1 PRODUCTION OF 10,000 METRIC TONNES PER YEAR OF AZELAIC ACID PLANT

SIDDIQ FADZIL BIN HAMZAH MAHDIAH BINTI YUSMADI ZULIAANIDA BINTI ZOHARI WAN NADZIRAH BTE WAN BADRUL HISHAM AHMAD MAHYUDDIN BIN MOHD MOHTAR

2008297852 2008297746 2009652496 2008297848 2008790647

A report submitted in partial fulfillment of the requirement for the award of Bachelor Engineering (Hons.) in Chemical Engineering

FACULTY OF CHEMICAL ENGINERRING UNIVERSITI TEKNOLOGI MARA SHAH ALAM

OCTOBER 2011

2 CONTENTS TITLE CHAPTER l PRODUCTION OF AZELAIC ACID 1.1 Introduction 1.2 process Background 1.2.1 1.2.2 1.2.3 1.2.4 Ozonolysis Stoichiometric Reaction Chemically Catalyzed reaction Biocatalytic Transformation 4 6 6 7 8 10 11 11 12 14 15 15 PAGE

1.3 Process Selection 1.3.1 1.3.2 Comparison of process Selection of Process

1.4 Application / Usage of Azelaic Acid 1.5 Process Details 1.5.1 1.5.2 Oxygen Generation Process Ozone Generation and Oleic Acid Absorption Process 1.5.3 1.5.4 1.5.5 CHAPTER ll Oleic Acid Ozonides Oxidation Process Pelargonic Acid Distillation process Azelaic Acid distillation Process

18 19 20 21

MARKET ANALYSIS 2.1 Introduction 2.2 Global Fats and Oil Production 2.3 World Consumption of Fats and Oils 2.4 World Consumption of Fatty Acid 2.5 Demand of Azelaic Acid 2.6 Import and Export Prices of Raw Material and Products 2.7 Prices of Raw Material and product 2.8 Breakeven Analysis 28 36 37 22 23 23 25 27

3 CHAPTER lll SITE LOCATION 3.1 Introduction 3.2 Factors for Site Location 3.3 Proposed Site Location 3.4 Evaluation of Site Selection 3.5 Conclusion 48 48 52 55 62

CHAPTER 1

PROCESS INTRODUCTION

1.1 INTRODUCTION

Azelaic acid, with the formula (CH2)7(CO2H)2 is a saturated dicarboxylic acid exists as a white powder. Nowadays, Azelaic acid (AA) is commercially used as component in a series of applications such as polyamides, polyesters, pharmaceuticals, plasticizers, lubricants, or hydraulic fluids. It is utilized for food packaging (e.g., paper, film, and foil laminates), in electronics (e.g., flexible printed circuit board, coil insulation), textiles (e.g., footwear, interlining for labels, and emblems), and automotive (e.g., coatings, upholstered car seats, construction of sun visors) industries. Noted that, AA has superior solubility in organic solvents and water compared to other even chain C4 C12 dicarboxylic acids, which is advantageous in the formulation of high solids or solvent free systems. Polyamide 6.9 obtained from hexamethylendiamine and AA is characterized by low water absorptionand high-dimensional stability.

The total production of AA amounts to several 1000 tons/year. Nowadays, AA is technically produced by oxidative cleavage of oleic acid (OA) via ozonolysis. Besides, pelargonic acid (PA) is formed as a by-product in stoichiometric amounts. During the reaction pathway of ozonolysis, a primary ozonide is formed from OA and ozone via 1,3 cycloaddition,which is converted to a secondary ozonide. This 1,2,4-trioxolane can be oxidized to carboxylic acids under oxidative reaction conditions (Figure 1) .

5 Remarkably, various efforts have been done during the last years to improve the process or to find unpatented solutions. As demonstrated in the paragraphs below, alternatives to ozonolysis are highly requested due to huge energy demand ofthe process, to toxicity of ozone, and safety risks. Therefore direct methods of CC double bond cleavage of OA to AAand PA and multi-step processes were developed whereas the latter include epoxidation and ring-opening to 9,10-dihydroxystearicacid (DSA) or metathesis. Furthermore, Wacker-type oxidations to ketocarboxylic acids were reported. These intermediates could be cleaved forming di- and monocarboxylic acids. In addition, biocatalyticmethods were reported for synthesis of AA .The advantages and disadvantages of all demonstratedmethods with regard to production in a technical scale is discussed in the next paragraphs.Preferred adducts for the synthesis of AA and its monomethyl ester (MMA) were OA and MO but also ricinoleicacid (RA) from castor oil.

6 1.2 PROCESS BACKGROUND

1.2.1

OZONOLYSIS From the existed patent at current time, the total production of AA amounts to several 1000 tons/year. Industrially, AA is technically produces by oxidative cleavage of oleic acid (OA) via ozonolysis with pelargonic acid (PA) is formed as a by-product in stoichiometric amounts.

Figure 1.1 shows a commercial process for the production of azelaic acid from oleic acid.
1) 3 / 2 20 40 2) 2 70 100

CH3 (CH2)7 CH = CH (CH2)7 COOH Oleic acid CH3 (CH2)7 COOH + HOOC - (CH2)7 COOH Pelargonic Acid Azelaic Acid

7 Oleic acid is cleaved by ozonolysis ( O 3 concentration in the air: 1.0 vol%) at 20-40C in pelargonic acid and water. The alkene residence time is about 10 min. The ozonide is then cleaved with oxygen at 70110C. Pelargonic and azelaic acids are separated from higher boiling point compounds by subsequent distillation. Azelaic acid is subjected to extraction to remove monocarboxylic acids; disillation of the extractant finally yields pure acids.

1.2.2

STOICHIOMETRIC REACTIONS

In producing azelaic acid (AA), used oxidants were nitric acid, permanganate, and dichromate. Despite of OA, RA, castor oil, and Vernonia galamensis seed oil containing vernolic acid radicals were investigated as the feedstock for the synthesis of AA. By using such oxidants, the yield of AA increased up tp 67-87% using phase transfer catalyst, emulsifiers alone, or in combination with ultrasonic treatment and permanganate as oxidants due to an improved mass transfer through phase boundaries.

Two stage methods were also described; OA was transferred to DSA by Cl2/NaOH which was cleaved to AA using chromic acid. Diepoxytetrahydroxystearic acids were cleaved under strongly alkaline conditions to 29 and 43% AA respectively.

Nevertheless, these strong oxidants applied in multiple surpluses, showed insufficient product selectivity. Besides, it was found that often found beside other by-product products of AA and

product of chain degradation were

to a higher extent. Thus, yield of the desired PA are not competitive.

As for a newly research in Japan claimed an interesting approach with regard to green chemistry and a environmentally kindly alter native to heavy metal oxidants. MO was cleaved in H2O2 /H2O under subcritical conditions at 180-370C and 1-25 Mpa. The obtained yield of AA is 31%.

8 Drawbacks of the afromentioned process were high energy consumption and corrosion problems.

1.2.3

CHEMICALLY CATALYZED REACTION

1.2.3.1 DIRECT CLEAVAGE OF MONOENIC FATTY ACIDS AND ESTERS

For the method of direct cleavage, strong oxidants were used which are currently not acceptable in terms of sustainable chemistry and economy. As for the example, the cleavage of castor oil using HNO3 as oxidant and ammonium vanadate or MnO as catalysts resulted in an unsatisfying selectivity toward the desired AA (15-16%). Based on Travis et. al and Borhan and co-workers isolated 80% MMA in the cleavage of MO with O2O4/oxone in DMF. Despite the high yield and selectivity, the method seems not to be technically feasible because of the toxicity and volatility of OsO4 and the formation of waste products from oxone. 1.2.3.2 TWO-STEP CATALYTIC CLEAVAGE OF OA OR MO

The method that was widely used is the epoxidation/ring opening of OA or MO using H2O2 and tungsten containing iso- or heteropoly compounds followed by subsequent oxidative cleavage of the intermediate diol. Many advanced research had been carried in determining the best method. Based on Nuramat and Eli and Ayshemgul, OA and tungstic acid react in an ionic liquid. the cleavage of the diol was performed with peracetic acid, the obtained yield of AA was in the range of 39-46%. A chinese patent claimed the usage of isopropanol as solvent in first step and mentioned 75% yield of AA with the used of microwaves led to an improvement in AA up to 75-85% yield. Nevertheless, used oxidants such as peracidsare regarded as problematic in terms of ecology.

1.2.3.3 THREE-STEP CATALYTIC CONVERSION OF MO

The metathetic ethenolysis of MMA enebles a three-step procedure. The obtained terminal unsaturated 9-decenoic ester can be ketonized with a Wacker-type catalyst. Then the intermediate is cleaved by a Mn catalyst to a mixture of C8 and C9 dicarboxylic acid monoesters. Oxidants in both last two steps was O2.

