1

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

SIDDIQ FADZIL BIN HAMZAH 2008297852

MAHDIAH BINTI YUSMADI 2008297746

ZULIAANIDA BINTI ZOHARI 2009652496

WAN NADZIRAH BTE WAN BADRUL HISHAM 2008297848

AHMAD MAHYUDDIN BIN MOHD MOHTAR 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

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CONTENTS

TITLE PAGE

CHAPTER l PRODUCTION OF AZELAIC ACID

1.1 Introduction 4

1.2 process Background 6

1.2.1 Ozonolysis 6

1.2.2 Stoichiometric Reaction 7

1.2.3 Chemically Catalyzed reaction 8

1.2.4 Biocatalytic Transformation 10

1.3 Process Selection 11

1.3.1 Comparison of process 11

1.3.2 Selection of Process 12

1.4 Application / Usage of Azelaic Acid 14

1.5 Process Details 15

1.5.1 Oxygen Generation Process 15

1.5.2 Ozone Generation and Oleic Acid

Absorption Process 18

1.5.3 Oleic Acid Ozonides Oxidation Process 19

1.5.4 Pelargonic Acid Distillation process 20

1.5.5 Azelaic Acid distillation Process 21

CHAPTER ll MARKET ANALYSIS

2.1 Introduction 22

2.2 Global Fats and Oil Production 23

2.3 World Consumption of Fats and Oils 23

2.4 World Consumption of Fatty Acid 25

2.5 Demand of Azelaic Acid 27

2.6 Import and Export Prices of Raw Material

and Products 28

2.7 Prices of Raw Material and product 36

2.8 Breakeven Analysis 37

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CHAPTER lll SITE LOCATION

3.1 Introduction 48

3.2 Factors for Site Location 48

3.3 Proposed Site Location 52

3.4 Evaluation of Site Selection 55

3.5 Conclusion 62

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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) .

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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 C––C 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.

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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) 𝑂3 / 𝑂2 20−40 °𝐶

2) 𝑂2 70−100 °𝐶

CH3 – (CH2)7 – CH = CH – (CH2)7 – COOH

Oleic acid

CH3 – (CH2)7 – COOH + HOOC - (CH2)7 – COOH

Pelargonic Acid Azelaic Acid

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Oleic acid is cleaved by ozonolysis ( O3 concentration in the air: 1.0

vol%) at 20-40°C in pelargonic acid and water. The alkene residence

time is about 10 min. The ozonide is then cleaved with oxygen at 70-

110°C. 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. Diepoxy-

tetrahydroxystearic 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

product of chain degradation were often found beside other by-product

to a higher extent. Thus, yield of the desired products of AA and

PA are not competitive.

As for a newly research in Japan claimed an interesting approach with

regard to ‘green chemistry’ and a environmentally kindly alternative to

heavy metal oxidants. MO was cleaved in H2O2 /H2O under subcritical

conditions at 180-370°C and 1-25 Mpa. The obtained yield of AA is 31%.

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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.

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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,D-

three step route including metathesis/formation of a ketocarboxylic acid/cleavage to

AA)

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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.

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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 DISADVANTAGES

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

1. Huge energy demand

2. Toxicity of ozone

3. Safety risk

4. The obtained yield of AA was

often lower

2. STOICHIOMETRIC REACTION

1. Yield up to 60-87%

(using phase transfer catalyst)

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

3. CHEMICALLY CATALYZED REACTION

1. Strong oxidants were reported 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

4. BIOCATALYTIC TRANSFORMATION

1. Avoidance of PA formation

2. Oxidation of PA to AA

3. AA obtained directly via terminal

fermentation oxidation

1. Availability of PA

2. Hard to handle enzymes

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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 (%) Reported catalyst/catalyst

precursor

Method

Classification

OA Azone/O2 80 - Ozonolysis

MO Oxone 93 OsO4 Chemically

catalyzed

reactions

OA NaIO4 Quant. KMnO4 Chemically

catalyzed

reactions

Potassium oleate NaOCl Quant. RuO4 Chemically

catalyzed

reactions

MO NaIO4

(electrochemically

regenerated)

62 RuCl3 Chemically

catalyzed

reactions

OA H2O2 92 H3PW12O40/PTC a) Chemically

catalyzed

reactions

MO H2O2 97b) Alkylated polyethylene-

imine/

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

Chemically

catalyzed

reactions

OA H2O2 / O2 56 1) H2WO4 ;

2) 2) H2WO4 /

Co(acac)3/N-

hydroxyphthalimide

Chemically

catalyzed

reactions

OA O2c) 67 C. tropicalis Biocatalytic

transformation

a) Cetylpyridinium Chloride

b) Methyl 9-oxononanoate

c)Transformation to 9-octadenedioic acid

Sources: (Kockritz & Martin, 2010)

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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 H2O2

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.

