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Production Cost Analysis of Soda Ash manufacturing Industry.

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.

Mathematically:

Production cash cost = Net Feedstock cost + Variable Cost + Fixed Cost.

Net Feedstock Cost ($/ton product):

Raw material cost ($/ton RM) - Co-Product Credit ($/ton product)

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)

 

Variable Cost:

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:

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 click here

                                                                                      

                                           
                                                                              

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                                                                   - Shravan Muthukrishnan