Figure 1.2 Main reaction pathways for the cleavage of OA to PA. (A-direct cleavage,B-two step route including formation of epoxidized oleic acid and/or DSA, C- tw step pathway involving metathesis of OA followed by cleavage of the intermediate, Dthree step route including metathesis/formation of a ketocarboxylic acid/cleavage to AA)

10 1.2.4 BIOCATALYTIC TRANSFORMATION

Basically,

different

enzymes

obtained

from

yeast

and

other

microorganisms were successfully employed for the synthesis of AA. Both the oxidative degradation of C18 units and the oxidation of the terminal CH3 group of PA were investigated. Two patents described the combination of enzymatic and chemical transformations. In the first step, the synthesis of dihydroxy fatty acid was performed using non-specified lipases. Whereas the second step, the cleavage of the diol with 60-70% yield of AA and PA, was carried out conventionally with peracid as oxidant in a Chinese patent. The Fermentation of OA or triglycerides with Candida tropicalis enzymes to 1,19 nonadec-9-enoic acid followed by ozonolysis or chemically induces C=C cleavage to AA and PA with strong oxidants such as H2O2 was reported in US patent. The first step, fermentative oxidation of the terminal CH3 group took a very long time (about 110-180 hours) and about 45-67% yield of diacid were obtained. The avoidance of PA during the chemically induced cleavage is seen as a advantage. The method is also useful for the oxidation of PA to AA. In this case, AA could be obtained directly via terminal fermentation oxidation. The drawback of the process may be the availability of PA.

11 1.3 PROCESS SELECTION 1.3.1 COMPARISON OF ADVANTAGE AND DISADVANTAGES

Table 1.1:

Comparison of Advantages and disadvantages of method

producing Azelaic Acid ADVANTAGES 1. OZONOLYSIS 1. Absence of environmentally critical waste from the oxidant 2. Good selectivity 3. Enable simple reprocessing of PA into ozone absorber to reduce viscosity of OA. 4. Yield up to 78-80% 5. Easy to generate ozone from commercialized oxygen 2. STOICHIOMETRIC REACTION 1. Yield up to 60-87% (using phase transfer catalyst) DISADVANTAGES 1. 2. 3. 4. Huge energy demand Toxicity of ozone Safety risk The obtained yield of AA was often lower

1. Use only for scientific interest 2. Not suitable for an industrial application (regard to sustainability) 3. Insufficient product selectivity (strong oxidants applied in multiple surplus) 4. Yields of AA and PA are not competitive 1. but not acceptable interms of sustainable chemistry and economy 2. Waste products originating from oxidants are detrimental 3. Solvent used are problematic 4. Expensive cost of catalyst 1. Availability of PA 2. Hard to handle enzymes

3. CHEMICALLY CATALYZED REACTION 1. Strong oxidants were reported

4. 1. 2. 3.

BIOCATALYTIC TRANSFORMATION Avoidance of PA formation Oxidation of PA to AA AA obtained directly via terminal fermentation oxidation

12 1.3.2 SELECTION OF METHODS

Table 1.2: Survey on relevant methods described in scientific and patent literature for synthesis of AA Substrate Oxidant YAA/MMA (%) 80 93 Reported catalyst/catalyst precursor OA MO Azone/O2 Oxone OsO4 Method Classification Ozonolysis Chemically catalyzed reactions OA NaIO4 Quant. KMnO4 Chemically catalyzed reactions Potassium oleate NaOCl Quant. RuO4 Chemically catalyzed reactions MO NaIO4 (electrochemically regenerated) OA H2O2 92 H3PW 12O40/PTC a) 62 RuCl3 Chemically catalyzed reactions Chemically catalyzed reactions MO H2O2 97
b)

Alkylated polyethyleneimine/ {PO4 [WO(O2)2]4}3-

Chemically catalyzed reactions Chemically catalyzed reactions

OA

H2O2 / O2

56

1) H2WO4 ; 2) 2) H2WO4 / Co(acac)3/Nhydroxyphthalimide

OA
a) b) c)

O2c)

67

C. tropicalis

Biocatalytic transformation

Cetylpyridinium Chloride Methyl 9-oxononanoate

Transformation to 9-octadenedioic acid Sources: (Kockritz & Martin, 2010)

13 Based on listed advantages and disadvantages, Stoichiometric reactions and Biocatalytic Transformations were eliminated straight away. A stoichiometric reaction is used only for scientific interest and not suitable for industrial application. In addition, yields of AA and PA are not competitive. Biocatalytic Transformation require the usage of different enzymes obtained from yeast and other microorganisms for the synthesis of AA, which would make it hard to handle the enzymes used for large production of AA. Consider the remaining two alternatives. Chemically catalysed reactions with H2O2 as oxidant may produce larger yields of 92% of YAA/MMA. Meanwhile, Ozonolysis produce yields of 80% of YAA/MMA. The comparison of oxidant used for Ozonolysis method and chemically catalysed reactions has been made. Hydrogen peroxide is an environmentally benign oxidant because water is formed as the only by-product during oxidation. However, it was applied repeatedly in presence of a catalytic system of phosphoric acid/tungstate or tungstophosphoric acid and an ammonium phase transfer catalyst. Cost of H2O2 may be the drawback as well. In addition, the mixture of H 2O2 raises uncertainty concerning the nature of the active species. Apart from that, about 50% of H2O2 decomposed unutilized, which make this method inefficient from the economical point of view. Apart from that, the cost of catalyst is more expensive rather than to have ozone generator plant. Thus, it is preferable to have ozone generator in AA production plant instead of using catalyst. In Ozonolysis process, the high production of by-product, Pelargonic Acid (PA), is not a challenge because PA is recommended as viscosity reducers and ideal diluent; it does not interfere with the operation of the circulating oxygen system and requires no separate distillation. In other words, PA is recycled back that makes it unnecessary to introduce an additional chemical compound into the system to serve as diluent and viscosity reducer which result in reducing cost of chemical used. A practical alternative to ozonolysis was not found, even if high yields of AA were reported with H2O2 as environmentally benign oxidant. The best oxidant so far is Ozone. A multitude of synthesis methods for AA is evaluated in terms of feasibility and sustainability. Up to now, no alternative to industrially employed ozonolysis of Oleic Acid (OA) was developed. Thus, the proposed method in producing Azelaic Acid (AA) is by Ozonolysis.

14 1.4 Application/Uses of Azelaic Acid Azelaic acid (AA) is commercially used as component in a series of applications such as polyamides, polyesters, pharmaceuticals, cosmetics, plasticizers, lubricants, or hydraulic fluids (Kockritz & Martin, 2010). It is an excellent choice as a modifying agent in the production of co-polyester polymers. AA is utilized for many ranges of industries. 1.4.1 Food Packaging In food packaging industry such as paper, film, and foil laminates use Azelaic Acid widely. The linear saturated polyesters are hard, semi-crystalline thermoplastics that are impact resistant even at low temperatures, smooth and have good wear resistance. Their glass temperatures are around 67-80C and the melting temperature Tm = 255C. These criteria make Azelaic Acid the most reliable component. 1.4.2 Cosmetics Cosmetic uses Azelaic Acid to treat acne, reduce skin discoloration, prevent hair loss, and improve Rosacea (skin condition) by having the ability to kill the bacteria on the skin that causes them. Moreover, it is also able to break down and remove dead cells on the skin surface. The related product are Desertliving Cistanche Herb Extract, Echinacea extract, Epimedium extract, Flaxseed extract, Garlic extract, Ginkgo Biloba extract, Ginseng extract, Mulberry Fruit extract, Pomegranate extract, Pueraria extract, Reishi Mushroom extract, Resveratrol, Saw palmetto fruit extract, Shitake mushroom extract, Tribulus Terrestris extract, Wlofberry extract (Agriculture Source, 2010). 1.4.3 Complexing Agent Furthermore, Azelaic acid is finding increasing application as a complexing agent for lithium complex greases and synthetic lubricant ester base fluids in lubricant industry. 1.4.4 Electronics Industry In electronics industry, flexible printed circuit board, coil insulation requires the use of Azelaic Acid as well. There is also high demand in textiles (e.g., footwear, interlining for labels, and emblems), and automotive (e.g., coatings, upholstered car seats, construction of sun visors) industries.

15 1.5 PROCESS DETAILS 1.5.1 Oxygen Generation Process

Figure 1.3: VPSA Oxygen Generator (Source: MVS Engineering) This azelaic acid plant will used on-site oxygen generator because of the plants high usage of oxygen. In this plant, oxygen is used as feed gas for ozone generator, used for oxidation reaction and for waste and water treatment. Therefore, it is necessary for oxygen to be supplied continuously in large volume. To provide sufficient oxygen demand for Azelaic acid plant Vacuum Pressure Swing Adsorption (VPSA) Oxygen generators are used. This process based on high efficiency adsorbent material and is low cost solution for high oxygen demand. VPSA is popular technique, a reliable and economic on-site supply method, used in producing oxygen from 250 to 5000 cubic meter per hour or more, with purity levels ranging from 90 to 95% (AIRMAX System Co., Ltd., 2010). This process consists of two beds filled with molecular sieves that cycle alternately in production and in regeneration. Feed air pressure is generally 1.1 to 1.5
bar, which gives oxygen production at 1.05 to 1.3 bar. Regeneration of Molecular sieves is done by a vacuum pump 0.4 bar absolute pressure. The waste gas is 85% nitrogen and 15% oxygen which are vented to atmosphere. Product oxygen gas purity is 90 to 95%.

