5 per cent) provides a margin of advantage to the local manufacturers. In response to increasing imports of powders, and to further its export activity, Imdex Chemicals has commissioned a technically-demanding powder plant. Given all raw materials are imported, with intense competition from powders, it signals their confidence in having a skill advantage. This expressed confidence, without outside technical support, could be considered in context of its competitor, Ondeo Nalco.
Nalco Australia is a USA-based subsidiary of Exxon, with manufacturing facilities around the world including in Singapore to service the Asian market and at Botany, New South Wales. Clearly the skills obtained in Australia will not be confined to WA but will be applied according to comparative advantage which in in WA is freight and not raw materials. It is not surprising therefore that Imdex, and not Nalco, has entered the powder manufacturing industry. The cost of raw materials and freight are relevant issues.
All the raw materials are imported with substantial freight costs including acrylamide which, used in the cheaper liquid solution form elsewhere, is imported to Australia in the more costly dry form. Generally freight costs associated with imported raw materials raise the cost of the finished liquid form by about 4 per cent and around 10 per cent for the powders. Freight is of course even more significant for exported goods. Any skill advantage is clearly not helped by freight costs.
Significantly Australian manufacturers have had access to cheap acrylic acid that would not have been available to competitors located in countries with an acrylic acid industry (by application of their anti-dumping legislation). Though more recent price increases will have eliminated much of their advantage, it raises two issues; the impact of a local manufacturer on user-industry; and the consequence if one of the current acrylic acid-manufacturers assumed an interest in the acrylic acid plant. The matter is also discussed under the section describing anti-dumping legislation, page 105.
The project is underpinned by the feedstock advantage so that some ownership or realistic amortisation of the propylene refining unit will be important. However, in the end, it will be the skills and market influence that will be overriding factors in its success.
Appendix -Scale influenced by freight, feedstock and scale influenced by freight, feedstock and scale
Though Kwinana is well located with excellent infrastructure and port facilities, the manufacture of acrylic acid can only be justified with access to competitively priced propylene. The isolation of the oil refinery from overseas markets for the propylene has rendered alternative higher valued applications uncompetitive because of freight costs. As shown pages 19 and 79, the anticipated cost of propylene is estimated to be favourable when compared to most acrylic acid-manufacturing plants. This appendix reviews the significance of propylene on the competitiveness of the acrylic acid plant. It also shows the extent that this advantage can offset the penalty of operating below the size of competing plants and international freight costs for its predominant export sales.
Freight costs, when compared to world-influenced prices of acrylic acid and propylene feedstock, are constant and an influence on the comparative advantage of the project. As described later, it is the isolation of WA that provides for cheap propylene but that advantage is reduced by the costs associated with exporting acrylic acid. Freight provides a margin of advantage to domestic sales but obviously reduces the benefit of export sales.
The transport cost of acrylic acid has been reviewed comparing isotainers with a capacity of 20 000 litres (22.5 tonnes) with the alternative of its movement in some 86 nominal 200 litre drums (215 kg) packed in 20' freight containers. Reflecting the unstable nature of acrylic acid that requires special storage (see page 15) and consistent with industry practice, there is little difference in the cost of freight by either method. The cost of exporting acrylic acid in substantial tonnage from Fremantle is estimated at US$75 per tonne (or about A$0.10 per kg which may be compared with about US$90 (A$0.12 per kg for imports in smaller volumes by WA's current acrylic acid users). The difference represents a contributing advantage in supplying the local market.
Acrylic acid may be described as propylene combined with oxygen (from air). Given 1 tonne of propylene typically produces about 1.5 tonnes of acrylic acid (see page 16), moving one tonne of acrylic acid is equivalent to moving 0.66 tonnes of propylene, the balance being air. Therefore the cost of shipping acrylic acid may be expressed in terms of the propylene used in its manufacture. Given that one tonne of propylene and acrylic acid may be shipped to Singapore for about the same cost, ie. about US$80 per tonne, propylene requires substantial cryogenic storage facilities which adds some US$80 per tonne. Based on the contained oxygen therefore, about one-third of the freight for acrylic acid, that is US$25 may be avoided by not manufacturing in Australia. Clearly, on this basis alone, the breakeven is when about one-third - being the non propylene component of the acrylic acid is supplied in the home market.
