Production Cost Analysis of Soda Ash
Commodity chemical prices are strongly influenced by
production costs, the production costs actually sets a floor for prices. The
movement in production costs are often a basis for negotiation of prices. Production
costs are often used in transfer formulas internally and externally. Production
cost is key element in ???Cost + Margin = Price??? methodology. Prices are not the topic of this blog.
What does a Production Cash Cost model comprise of?
Production cost of the plant can be calculated by adding the
Net Feedstock Cost, Variable Cost and Fixed Cost. Whereas the Net feedstock
cost is raw material cost per ton of raw material minus the co-product credit
per ton product. Now the Raw material cost can be calculated, by multiplying
the Raw material price with amount of Raw material divided by the amount of
product. This will end up in raw material cost per ton of product. The
Co-product credit can be calculated by multiplying the Co-product price with
amount of Co-product divide by amount of product.
Production cash cost = Net Feedstock cost + Variable Cost +
Net Feedstock Cost ($/ton product):
Raw material cost ($/ton RM) - Co-Product Credit ($/ton
Raw material cost ($/ton product) = RM price ($/ton RM) *
(Ton RM/Ton product)
Co-Product Credit ($/ton product) = Co-Product Price ($/Ton
Co-Product)* (Ton Co-Product/Ton)
It includes the cost of all utilities those are fuel,
electricity, steam boiler feed and cooling water, Nitrogen etc.
The variable cost can be calculated by adding consumption
cost and cost of consumables in the form of catalyst and non-feedstock
chemicals and also bagging cost of the product Soda ash.
Fixed cost per ton of product can be calculated by adding
cost of labour, maintenance, insurance and taxes and overhead expenses.
Where the maintenance/Insurance and taxes/overheads are
usually estimated as a percentage of capital.
To know more about estimating cost for setting up the plant
- Shravan Muthukrishnan