16 These two beds functioned as adsorbers. As feed air flow through one of these beds, the molecular sieve adsorbs nitrogen. The remaining oxygen passes through the vessel and exits as the product gas. Before the adsorber becomes saturated with nitrogen, the feed air is diverted to the second bed. The sieve in the first bed regenerates by desorbing the nitrogen through depressurization and purging it with oxygen from the second bed. This process is repeated in the second bed to complete a cycle that allows the oxygen generator to deliver a constant flow of product oxygen of 90 to 95% purity. Under normal operating conditions, the molecular sieve is completely regenerative and will last indefinitely. The use of pure oxygen is preferred and recommended than the use of air because of the following reasons: i. The process involves two steps which liquid and gas must be brought into sufficient intimate contact to react chemically. The presence of 80% inert nitrogen complicates the problem of contacting to prompt reaction. ii. Ozone is more efficient being produced from ozonized oxygen than ozonized air. iii. Ozone generator and equipment for oxidation process would be larger and slower reaction if air is used instead of oxygen because greater gas volume. iv. v. The presence of nitrogen tends to cause discoloration of finished product. The gas tends to entrain some organic vapor. The use of air would increase volatilization losses. VSPA Oxygen generator is acquired from MVS Engineering, New Delhi, India the leading manufacturer of VPSA Oxygen Plants based on the reviews and benefits of VSPA Oxygen Generator of the company.

17 Table 1.3: Reviews of VSPA Oxygen Generator Technology Reviews

Well suited for larger capacities Lower consumption Lower output pressure power

Description
Lower power consumption in larger capacities (above 200 NM3/hr capacities). Power consumption is only 0.45 KW per cubic meter of Oxygen produced. Direct Oxygen production pressure is up to 1.3 Bar. For higher Oxygen pressure requirement, Oxygen

Higher Investment

compressor is added and supplied. More costly to build. More efficient operation, extra cost is easily recovered in short time

Source: MVS Engineering

Table 1.4: Benefits of VSPA Oxygen Generator Technology Benefits

reliable, well-proven technology

Description Has been used for several years and are operating successfully around the world. use molecular sieves from only well renowned and reputed suppliers Years of trouble free operation and long life from investment. These units can be turned ON and OFF ondemand with the push of a single button. Only require 15 minutes to start producing high purity Oxygen. allows easy transportation and easy installation of the system Engineer is present at site to oversee installation and also to assist with commissioning and training of personnel. Independence of oxygen supplier. Guarantee of the purity of oxygen. uses best quality molecular sieves

fast startup

modular design

continuous, uninterrupted supply and guaranteed purity high quality Source: MVS Engineering

18 Table 1.5: Operating Conditions of Oxygen Generator Specification Capacity Purity Pressure Dew Point 1.5.2 Range 200 Nm3/hr to 5000 Nm3/hr 90% to 95% Up to 1.3-Bar without oxygen booster compressor (-) 40C

Ozone Generation and Oleic Acid Ozone Absorption Process

Oxgen generates from VSPA Oxygen Generator then fed to ozone Generator to produce ozone. Ozone produced is then fed to the ozone absorber. OA is fed through the feed tank and then to the ozone absorber, in which the oleic acid is flowed counter currently to a continuous flow of oxygen gas that contain ozone. The ozonized oxygen gas is fed to the absorber which the oxygen circulates. For 1000 kg of OA, 9700 kg of ozonized oxygen are employed. The circulating oxygen is then fed to absorber, which its ozone content is absorbed by OA. Then, the oxygen gas, now substantially devoid of ozone, passes through the electrostatic precipator, in which organic matter that may have been picked up in the absorber is electrostatically precipitated. The purified oxygen gas is then passes through compression pump, to cooler and dehydrator, which all moisture is removed from the oxygen gas. Oxygen gas is drawn from the system through valve, to the ozonide decomposing system. The primary ozonide reaction in the ozone absorber is as follow: H3C(CH2)7CH=CH(CH2)7COOH + O3 CH3(CH2)7C-O-O-O-C(CH2)7COOH Oleic Acid + Ozone Oleic Acid Ozonide The oleic acid ozonides are then scisson to produce secondary ozonide. The secondary ozonide reaction in the ozone absorber is as follow: [H3C(CH2)7-C=O+-O- O=C-(CH2)7COOH] [H3C(CH2)7-C=O+-O- O=C-(CH2)7COOH] CH3(CH2)7C-O-O-O-C(CH2)7COOH

19 Table 1.6: Ratio of OA and ozonized oxygen in the ozone absorber OA Feed stream Ratio 1000 kg (basis) 1 Ozonized oxygen 9700 kg 9.710

Table 1.7: Operating Conditions of Ozone Absorber Specification Temperature Diluent Residence time 1.5.3 Range 20C - 40C Recycled Pelargonic Acid 10 minutes

Oleic Acid Ozonides Oxidation Process

The ozonide decomposing system comprises series reactors, which the OA ozonides are reacted with the oxygen gas. The total numbers of the series reactors are depending on the size of the reactors, the rate of the flow of ozonides and their decomposition products and the efficiency of the agitation in effecting contact between the oxygen gas and the liquid being treated. The ozonized OA is treated with oxygen gas for a period of approximately six hours. The ozonides are heated to temperature between 70 - 110C which the ozonides decompose. Both the scission of ozonides and the oxidation of aldehydes are exothermic reactions producing sufficient heat to maintain temperature of 95 C. As the ozonides and their decomposition products pass from one reactor to reactor, the rate of oxidation tends to fall thus it is desirable to supply heat to the last reactor to maintain temperature suitable for efficient oxidation. The desirable heating or cooling devices on the reactors depends on the number of reactor used, the rate of flow and the efficiency of the agitation. For each kilogram of ozonized OA treated, 0.1 kg of oxygen gas of substantially 98% purity is employed. The oxidation reaction of oleic acid ozonides to AA and PA is as follow: CH3(CH2)7C-O-O-O-C(CH2)7COOH + O2 HOOC-(CH2)7-COOH + CH3(CH2)7-COOH Oleic acid ozonides Azelaic Acid + Pelargonic Acid

20 Table 1.8: Operating condition of ozonide decomposing system System Number of reactors Series reactors Depends on size, ozonides and decomposition products flow rate, efficiency of agitators Reaction time Reaction temperature Ratio oxygen to Ozonized OA Yield of AA 6 hours Between 70-110C or maintain at 95 1:10 80%

1.5.4 Pelargonic Acid Distillation Process From the last reactor, the mixed oxidation products are passed through distillation column (DC) where PA is distilled. The operation is performed by maintaining DC temperature of 230C and a vacuum of 25 mm of mercury. PA is then condensed and removed from DC to PA storage tank. Some of the PA from the DC is recycled in the system to dilute the OA and OA ozonides. PA is recycled to the absorber to reduce the viscosity of the ozonides in the absorber. Valve is installed to control the amount of recycled PA. For 1000 kg of OA treated, 40% of this amount is PA recovery. The total PA recovery amount to 900 kg, that is 500 kg used for dilution of the OA and 400 kg of new PA freshly produced from the OA being processes. PA is used as viscosity reducer and diluents because because: i. PA is end product if the process, unnecessary to introduce new chemical as a diluent or viscosity reducer. ii. iii. Does not interfere with the operation of circulating oxygen system Requires no separate distillation

Table 1.9: Operating conditions of first DC Temperature pressure PA recovery (basis: 1000 pounds OA treated) Recycled PA to storage tank PA ratio 5:4 230C Vacuum of 25 mm mercury 40%

21

1.5.5 Azelaic Acid Distillation Process The mixed oxidation products now stripped of PA is carried to second DC in which other volatile acids are distilled from the non-volatile waste products. This operation is performed at a temperature of 270C with pressure of 3-4 mm of mercury. The volatile products are condensed and passed to a mixed acid storage tank. The non-volatile pitch which remains is removed. The mixed acids include AA and wide variety of undetermined identity, compromises 15 to 20% of the mixed oxidation products. Table 1.10: Operating conditions of second DC Temperature pressure 1.5.6 Azelaic Acid Extraction Process Then, AA and the waste acids are separated. From the mixed acid storage tank, the acids are fed through extractor where the AA is extracted with hot water at temperature of 95C. The water is then drawn off and evaporated leaving a residue of 52% AA based on 1000 kg OA. The water insoluble acids which remain after withdrawal of water containing 18% of AA base on 1000 kg of OA treated. Waste acids that do not dissolve in hot water are removed from the extractor. The hot water containing AA is fed through the evaporator, which the water is removed from the AA. Then, AA in molten condition is fed to the flaker, and to the AA storage tank. Table 1.11: Operating conditions of extractor Temperature of hot water Composition of AA 95C 52% AA residue, 18% AA remains from water insoluble acids 270C 3-4 mm mercury

22 CHAPTER 2

MARKET ANALYSIS

2.1

Introduction

In Malaysia. The palm oil processing industry has grown to become the most important agro-based industry in the country, characterized mainly by the palm oil refining and fractionation sectors producing a wide variety of semi and fully processed palm oil products. Utilization of palm oil and palm kernel oil in high value added products in oleochemicals has made good progress, although prospects for further rapid increases are very food especially with the continued support of the Malaysian government in terms of providing cross cultural and institutional support facilities and other incentives.