Freight costs are an influence but compared to scale and propylene, its cost is relatively small. At around 5 per cent of the production cost (as exports), a substantial variation in the freight cost has little influence (especially when compared to the scale of production, see later).
As undertaken later, an alternative expression is if the average freight cost is considered with variation in scale of production assuming all surplus is exported. The effect is small as shown in Figure 20.
Propylene is a by-product of the refinery process at the BP refinery where it is converted to gasoline (at 95 per cent estimated efficiency). The value of gasoline to the refinery is the opportunity value being the Singapore price plus the cost of freight estimated at US$10 per tonne, approximating its value in the WA market. Based on this, Fluor Daniel has estimated the value of propylene to BP at A$235 (US$176) per tonne (ie. based on the current production at 70 per cent purity, see page 79). This value would therefore represent about the minimum the refinery would be prepared to negotiate a contract to supply propylene for purification to the required chemical-grade form (ie. 95 per cent).
The cost of facilities to increase the purity of propylene from 70 per cent to 95 per cent purity (ie. chemical-grade) and including required intermediate storage is estimated at A$15m. This cost is recovered totally by the volume of chemical-grade propylene required by the acrylic acid plant and, if viable, exports of any surplus. As shown by the Fluor Daniel study, exports of chemical grade, even at more substantial volume of 60 000 tonnes, is not viable unless its value in Singapore remains above US441 per tonne. When associated with the acrylic plant however, the cost of the facilities compared with the more limited volume available for exports, it clearly precludes this option. In other words, the cost of purification will be totally recovered by the propylene required for the acrylic plant (and the crude propylene price will be determined for its application for gasoline, and not by its alternative application for export as chemical-grade propylene).
The cost of chemical-grade propylene feedstock depends on the amortisation (payback) period. Oil refineries typically assume a three-year period which Fluor Daniel has calculated to imply a cost of A$518 (US$388) per tonne. If the refining unit was operated by the acrylic acid plant venturers, the cost of chemical-grade propylene, based on a six-year period, would reduce by one quarter to A$376 (US$282) per tonne. These prices could be compared with Asian levels where propylene in September 1995 ranged to US$450 per tonne. The amortisation period is therefore clearly important to the viability of the plant.
Though conservative, the three-year period (ie.with a higher feedstock price), has been assumed for the financial analysis to calculate the IRR and payback period (see page 79).
It is important to note though propylene is the only raw material, its price is not as influential on acrylic acid production as most other commodity petrochemicals. This is well illustrated in Figure 17 that shows the variation in the cost of propylene in relation to the cost of acrylic acid. Like freight, propylene costs are not influential showing again the dominating influence of scale economies (see Error! Reference source not found.).
Production economics favours large scale acrylic acid plants with relatively low feedstock costs and manning independent of scale. Based on the analysis undertaken by Fluor Daniel, the importance of scale is clearly shown in Figure 18 and as previously indicated it is more influential on production economics than most other commodity petrochemicals. As shown in that graph, a 30 000 tpa plant would, all else equal, operate at a 40 per cent operating cost penalty compared with a 100 000 tonne unit.
The three key variables may be considered collectively to identify the scale of plant required in WA to be competitive. The assumed benchmark for competitiveness is the production cost of a 100 000 tonne acrylic acid plant (as indicative of typical world scale) using chemical-grade propylene at different prices.