Although 90% of palm oil produced is used in the production of food, there is increasing potential for its use in another sector, mainly in oleochemicals which currently utilizes 2% of palm oil in production of oleochemicals. Presently, it is estimated that only 10% of the worlds oleochemicals are manufactured from palm oil and palm oil kernel. Progress in oleochemicals industry in Malaysia has been made at a steady pace. The Malaysian oleochemicals industry, being an export oriented industry, exported more than 95% of its total output.

23 2.2 Global Fats and Oil Production

Figure 2.1

Global Fats and Oils Production

Oleochemicals are generally chemical products derived from animal or vegetable triglycerides, even if they contain elements of petrochemical origin. The worldwide production of fats and oils are shown in Figure 1. Based on the Figure, the highest country that produces fat and oil such as azelaic acid is China with 17 million tones. This fat and oil is produced for several applications such as for the production of fatty acid based chemical and for food applications. Vegetable oil production is app 8 M tonnes, most of which is soy. Malaysia produces 15 million tonnes of oil and fats. Market demands for chemical uses have been normally tied to economic activity which is projected 2% annual growth. 2.3 World Consumption of Fats and Oils

China, Malaysia, the United States, the European Union, Indonesia, India, Brazil and Argentina are notable fats and oils producing countries, and China, the European Union and India are notable high-demand areas that must supplement regional production through imports. The following graph shows world consumption by country/region:

24

Figure 2.2

World Consumption of Fats and Oils (2004)

Source: http://www.sriconsulting.com/CEH/Public/Reports/220.5000/

Global fats and oils consumption will grow at an average annual rate of 4%, mainly as a result of growth in China and India. Growing economies, large populations and improving incomes will increase per capita demand for oils and fats in these countries. Also, demand for biofuels (mainly from rapeseed and palm oils) will increase demand in Europe. In the United States, fats and oils consumption will grow only slightly, at 1 2% per year. In the United States, product substitution will continue within the fats and oils industry. Soybean oil has shown and will continue to show growth. Tallow and grease will show only slight growth as a result of increased substitution with healthier vegetable oils. Tall oil will decrease slightly as a result of a decline in the pulp and paper industry. Corn oil is expected to increase as a result of increased ethanol production and more feed uses. Butter and lard consumption will also increase because of an expected increase in pork production. The United States remains the worlds largest producer and consumer (slightly ahead of China) of the worlds most voluminous oilsoybean oil. U.S. soybean oil now faces severe export competition from low-cost production in other countries, notably Argentina and Brazil and Western European countries, which have increased production of this commodity oil in recent years.

25 As a whole, EU countries are among the worlds largest consumers of fats and oils and must import over 32% of their annual demand. In 2004, EU consumption totaled almost 20 million metric tons, of which 72% was accounted for by Germany, Italy, Spain, the United Kingdom and France. The CIS and Eastern European countries must also augment domestic production with imports. Japan imports the majority of its vegetable oils either as raw materials (such as vegetable seeds) or as final products. However, most animal fats and marine oils are produced from domestic sources. Crude tall oil is no longer supplied from the domestic pulp industry and must be imported.

2.4

World Consumption of Fatty Acids

In recent years, the buildup of significant fatty acids production capacity has continued in Southeast Asia. Companies in these countries formed joint ventures with U.S., Western European and Japanese fatty acid producers, with production being exported to the parent companies in the United States, Western Europe and Japan. Recently, parent companies have shifted much of the production to these Southeast Asia sites, where overall production costs are often lower. There has been an increase in global fatty acid demand as a result of end-use consumption growth, as well as strong oleochemicals (fatty acids, fatty alcohol, glycerin, etc.) growth and competition, particularly in Asia. Whether used as such or in the form of various derivatives, fatty acids are ultimately consumed in a wide variety of end-use industries. The economic growth of many of these industries (e.g., rubber, plastics and detergents) is often a good indicator of the overall economic performance of a region. The following pie chart shows world consumption of natural fatty acids:

26

Figure 2.3 World Consumption of Fatty Acids Source: http://www.sriconsulting.com/CEH/Public/Reports/657.5000/

Among the trends in the industry are the following: Use of oil and fat feedstocks in place of petroleum-based feedstocks to produce biofuels, plastics, etc. will create competition for fatty acids production/supply, and affect pricing. However, this use will largely be dependent on crude oil prices and whether switching costs make sense. Tax credits/subsidies or environmental legislation can create can create competitive advantage for biofuels over fatty acids production in teerms of securing raw materials.

27 2.5 Demand of Azelaic Acid

Table 2.1 Country 2006 United States Europe Japan 800 900 1000 1 125 11700 2011 14625

Demand of Azelaic Acid Demand (tones/year) 2016 18281 2021 22852 2026 28564 2031 35706

1250 1406

1563 1758

1953 2197

2441 2747

40000

35000
Demand (tonnes/year) 30000 25000 20000 15000 10000 5000 0 2006 2011 2016 Year 2021 2026 2031 United States Europe Japan

Figure 2.4

Demand of Azelaic Acid

The need for increased azelaic acid capacity is due to growth in existing and new market segments such as packaging (paper, film & foil laminates), automotive (coatings, upholstered car seats, construction of sun visors), textiles (footwear, interlining for labels and emblems) and electronics (flexible printed circuit board, coil insulation). Azelaic acids have superior solubility in solvents and water than other commercially available even-chain carbon (C4 - C12) dicarboxylic acids, which is a highly desired property in the formulation of high solids or solvent free systems.

28 The current market volume for azelaic acid is 11,700 tonnes/year in the United States, 800 tonnes/year in Europe and 900 tonnes/year in Japan. This market is growing at a pace of 5 to 6% yearly (Vannozzi, 2006). The demand of azelaic acid for every five years can be seen in Figure 2.4.

2.6 2.6.1

Import and Export Prices for Raw Materials and Products Oleic Acid Table 2.2 Country 2009 World China South Korea Japan United States Singapore India Belgium France Germany Netherlands Sweden Switzerland United Kingdom Taiwan Thailand Australia Source: MATRADE, 2011 8.06 8.48 5.94 14.87 7.26 32.43 8.70 9.18 9.25 6.49 Average Prices for Malaysias Import of Oleic Acid Price (RM/kg) 2010 9.44 5.75 8.83 20.81 9.79 111.48 3.66 85.47 9.28 2011 13.23 6.45 9.41 10.88 31.82 11.37 58.63 22.41 3.18 7.80

29

120
China

100
80 Price/kg (RM) 60 40 20 0 2009 2010 Year 2011

Korea, South Japan United States Singapore India Belgium France Germany Netherlands Sweden Switzerland United Kingdom

Figure 2.5

Average Price for Malaysias Import of Oleic Acid

According to Figure 2.5, Malaysias import of oleic acid from Germany indicates the highest price with RM 32.43 per kg and followed by United States with RM 14.87 per kg. The lowest price of Malaysias import of oleic acid is from Japan with RM 5.94 per kg. The highest price of Malaysias import of oleic acid is from France in 2010 with average price of RM111.48 per kg and this is the highest average price among the three consecutive years. Sweden is the second highest in 2010 with average price of RM 85.47 per kg and the lowest average price for Malaysias import of oleic acid is from Netherlands with the average price of RM 3.66 per kg. In 2011, Malaysias import of oleic acid from India with RM 58.63 per kg and it is the highest average price for recent year. United States stated the second highest average price for Malaysias import of oleic acid which is RM 31.82 per kg. The cheapest average price is from Taiwan with RM 3.18 per kg. Malaysias import of oleic acid from China, Japan, United States and Singapore are consistent in the three consecutive years.

30

14 Average Price (RM/kg) 12 10 8 6 4 2 0 2009 2010 Year 2011

Figure 2.6

Average Price Trend for Malaysias Import of Oleic Acid

Figure 2.6 showed the average price trend for Malaysias import of oleic acid. The average price for Malaysias import of oleic acid increased with the year. This is due to the increase of other cost such as transportation, high demand of oleic acid and etc. Year 2009, the world average of Malaysias import of oleic acid is RM 8.06 per kg and encounters a slight increase in 2010 to RM 9.44 per kg. In 2011, the price showed rapid increase to RM 13.23 per kg.

31 Table 2.3 Average Prices of Malaysia Oleic acid Export

Country 2009 World Korea, South Brazil Pakistan Netherlands Japan United States Australia Germany Taiwan China Hong Kong India 7.42 3.61 5.68 3.61 12.79

Price (RM/kg) 2010 4.47 2.00 5.25 5.73 4.08 4.47 6.50 4.72 10.97 2.57 2011 3.22 16.73 8.65 6.84 5.58 5.32 5.02 4.98 4.19 3.43 3.22 -

Source: MATRADE,2011

Trending Price of Oleic Acid

5

Average Price (RM/kg)

4.5 4 3.5 3

2009

2010

2011

Year

32 Figure 2.7 Average price of Malaysia Oleic Acid Exports

14 12 Price (RM/kg) 10 8 6 4 2 0 2009 2010 Year 2011 Korea, South Brazil Pakistan Netherlands Japan United States Australia Germany Taiwan China

Figure 2.8

Malaysia Exports of Oleic Acid (pricing unit)

The above chart shows the value of Malaysian exports of OA to the external countries. Based on year 2009, obviously the exports of OA is quite low which the supply is made to only four countries noted Pakistan, Japan and China with price of OA per kg are 12.79, 7.42 and 5.68 respectively. For year 2010, the exports value increased as the supply market increased as well. From the pie chart, the highest demand is from Hong Kong with 10.97 (MYR) per kg of OA. Whereas on the recent years in 2011, the exports of OA maintained its supply market with slightly a change in supplied countries with the highest demand comes from South Korea with 16.73 (MYR) of OA per kg. Basically, the priced of supplied OA will depend on the current market also the demand from the respected country. Comparing the three recent pie chart of year 2009, 2010 and 2011, the exports of OA are increasing which shows the OA is currently needed in particular industry. As in ozonolysis process to produce AA, OA is the main raw material that will be react with ozone in order to obtain AA. Azelaic Acid (AA) is a chemical product that industrially used such in for food packaging, automotive and electronics.

33 Based on the price trending of Malaysia Oleic Acid exports data, from the constructed graph, obviously the price of OA is fluctuated. At year 2009, the average price of OA is 3.61 (MYR) per kg whereas at year 2010, the price increased to 4.47 (MYR) per kg. At the current year, 2011 the price is slightly decreased to 4.19 (MYR) from the previous year. We can also conclude from the graph that the export of OA is decreasing. Many factors might affect the trend such as the current stock market also the less demand of OA from the worldwide industry.

2.6.2

Oxygen Table 2.4 Country Average Prices of Malaysia Export of Oxygen Price (RM/m3) 2010 422.09 649.40 543.94 381.32 445.41 423.06

World Indonesia Brunei Darussalam Singapore Philippines Thailand Source : MATRADE,2011

2009 181.58 790.64 139.90 -

2011 541.56 1,062.79 653.02 322.30 -

Price Trending of Oxygen Exports

Average Price (RM/m3)
600 500 400 300 200 100 0

2009

2010

2011

Year
Figure 2.9 Average price of Malaysia Oxygen Exports

34 Based on the price trending of oxygen, over the past three years, the price of oxygen is currently increased. At year 2009, the price of exported O 2 is 181.58 (MYR) while at year 2010, the price is at 422.09 per m3 (MYR). On the recent year, 2011 shows the highest price which is at 541.56 (MYR) per m3 of O2. Obviously, the demand of O2 from Malaysia is increasing as well as the price goes up. The record showed that Malaysia supplied O2 to Indonesia with the highest price at 1062.79 (MYR) per m3 in 2011. It can be conclude that Malaysia has the high availability of supplied O 2 to its respected country.
1200 1000 Price (RM/m3) 800 Indonesia 600 400 200 0 2009 2010 Year 2011 Brunei Darussalam Singapore Philippines Thailand

Figure 2.10

Average Prices of Malaysia Export of Oxygen

Based on the chart above, the average price of Malaysias export of oxygen in 2009 only to two countries which are Brunei Darussalam and Singapore with Brunei has the highest average price which is RM 790.64 per m 3. In 2010, Indonesia recorded the highest average price with RM 649.40 per m3 and on that year, Malaysia export of oxygen to various countries compared to 2009 and 2011. The highest average price for Malaysias export of oxygen to Indonesia is the highest with RM 1,062.79 per m 3 and the lowest is Singapore with RM 322.30 per m3.

35

2.6.3

Azelaic Acid Average Prices for Malaysias Export of Azelaic Acid Average Price (RM/kg) 2009 2010 20.97 25.33 17.02 2011 8.22 5.52 12.30 -

Table 2.5 Country

World Greece South Korea India Indonesia Taiwan Source: MATRADE, 2011
30 25 Price (RM/kg) 20

10.44 23.89 25.14 3.95 23.37

Greece 15 10

Korea, South
India Indonesia

5
0 2009 2010 Year 2011

Taiwan

Figure 2.11

Average Prices for Malaysias Export of Azelaic Acid

Based on Figure 2.11 that showed the average prices for Malaysias export of azelaic acid, Malaysia only export azelaic acid to four countries and it decreases as the year increased. In 2009, the highest average price that Malaysia export is to India with the average price of RM 25.14 per kg and the lowest price is Indonesia with RM 3.95 per kg. The next year, Malaysia only exports azelaic acid to two countries which are India and Indonesia with the highest average price is India with the average price of RM

36 25.33 per kg. In 2011, Malaysias export of azelaic acid to Greece and South Korea with the highest average price of export is to South Korea with RM 12.30 per kg. Based on the analysis, the demand of azelaic acid for export is less.
25 20 Price (RM/kg) 15 10 5 0 2009 2010 Year 2011

Figure 2.12

Average Price Trend for Malaysias Export of azelaic Acid

As shown in Figure 2.12, the average price for Malaysias export of azelaic acid is unstable. In 2009, the average price indicated RM 10.44 per kg. The next year, it increases rapidly and almost doubled from the average price of the previous year. Then, it encounters a slight decrease in 2011 to RM 8.22 per kg.

2.7

Price of Raw Materials and Products

2.7.1

Price of Raw Materials Table 2.6 Typical Price of Oleic Acid Source http://www.icis.com Country England

Raw Material

Price (RM/kg) 3.38

Oleic acid

13.41 4.62

http://www.chemistrystore.com United States http://www.alibaba.com China

37 2.7.2 Price of Products

Table 2.7 Products

Typical Price of Azelaic Acid and Pelargonic Acid Source http://www.alibaba.com http://chemicalland21.com http://www.coleparmer.com http://chemicalland21.com http://www.made-in-china.com http://www.tcieurope.eu Country China Indonesia United States Korea China Europe

Price (RM/kg) 310.27

Azelaic acid

250.72 348.17 156.70

Pelargonic acid

14.73 205.89

2.8

Breakeven Analysis

Breakeven analysis is the most common tools used in evaluating economic feasibility of a new enterprise or product. The break-even point (BEP) is the point at which revenue is exactly equal to costs. At this point, no profit is made and no losses are incurred. BEP can be expressed in terms of unit sales or currency sales. BEP indicate the level of sales that are required to cover costs. Sales above that number result in profit and sales below that number result in a loss. Breakeven analysis is based on two types of costs, fixed costs (FC) and variable costs (VC). FC are overhead-type expenses that are constant and do not change as the level of output changes. VC are not constant and do change with the level of output. Therefore, VC is often stated on a per unit basis. The total of FC and VC is total cost (TC). When doing BEP, selling price, FC and VC are assumed fixed. Profit is the difference between selling price and TC. In reality, the selling price, FC or VC will not remain constant resulting in a change in the BEP. Thus, BEP must be calculated on a regular basis to reflect changes in costs and prices and in order to maintain profitability or make adjustments in the product line. There are three basics information needed to evaluate a BEP: i. ii. average per unit sales price average per unit VC

38 iii. average annual FC

The basic equation for determining BEP unit is: BEP =

The basic equation for determining breakeven sales: Breakeven sales =

1( )

Breakeven analysis is used in the evaluation of a new venture, in this case, the production of Azelaic Acid. Success takes time. Many new business venture operate at a loss, at a point below break-even) in the early stages of business. Knowing the price or volume necessary to breakeven is critical to evaluating the tie-frame in which losses are permissible. The breakeven is also an excellent benchmark by which a companys short-term goals can be measured or tracked. Breakeven analysis mandates that cost can be analyzed. It also keeps a focus on the connection between production and marketing. 2.8.1 Factor Affecting the Cost of Production

There are many factors that influenced the cost of producing chemicals. Table 2.8 showed the list of important cost involved and can be divided into three categories: Table 2.8 Factor 1. Fixed Costs 1.1 Depreciation Description Factors not affected by the level of production Costs related with the physical plant (buildings, equipment, etc.). Legal operating expenses for tax purposes. 1.2 Local taxes and insurances 1.3 Plant overhead costs Costs related with property and liability insurance. Based on plant location and severity of the process. Costs related with the operation of auxiliary facilities supporting the manufacturing process involving payroll and accounting services, fire protection and safety services, medical services, cafeteria and any recreations facilities, payroll overhead and employee benefits, general engineering, etc. The List of Important Cost

39

2. Variable Costs 2.1 Raw materials 2.2 Waste treatments 2.3 Utilities

Factors that vary with the rate of production Costs of chemical feed stocks required by the process. Costs of waste treatment. Cost of utilities required by process (water, electrical power, etc.).