For this assessment, chemical-grade propylene is valued as the ex BP refinery crude price (ie. A$235, ie. US$176) plus the variable cost of its purification to chemical-grade compared with a benchmark plant using it at US$450 per tonne (ie. Singapore price; 1 tonne of acrylic acid produced from 0.63 tonne of propylene). Expressed as a percentage, the advantage to the WA plant with access to favourably priced propylene can then be directly compared with its disadvantage in scale and freight expressed. The following graphs show how competitiveness depends on the amortisation (payback) of the propylene purification plant.
For comparison, a 45 000 tonne pa plant (as used in the financial analysis) producing only for the home market with no exports (therefore not incurring international freight costs), as shown in Figure 19, would still be about 9 per cent less competitive than the 100 000 tonne plant. The importance of scale, that can overwhelm any feedstock advantage, is clearly demonstrated.
In Figure 20 a range of scales are considered with a three year payback for the purification plant as typical of the oil refining industry. The graph shows the scale penalty, the average freight cost (assuming a home market of 4 000 tonnes) at US$75 per tonne, and the propylene advantage (that ranges from 3 to 10 per cent). The sum of the propylene-derived advantage and the freight and scale disadvantages is shown as the solid line. Using the benchmark plant as described above, it would be competitive in WA at a scale of around 75 000 tonnes. Of course the outcome is very sensitive to the benchmark value for propylene (in this example at US$450 per tonne).
A 6 year amortisation for the propylene purification unit is shown in Figure 21. Here the breakeven scale has been reduced from 75 000 tonnes to around 67 000 tonnes reflecting the greater benefit derived from the lower cost of propylene (ranging from 8 to 13 per cent with increasing scale).
The previous three graphs assume a market value for chemical-grade propylene at US$450 per tonne for a competing 100 000 tonne acrylic acid plant. It is that margin between the assumed international value and its cost in WA which compensates for penalties of scale and international freight. A lower propylene value requires a larger scale as shown in Figure 22 where a benchmark value of US$375 per tonne requires an 80 000 tonne plant for equal competitiveness.
The margin between the crude propylene value negotiated with the refinery at A$235, ie. US$176, and the Singapore benchmark price for chemical grade propylene, impacts on the scale of plant required to be competitive. The variation in chemical-grade prices and impact on competitiveness is illustrated in Figure 23. The point at which each curve cuts the 0 line from below is where the plant begins to become competitive against the benchmark 100 000 tonne plant.
The amount of propylene immediately available at the refinery restrains the scale of plant to around 90 000 tpa. At this scale, the minimum benchmark value for chemical-grade propylene for the plant to be competitive is about US$300 per tonne (based on A$234.60 negotiated for supply of crude (ie. 70 per cent) propylene from the WA refinery.
A commercially acceptable return has been demonstrated at a scale of 45 000 tonnes (see analysis by Fluor Daniel page 79) reproduced here as Figure 25 based on an identified price with 90 per cent of production sold overseas.
As elsewhere the returns are sensitive to assumptions - in this example to net prices. This is illustrated in Figure 26 where a reduction in the selling price by just 15 per cent of the acrylic acid produced in a 45 000 tonne plant, reduces the return to about the same level as a 30 000 tonne plant shown in Figure 25. Financial returns are helpful but clearly require qualification in a historical perspective of prices and costs.
Though providing commercially acceptable rates of return at 45 000 tonnes, even on a conservative basis, as shown by Figure 20, it is only at a scale of around 70 000 tonnes that the plant has an absolute comparative advantage (assuming a chemical-grade propylene benchmark price of US$450 per tonne for a 100 000 tonne plant using crude propylene at A$234 per tonne). Even larger scales are required for lower benchmark values as shown Figure 23.
In the end, it is the negotiated price of propylene, as its opportunity value to the BP oil refinery that determines the competitive scale and competitiveness of the acrylic acid plant. The feedstock value in turn depends on the cost of freighting propylene or its product gasoline to the principal overseas markets. In other words the plant's viability is driven indirectly by international freight costs though its competitiveness is dominated by scale. On the defined assumptions, a plant of around 70 000 tonnes capacity, provides for competitive operation and sound commercial return.