2.4 Operating labor 2.5 Direct supervisory and clerical labor 2.6 Maintenance and repairs 2.7 Operating supplies

Costs of personnel required for plant operations Costs of labor and materials associated with the

maintenance. Costs of labor and materials associated with maintenance.

Costs of miscellaneous supplies that support daily operation excluded raw materials. (Chart paper, lubricants, filters, respirators and protective clothing for operators, etc.).

2.8 Laboratory charges

Costs of routine and special laboratory tests required for product quality control and troubleshooting.

2.9 Patents and royalties 3. General Expenses

Cost of using patented or licensed technology.

Costs related with an overhead burden that is necessary to carry out business functions.

3.1 administration costs 3.2 distribution and selling costs 3.3 research and development

Costs for administration.

Costs of sales and marketing required to sell products.

Costs of research activities related to the process and product.

The equation used to evaluate the total cost of manufacturing using these costs: Total cost of production (COP) = FC + VC + General Expenses (GE) The COP is determined when the following costs are known or can be estimated: i. Fixed capital investments (FCI): This represents the fixed capital investment to build the plant minus the cost of land and represent the depreciable capital investment.

40 ii. iii. iv. v. Cost of operating labor (COL) Cost of utilities (CUT) Cost of waste treatment (CWT) Cost of raw materials (CRW)

Table 2.9

showed the multiplication factors for estimating manufacturing cost: Table 2.9 Multiplication Factors for Estimating Production Cost Multiplying Factor

Cost Item 1. Variable Cost (VC) Raw materials Waste treatment Utilities Operating labor Direct supervisory and clerical labor maintenance and repairs operating supplies laboratory charges patent and royalties Total VC Fixed Cost (FC) Depreciation Local taxes and insurances plant overhead costs total FC 3. General Expenses administration costs distribution and selling costs research and development

CRW CWT CUT COL 0.18COL 0.06FCI 0.009FCI 0.15COL 0.03COM CRW + CWT + CUT + 1.33COL + 1..33COM + 0.069FCI 0.1FCI 0.032FCI 0.708COL + 0.036FCI 0.708COL + 0.068FCI + depreciation

0.177COL + 0.009FCI 0.11COM 0.05COM

41 2.8.2 Cost Estimation

2.8.2.1 Total Capital Investment Estimation of Purchased Equipment Cost, E Equipment 1 2 3 4 5 6 7 9 Storage tank Absorber Reactor Distillation Column Evaporator Heat Exchanger Electrostatic Precipator Oxygen Generator Quantity 5 1 3 3 1 8 1 1 1 1 Estimated Cost (RM) 351362 272899.5 528918.6 515789.4 287591.7 28446.57 1857064 5000000 2500000 150673 Total Estimated Cost (RM) 1756810 272899.5 1586756 1547368 287591.7 227572.5 1857064 5000000 2500000 150673 15186735 Total E = RM 15,186, 735 Estimation of Total Building Cost (B) Direct Plant Cost Installation Instrumentation Electrical Piping Building Expansion Service facilities Fraction 0.39E 0.28E 0.1E 0.31E 0.22E 0.1E 0.55E Total (RM) 5922826.462 4252285.665 1518673.452 4707887.701 3341081.594 1518673.452 8352703.985 29614132.31

10 Ozone Generator 11 Flaker

Total B = RM 29,614, 132

42 Estimation of Land Price (L) Land Price/Area = RM 14/ft2 (land price for Tanjung Langsat Industrial Complex)

Proposed Plant Size = 10 acre, 1 acre = 43560 ft2 Land Price = RM 14/ft2 10 acre 43560 ft2/acre = RM 6098400 Total Direct Plant Cost, D =E+B+L = RM 15,186, 735 + RM 29,614,132 + RM 6098400 = RM 50, 899, 267 Indirect Plant Cost, I Engineering and Supervision = 0.32E = 0.32(RM 15,186, 735) = RM 4, 859, 754 Construction Expenses Total I = 0.34E = 0.34(RM 15,186, 735) = RM 5, 163, 488 = RM 4, 859, 754 + RM 5, 163, 488 = RM 10, 023, 242

Total Direct and Indirect Cost, D+I = RM 50, 899, 267 + RM 10, 023, 242 = RM 60, 922, 509 Total Capital Investment D+I Contractors fees = 0.05(D+I) Contingency = 0.10(D+I) FCI = (D+I) (1 + 0.05 + 0.10) Working Capital Cost = 0.10(FCI) Total Capital Investment = RM 60, 922, 509 = RM 3, 046,125 = RM 6, 092, 251 = RM 70, 060, 885 = RM 7, 006, 089 = FCI + Working Capital Cost = RM 70, 060, 885 + RM 7, 006, 089

43 = RM 77, 066, 974 2.8.3 Estimation of Total Product Cost

2.8.3.1 Production Cost Production Cost = FC + VC + General Expenses Fixed Cost (10 20% total product cost) Cost Item Depreciation Local taxes and insurances plant overhead costs Let product cost be X COL = 15% of total product cost Total FC = Depreciation + Local taxes and insurances + plant overhead cost = RM 7, 006, 089 + RM 2, 241, 948 + 0.708(0.15X) + RM 2, 522, 192 = RM 11, 770, 229 + 0.1062X Variable Cost (60% total product cost) 1. VC Raw materials Waste treatment Utilities Operating labor Direct supervisory and clerical labor maintenance and repairs operating supplies laboratory charges patent and royalties CRW = 0.25X CWT = 0.10X CUT = 0.10X COL = 0.10X 0.18COL = 0.18(0.15X) 0.06FCI 0.009FCI 0.15COL = 0.15(0.15X) 0.03COM / 0.05X Estimated Cost 0.25X 0.10X 0.10X 0.10X 0.027X RM 4, 203, 653 RM 630, 548 0.025X 0.05X Multiplying Factor 0.1FCI 0.032FCI 0.708COL + 0.036FCI Estimated cost RM 7, 006, 089 RM 2, 241, 948 0.708COL + RM 2, 522, 192

44 Total VC = CRW + CWT + CUT + COL + direct supervisory and clerical labor + maintenance and repairs + operating supplies + laboratory charges + patent and royalties = 0.25X + 3(0.1X) +0.027X + RM 4, 203, 653 + RM 630, 548 + 0.025X + 0.05X = 0.662X + 4, 834, 201 General Expenses Cost Item administration costs distribution and selling costs research and development Multiplying Factor Estimated Cost

0.177COL + 0.009FCI / 0.5COL 0.5(0.10X) 0.11COM / 0.10X 0.05COM / 0.03X 0.10X 0.03X

GE

= administration costs + distribution and selling costs + research and

development = 0.5(0.10X) + 0.10X + 0.03X = 0.18X Total Production Cost (COP) = Total FC + Total VC + GE = RM 11, 770, 229 + 0.1062X + 0.662X + 4, 834, 201 + 0.18X = RM 16, 604, 430 + 0.9482X

45 2.8.4 COP Raw material cost, CRM Production Data Raw material Price (RM/kg) Price (RM/tonne) Usage demand (tonne/year) Cost (RM/year) Products Price (RM/kg) Price (RM/tonne) Production demand (tonne/year) Sales (RM/year) 2.8.4.1 First Method CRM RM 5, 070, 000 = 0.25X = 0.25X Oleic Acid 3.38 3380 1,500 5, 070, 000 Azelaic Acid 80 80,000 1,000 80, 000, 000 Breakeven Calculation = RM 16, 604, 430 + 0.9482X = 0.25X

X (total product cost) = RM 20, 280, 000 COP COP = RM 16, 604, 430 + 0.9482X, X = RM 20, 280, 000 = RM 35, 833, 926

Breakeven point is achieved when sales is equal to COP. The number of sales (N) to reach breakeven point: Product price N RM 80, 000(N) N = COP = RM 35, 833, 926 = 448 tonne

46 Therefore, the production volume must be higher than 448 tonne per year for the production of azelaic acid to gain profits. 2.8.4.1 Second Method Total product cost for 15000 tonne of raw material = RM 20, 280, 000 Cost of product (RM/tonne) = RM 20, 280, 000/1500 tonne = RM 13, 520/tonne (Variable Cost) Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC) TC = FC +VC(X), convert to straight line equation, Y = MX + C, where X is production quantity. Cost TC FC VC(X) Represent by Y C M(X) Value RM 35, 833, 926 RM 16, 604, 430 RM 13, 520 (X)

Total Cost Equation

Total Revenue Equation

Breakeven Equation

Point

Y = MX + C Y = 13520X + 16604430

Y = MX Y = 80, 000X

Cost = Sales 13520X + 16604430 = 80000X 66480X = 16604430 X = 250

The breakeven chart is represents by the graph in Figure 2.13:

47

90000000
80000000

The Breakeven Chart

Costs and Revenue (RM)

70000000 60000000 50000000

Total Cost (TC)

40000000 30000000 20000000 10000000

PROFIT

Total Revenue (TR)

SAFETY MARGIN
0 0 200 400 (output, 600 tonne) 800 1000 1200

Figure 2.13 From the breakeven chart, Breakeven point Actual Sales Margin of safety = 250 tonne = 1000 tonne

The Breakeven Chart

= 1000 tonne 250 tonne = 750 tonne

48

CHAPTER 3

SITE LOCATION

3.1

FACTORS FOR SITE LOCATION

In setting up a plant, the location is one of the main factors for consideration. The major requirements for an azelaic acid plant are oleic acid and oxygen. Azelaic acid plants must locate close to oleic acid plants to reduce the transportation expenses, thus optimizing azelaic aicd production. The optimum location would be in industrial area where there are markets for azelaic acid. Malaysia has designated area for industrial purposes, but not all has the necessities for setting up chemical plant. All information on this industrial area is obtained from Malaysia Industrial Development Authorities (MIDA). The factors for site selection are: 1. Location, with respect to marketing area 2. Raw materials availability and supplies 3. Transportation facilities 4. Availability of suitable land 5. Availability of labor 6. Availability of utilities (e.g. water, electricity) 7. Environmental impact and effluent disposal 8. Local community considerations. 9. Climate 10. Political strategies consideration 11. Taxation and legal restrictions

49 3.1.1 Location

Location of markets or distribution centers affects the cost of product distribution and time required for transporting. Close location to the major markets is an important factor in plant location, because it is advantageous for buyer to purchase from near-by sources. Azelaic acid is industrially used as component in a series of application such as polyamides, polyesters, pharmaceuticals, utilized for food packaging, in electronics, textiles, and automotive industries. Therefore, the azelaic acid plant should be located in close proximity to these industries. 3.1.2 Raw materials

The availability and supplies of raw material is one of the important aspects in the selection of a plant site. For the production process of azelaic acid, large volume of oleic acid and commercially pure oxygen are used, thus can reduce the transportation and storage charges. The price of the raw materials, distance from the suppliers, transportation expenses, availability and reliability of supply, purity of raw materials and storage requirement must be considered for raw materials. 3.1.3 Transportation facilities

The transportation factor is more important consideration in site selection. Transportation is used for raw materials, distribution of product, import and export purposes. Ideally, site should be selected close to at least two major form of transport (e.g. road, rail waterway or a seaport). Road transport is increasingly used because it is suitable for local distribution from plant or warehouse. For long distance transport of bulk chemicals, rail transport is cheaper. If possible, the plant site should be located to all three types of transportation. 3.1.4 Availability of suitable land

The characteristic of the land should be evaluated carefully for the proposed plant site. The topography of the tract of land structure must be considered because this affect the construction cost. The cost of the land, local building costs and living condition are important. Sufficient suitable land must be available and for future expansion. The land should be ideally flat, well drained and have suitable load-bearing characteristics. A full site evaluation should be conducted to determine the need for piling or other

50 foundations. In Malaysia, finding a suitable land is not a major issue because of availability of land in designated industrial area. 3.1.5 Availability of labors

Labors are needed for the construction and operation of the plant. Skilled construction workers are often brought in from outside the site area. Locally, there should be sufficient unskilled labor available and labor to operate the plant. When assessing the availability and suitability of the labor, local labor laws, trade union customs and restrictive practices must be taken into consideration. 3.1.6 Availability of utilities

Utilities are used for the services needed in the operation of production process. These services normally be supplied from central facility and includes water, fuel and electricity. Water is required for large industrial and general purpose. Water is used for cooling, washing, steam generation and as raw material in the production. Therefore, proposed plant must be located where there is availability of water supply. Power and steam is required in most industrial plant and fuel is required to supply these utilities. Power, fuel and steam are necessary to run various equipments like generators, motors, plant lightning and general usage, thus considered as major factor in choosing plant site. 3.1.7 Environmental Impact and effluent disposal

A plant must provide effective disposal of effluent without any public nuisance. As all industries process produce waste products, permissible tolerance levels for various effluents and requirement for waste treatment facilities should be taken into consideration. The disposal of toxic and harmful effluent will be covered by local regulations, and authorities must be consulted during initial site survey to determine the standards that must be met. 3.1.8 Local community considerations

The proposed plant must fit in with and acceptable to the local community. Full consideration must be given to the safe location of the plant so that it does not impose significant risk to the community.

51 3.1.9 Climate

Adverse climate at site will increase cost because at extreme low temperature, the plant requires additional insulation and special heating equipment. Excessive humidity and hot temperatures pose serious problem and must be considered for site selection. At location with high wind loads or earthquake, stronger structures are needed. Malaysia has tropical weather, and is experienced throughout the year. It is never too hot because of its proximity to water. Thus, adverse climate is not a major factor in determining plant location in Malaysia. 3.1.10 Political and strategic considerations Capital grants, tax concession and other inducements are often given by governments to direct new investment to preferred locations such as areas of high unemployment. The availability of such grants can be overriding consideration in site selection. 3.1.11 Taxation and legal restrictions State and local tax rates on property income, unemployment insurance and similar items vary from one location to another. Similarly, local regulations on zoning, building codes, nuisance aspect and other facilities can have a major influence on the final choice of the plant site. Based on study done in selecting specific site location, it can be simplified that consideration are based on two major factor which is primary and specific factor to contribute in finding process for site location.

Table 3.1: Contributing factors for operability and economic aspects Primary Factor Raw material availability for industry Reasonable land price Source of utilities Climate status Specific Factor Availability of low cost labor and services Effluents and waste disposal facilities Incentive Transportation facilities Local community consideration

52 3.2 PROPOSED SITE LOCATION

The production of acid azelaic is categorized as an oleochemical project. The plant must therefore be sited in a special zone provided by the government. We have chosen to build our plant in the industrial area near priority of raw materials, price of land, transportation, labor, utilities, political and strategic consideration. After conducting the feasibility and site survey, three (3) main locations have been short listed to be considered as strategic site location for the construction of an azelaic acid plant.

3.2.1

Tanjung Langsat Industrial Complex

Iskandar Malaysia is now enter Phase Two (2011-2015) development region or delivering phase of its strategic roadmap. Divided into three phases, Iskandar Regional Development Authority (IRDA) has planned with five flagship zones which Tanjung Langsat Industrial Complex located in Eastern Gate Development zone. There are total 40 oil refinery and oleochemical plants in Iskandar Malaysia where the majority are located between Pasir Gudang industrial Park and Tanjung Langsat Industrial Complex. The latter has a designated area for oleochemical known as Tanjung Langsat Palm Oil Industrial Cluster (POIC), which aims to spearhead palm oil downstream processing to complement and add further from existing refineries.

Figure 3.1: Plant location suggested in Tanjung Langsat Industrial Complex

53 3.2.2 Pulau Indah Industrial Park Pulau Indah Industrial Park (PIIP) is located just off the coast of Selangor. Pulau Indah is home to the biggest super port in the region, Westport. An integrated industrial park is complimented with residential and commercial developments. It covers a sprawling area of 5,324 acres (2,154 hectares). PIIP consists of Industrial Development, Commercial & Institutional Centers and Residential Development. Selangor is set to be major player in producer of specialty fats by involving the multinationals (MNC) in the oleochemical sector through associate or subsidiary companies such as Pacific Oleochemical Sdn Bhd, Cognis Oleochemicals Sdn Bhd (joint venture company between Cognis Oleochemicals of Germany and Golden Hope Plantations Berhad), FPG Oleochemicals Sdn Bhd (Proctor & Gambles joint venture with Felda) and Uniqema (Malaysia) Sdn Bhd. Other local major producers are PalmOleo Sdn Berhad, a subsidiary of Kuala Lumpur Kepong Berhad and Southern Acids (M) Berhad.

Figure 3.2: Plant location suggested in Pulau Indah Industrial Park

54

3.2.3

Bukit Minyak Industrial Park

Bukit Minyak Industrial Park is located at the strategic location which is 17 minutes to the urban center, Butterworth, 40 minutes to Penang International Airport and 20 minutes to the Penang Port. It is a comprehensively planned industrial park with hightech, heavy, general industry and SMI park and has a strong support by the state government, Penang Devolepment Centre (PDC) and InvestPenang. The largest and most integrated producer of oleochemicals in Malaysia is Palmco Holdings Berhad, a subsidiary of IOI Corporation Berhad makes Penang is 2 nd top states in oleochemical plant production activities in 2007 according to Malaysia Palm Oil Board (MPOB).

Figure 3.3: Plant location suggested in Bukit Minyak Industrial Park

Evaluation for each site location was made based on primary and specific factor that has been justified earlier, summary of justification can be seen from Table 2.2 until Table 2.6.