It is important to note that these analyses are sensitive to many variables that include:
Appendix - Cost factorsCost factors
This appendix details some of thekey factor costs and considerations for the acrylic acid plant. Import tariff and anti dumping protection are described in the following appendices.
A cost of US$0.055/kWh may be assumed for the plant for uninteruptable power.
Pipeline related costs (including $1.2 billion debt funding) increase the cost of gas in the Kwinana region by at least 50 per cent above that negotiated by the North West Joint Venturers.
A price of about $4.00 per gigajoule may be assumed at Kwinana.
A report by Chem Systems prepared for the Department of Resources Development, Western Australian Competitive Cost Issues of September 1994 describes the international competitiveness as they apply to chemical projects.
Table II.C.1 in that report summarised estimated capital cost factors for 1994 compared with the USA Gulf Coast. They were also projected at year 2000 (reproduced here in blankhesis). The factors ranged from 0.85 (0.95) for China and India, 0.95 (0.95 to 1.00) for Thailand, Malaysia and Taiwan, 1.00 (1.00 to 1.05) for Philippines and South Korea, 1.10 (1.15) for Singapore, 1.15 (1.20) for Indonesia and 1.30 (1.30) for Japan.
Australian capital city costs were estimated at 1.05 now and in year 2000. The costs at Kwinana were judged to be equivalent to Sydney.
Road transport costs are between A$0.08 and A$0.10 per tonne per kilometre.
For some products backloading rates enables West Australian companies to competitively supply regional markets in eastern Australia.
State Government measures
The West Australian government has assisted with the provision of infrastructure to industry including the upgrading of railway lines, the provision of roads, identification of opportunities and other measures to facilitate investment. As a general principle, investments may be supported to the net benefit of the project to the State.
Assistance to manufacturing industry at the Federal Government level remains dominated by import tariffs and anti-dumping protection (see page 105).
Importtariffs are (price-inflating) taxes on imported goods that are deemed to compete or substitute for similar goods made in Australia. In Australia tariffs are applied at the FOB level currently with a ceiling rate of 8 per cent phasing down to a single rate of 5 per cent in July 1996. They serve to increase the price available to Australian manufacturers as their market price is generally determined by competing imports.
Import tariffs are no longer made available to new industries or increased for new industries. A system called Tariff Concession Orders allow for duty free entry if manufacturing in Australia ceases. The Order may be revoked by an intending manufacturer of similar goods (including substitutes) for which the tariff had been established.
The current relevant tariffs are shown in the following table. Though acrylic acid and its esters do not attract an import tariff, polymers or preparations of acrylic acid are assisted by an 8 per cent tariff (5 per cent after July 1996). International freight charges, handling and related storage and handling charges now often provide a greater margin for Australian manufacturers. Tariffs help but are not significant for investment decisions specially for the acrylic acid plant that will sell some three-quarters of its production into international markets. Anti-dumping duties (see page 105) are generally more important.
In the end, whilst not helping international competitiveness, import tariffs by raising overall corporate returns, indirectly support (the less profitable) exports sales at below home market levels.
For acrylic acid, import tariffs help related products. Those products are the acrylic polymers including superabsorbents, surface active ingredients and viscosity modifiers and flocculants and potentially acetic acid as its by-product of manufacture. There is no tariff on any acrylic monomers including acrylic esters.
Product Harmonized Code Rate % Acetic acid 2915.21.00 (04) 8 Acrylic acid 2916.00.00 (21) 0 Acrylic esters 2916.12.00 (22, 23, 24, 25) 0 Methacrylic esters 2916.13.00 (26) 0 Acrylamide 2924.10.00 (13) 0 Acrylic acid polymers (inc. flocculants, viscosity modifiers, polyacrylic acid, superabsorbents) 3906.90.00 (09) 8Appendix - Anti-dumping legislationAnti-dumping legislation
Dumping is the practice of selling goods at prices below the home country (ie. to marginal levels) to disadvantage (injure) industry of the importing country. Anti-dumping duties enabled by anti-dumping legislation, are aimed at correcting the imbalance between the export price and the place of manufacture. Even without their application, the threat of application of dumping duties serves to inflate the price of imports.