55 3.3 3.3.1 SITE SELECTION Characteristics of Proposed Plant Location

Table 3.2: Distance, raw materials supplier, area available, population, land prices and electricity supplier of proposed plant location

Factors

Tanjung Langsat Industrial Complex 48 km from Johor Bharu Pan-Century Oleochemicals Sdn Bhd

Bukit Minyak Industrial Park

Pulau Indah Industrial Park

Distance from town

19 km from Butterworth

53 km from Kuala Lumpur Palm-Oleo Sdn. Bhd Emery Oleochemicals

Raw material supplier

Pacific Oleochemicals Sdn Bhd Natural Oleochemicals Sdn Bhd IFFCO (Malaysia) Sdn Bhd

Acidchem International Sdn Bhd

Cognis (Malaysia) Sdn. Bhd Palm Oleo (Klang) Sdn Bhd Pofachem (M) Sdn Bhd KL-Kepong Oleomas Sdn Bhd

Area available Population Land Prices (RM/ft2) Electricity Supply

982.41 hec 850 000

647.53 hec 322 650

592.92 hec 460 000

RM12.00 RM16.00 Tenaga Nasional Berhad

RM 25.00 Tenaga Nasional Berhad

RM20.00 Tenaga Nasional Berhad

Source: Malaysia Industrial Development Authority (MIDA), December 2010

56 Table 3.3: Electrical tariff in proposed plant location (Peninsular Malaysia) Tariff in Peninsular Malaysia Unit Rates

Tariff D - Low Voltage Industrial Tariff For Overall Monthly Consumption Between 0-200 kWh/month For all kWh The minimum monthly charge is RM7.20 For Overall Monthly Consumption More Than 200 kWh/month For all kWh (From 1kWh onwards) The minimum monthly charge is RM7.20 Tariff E1 - Medium Voltage General Industrial Tariff For each kilowatt of maximum demand per month For all kWh The minimum monthly charge is RM600.00 Tariff E2 - Medium Voltage Peak/Off-Peak Industrial Tariff For each kilowatt of maximum demand per month during the peak period For all kWh during the peak period For all kWh during the off-peak period The minimum monthly charge is RM600.00 sen/kWh sen/kWh 30.4 18.7 RM/kW 31.7 RM/kW sen/kWh 25.3 28.8 sen/kWh 37.7 sen/kWh 34.5

Source: Malaysia Industrial Development Authority (MIDA), December 2010

57 Table 3.4: Water supply, water tariff and airport facilities of proposed plant location

Factors

Tanjung Langsat Industrial Complex

Bukit Minyak Industrial Park

Pulau Indah Industrial Park

Syarikat Air Johor Holdings Bhd (SAJ) Pihak Berkuasa Air Sdn Bhd

Water supply

Syarikat Bekalan Air Selangor (SYABAS)

Loji air Sungai Layang Loji Air Sungai Buluh

Industrial/Commercial Water tariff (Industrial) 0-20m - RM2.22 per m3 More than 20 m - RM2.96 per m
3

Industrial/Commercial 0-20m - RM0.52 per m

3 3

Industrial/Commercial
3

0-35m - RM2.07 per m3 More than 20 m RM2.28 per m3

21-40m3 RM0.70 per m3 41-200m RM0.90 per m

3

Minimum charge - RM 18.48

More than 200 m - RM1.00 per m

Minimum charge - RM 36.00

Minimum charge - RM 10.00 Kuala Lumpur International Airport

Senai Airport Airport Changi Airport, Singapore Penang International Airport

Source: Malaysia Industrial Development Authority (MIDA), December 2010

58 Table 3.5: Port facilities, road facilities, industry types and waste management on proposed plant location

Factors

Tanjung Langsat Industrial Complex

Bukit Minyak Industrial Park

Pulau Indah Industrial Park

Pasir Gudang Port Tanjung Pelepas Port Tanjung Langsat Port Penang Port Klang Port

Port Facilities

North-South Highway from Bukit Kayu Hitam to Singapore North-South Highway from Bukit Kayu Hitam to Singapore

Pulau Indah Expressway Shah Alam Expressway (KESAS) South Klang Valley Expressway

Road facilities

Types of Industry Waste management

Light/medium/heavy

Light/medium/heavy

Light/medium/heavy

Kualiti Alam Sdn Bhd Indah Water Consortium

Kualiti Alam Sdn Bhd Indah Water Consortium

Kualiti Alam Sdn Bhd Indah Water Consortium

Source: Malaysia Industrial Development Authority (MIDA), December 2010

59 Table 3.6: Incentives for proposed plant location

Factors

Tanjung Langsat Industrial Complex

Bukit Minyak Industrial Park

Pulau Indah Industrial Park

Incentives for exports Incentives for research development Incentives for training tariff protection Incentives Exemption for import on direct raw material Pioneer status and investment tax allowance and reinvestment allowance Incentives for high-tech industries

Infrastructure allowance Discount rate on tax Five-years exemptions on import duty Incentive for relocating 5% discount on monthly electricity bills 85% on tax exemption on gross profit Pioneer status and investment Pioneer status and investment tax allowance and reinvestment allowance Incentives for high-tech Incentives for high-tech industries industries tax allowance and reinvestment allowance manufacturing activities to promote areas Infrastructure Allowance assessment

Source: Malaysia Industrial Development Authority (MIDA), December 2010.

60 2.3.2 Selection of Plant Location based on Weighted Marks Table 3.7: Weighted marks and explanations on the plant site location factors Factor 7-10 marks Able to obtain large supply from thus saving on import cost. 4-6 marks Source of raw material from neighboring states or countries with the distance not acceding 80km. Land area below 60 hectares Price of land more than RM20.00 per m3. 0-3 marks Unable to obtain raw material within 80 km. Land area below 40 hectares. Price of land exceeding RM30 per m3. No incentive from the local organization of country development.

Raw material

Price and the area of the land Local government incentive

Land area exceeding 60 hectares Price of land below RM20.00 per m3.

Incentive from the local organization of country development. Incentive from special company. Complete and well maintain highways and roads. International airport facilities access to

Incentive from the local organization of country development.

Good federal roads and highways system. Limited railway system access. More distance from port. Airport facilities which only have domestic access.

Average road system. No highways or expressways system in close proximally. Far from ports or harbors Distant from airport more than 100km.

Transportation

the main location around the world. Location near to the international port with import and export activities Reliable railways line to remote areas not accessible by road.

61

Table 3.8: Weight matrix on site location Tanjung Langsat Industrial Complex 9 8 8 8 8 8 Bukit Minyak Industrial Park 7 4 7 9 6 9 Pulau Indah Industrial Park 9 6 7 7 7 6

Criteria Supply of raw material Price and area of land Local government incentives Transportation Workers supply Utilities, water and electricity Type of industrial and its location Total

9 58/70 83%

7 49/70 70%

9 51/70 72%

Source: Malaysia Industrial Development Authority (MIDA), December 2010 The selection on proposed plants site were narrowed down based on critical successes factor using Factor Rating Method (Weighted study). Tanjung Langsat Industrial Complex is the most suitable place to operate the suggested plant based on the highest score of 83% as compared to others.

62 3.4 Conclusion

Based on the matrix comparison made, Tanjung Langsat Industrial Complex has been chosen as the site for the AA plant. The location of Tanjung Langsat Industrial Complex is highly strategic compared to others where the reason is focused on the nature and the requirements of the plant: i. ii. Low land prices compared to others which is at RM12.00 to RM16.00 per ft2. This location is near to Tanjung Langsat Port, any trade that involve import and export product and if necessary raw material can be achieved with relative ease. iii. Constant supply utilities such as treated water, electricity and waste disposal: iv. v. vi. vii. Power supply by TNB and committed sub-station (PMU) to meet the increase in demand expected up to 2025. Water supply by Syarikat Air Johor Holding Bhd (SJH) with 6 treatment plant which supply 850 million liters of treated water per day. Waste management by Kualiti Alam Sdn Bhd and Indah Water Consortium.

Attractive incentive given by Malaysia Government and local government: Incentives for exports Incentives for research development Incentives for training tariff protection Exemption for import on direct raw material Pioneer status and investment tax allowance and reinvestment allowance Incentives for high-tech industries

Excellent transportation link by railway, road and international airport. Stable local government. Quality workforce from local higher institutions from Universiti Teknologi MARA (UiTM), Universiti Teknologi Malaysia (UTM) and Universiti Tun Hussein Onn Malaysia (UTHM). Tanjung Langsat Industrial Complex is located east of Pasir Gudang Industrial Park. The

complex comprises an area measuring 2709.94 acres and has been recognized as one of Malaysias Palm Oil Cluster (POIC) to support the development of palm oil refineries, oleochemical and palm oil related industries.

63

Figure 3.4: Tanjung Langsat Industrial Complex site map

Figure 3.5: Tanjung Langsat Industrial Complex plan layout