Though on the one hand increasing costs for user industries, anti-dumping legislation may be essential for newly developing activities without the resources to compete against low or marginally priced (dumped) imports as occurred in the early 1990s for acrylic acid and derivatives. Such marginal pricing is common during periods of capacity underutilisation as occurred for acrylic acid in the early 1990s. A local manufacturer has to be able to claim 'injury' (and a link) before the imposition of anti-dumping duties. The benefit to the user of access to the 'dumped' goods is not a consideration.
As shown on the subject of prices (page 49), Australian imports of acrylic acid (and most acrylates) have been below levels in the home market. In the absence of an Australian manufacturer, injury to local industry has not occurred and price inflating anti-dumping duties were not necessary. If a manufacturer were to establish in WA, the acrylic acid-using industry could lose access to these marginally priced imports (if the manufacturer claimed to be injured from what could then be described as 'dumped goods').
Of course it is not clear whether the conditions that promoted the sale of the marginally priced goods will re-occur (ie. the substantial capacity utilisation especially in Japan) or that such appeal for relief would be successful (although probable). In the end however as previously discussed, the benefits to the State of a local manufacturer have to be carefully considered in the context of the market (ie. the acrylic acid users).
Dumping is a contentious issue but an important feature in the consideration for the feasibility of an acrylic acid plant in WA. In the absence of Australia's well proven anti-dumping legislation, a new plant could be subject to intense competition during periods of world capacity underutilisation as occurred in the early part of the 1990s. It is relevant to note that Australia's chemical industry is world prominent in making claims for relief from lowpriced goods. The existence of this well proven protection system will reduce the risks for the any newly established chemical plant without the resources to compete against low priced (dumped) imports. Australia's well used anti-dumping legislation has provided more than adequate protection for such chemicals as sodium cyanide, sodium phosphate, sodium carbonate and other medium scale chemical activities. The key issue that remains is the consequence to the acrylic acid-using industry of access to less volatile raw material prices as would be set by the local manufacturer operating behind Australia's anti-dumping legislation.
This last point assumes an extra dimension if an Australian-based acrylic acid-using viscosity modifier and flocculant manufacturer assumed an interest in the acrylic acid plant. The application of anti-dumping duties (with adopted national 'support values') would provide a measure of competitive advantage that could be partially offset against the returns from the acrylic acid plant. Naturally, the extent and availability of anti-dumping legislation in Australia is not assured and the local market for acrylic acid is small compared to the overseas sales of the project.
In the end, anti-dumping legislation is a consideration but obviously not an underpinning factor in assessing the viability of the plant.
Appendix - Methodology and Information SourcesMethodology and Information Sources
The report is a joint project between Fluor Daniel Australia Ltd and Chemlink Pty Ltd and it is based on extensive on-line research of information providers including Dialog.
Other information used include in-house resources, reviews of current literature such as the Chemical Marketing Reporter, European Chemical News, Chemical and Engineering News, Chemical Week, previous reports such as Opportunities for the Manufacture of Industrial Chemicals in WA, and other published information including Chemicals and Heavy Industries 1992, Etonwood Directory of the Chemical Industry, ACTED resources including Guide to Chemicals in Australia and Kirk-Othmer Encyclopedia of Chemical Technology
It also used the published data resources published by the Australian Bureau of Statistics (ABS). This includes Table MM04A for imports, Table MX04A for exports as well as related trade data from tables such as MM03A & E. Fluor Daniel has used extensive information from their overseas offices.
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