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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 67-80⁰C and the melting temperature Tm = 255⁰C.

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.

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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 plant’s 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%.

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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. The presence of nitrogen tends to cause discoloration of finished product.

v. 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.

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Table 1.3: Reviews of VSPA Oxygen Generator Technology

Reviews Description

Well suited for larger

capacities

Lower power consumption in larger capacities (above 200

NM3/hr capacities).

Lower power

consumption

Power consumption is only 0.45 KW per cubic meter of

Oxygen produced.

Lower output pressure Direct Oxygen production pressure is up to 1.3 Bar.

For higher Oxygen pressure requirement, Oxygen

compressor is added and supplied.

Higher Investment 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 Description

reliable,

well-proven technology 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.

fast startup These units can be turned ON and OFF on-

demand with the push of a single button.

Only require 15 minutes to start producing high

purity Oxygen.

modular design 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.

continuous, uninterrupted

supply and guaranteed purity

Independence of oxygen supplier.

Guarantee of the purity of oxygen.

high quality uses best quality molecular sieves

Source: MVS Engineering

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Table 1.5: Operating Conditions of Oxygen Generator

Specification Range

Capacity 200 Nm3/hr to 5000 Nm3/hr

Purity 90% to 95%

Pressure Up to 1.3-Bar without oxygen booster compressor

Dew Point (-) 40°C

1.5.2 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

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Table 1.6: Ratio of OA and ozonized oxygen in the ozone absorber

OA Ozonized oxygen

Feed stream 1000 kg (basis) 9700 kg

Ratio 1 9.7≈10

Table 1.7: Operating Conditions of Ozone Absorber

Specification Range

Temperature 20°C - 40°C

Diluent Recycled Pelargonic Acid

Residence time 10 minutes

1.5.3 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 - 110°C 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

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Table 1.8: Operating condition of ozonide decomposing system

System Series reactors

Number of reactors Depends on size, ozonides and decomposition products flow

rate, efficiency of agitators

Reaction time 6 hours

Reaction temperature Between 70-110°C or maintain at 95°

Ratio oxygen to

Ozonized OA 1:10

Yield of AA 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 230°C 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. Does not interfere with the operation of circulating oxygen system

iii. Requires no separate distillation

Table 1.9: Operating conditions of first DC

Temperature 230°C

pressure Vacuum of 25 mm mercury

PA recovery (basis: 1000 pounds OA

treated)

40%

Recycled PA to storage tank PA ratio 5:4

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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 270°C 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 270°C

pressure 3-4 mm mercury

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 95°C. 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 95°C

Composition of AA 52% AA residue, 18% AA remains from

water insoluble acids

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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 world’s 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.

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2.2 Global Fats and Oil 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:

Figure 2.1 Global Fats and Oils Production

24

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 world’s largest producer and consumer (slightly

ahead of China) of the world’s most voluminous oil—soybean 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.

Figure 2.2 World Consumption of Fats and Oils (2004)

25

As a whole, EU countries are among the world’s 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

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.

Figure 2.3 World Consumption of Fatty Acids

27

2.5 Demand of Azelaic Acid

Table 2.1 Demand of Azelaic Acid

Country Demand (tones/year)

2006 2011 2016 2021 2026 2031

United

States

11700 14625 18281 22852 28564 35706

Europe 800 1000 1250 1563 1953 2441

Japan 900 1 125 1406 1758 2197 2747

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.

0

5000

10000

15000

20000

25000

30000

35000

40000

2006 2011 2016 2021 2026 2031

Dem

and

(to

nn

es/y

ear

)

Year

United States

Europe

Japan

Figure 2.4 Demand of Azelaic Acid

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 Import and Export Prices for Raw Materials and Products

2.6.1 Oleic Acid

Country Price (RM/kg)

2009 2010 2011

World 8.06 9.44 13.23

China 8.48 5.75 6.45

South Korea - - 9.41

Japan 5.94 8.83 10.88

United States 14.87 20.81 31.82

Singapore 7.26 9.79 11.37

India - - 58.63

Belgium - - 22.41

France - 111.48 -

Germany 32.43 - -

Netherlands - 3.66 -

Sweden 8.70 85.47 -

Switzerland 9.18 9.28 -

United Kingdom 9.25 - -

Taiwan - - 3.18

Thailand 6.49 - -

Australia - - 7.80

Source: MATRADE, 2011

Table 2.2 Average Prices for Malaysia’s Import of Oleic Acid

29

According to Figure 2.5, Malaysia’s 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 Malaysia’s import of oleic acid is from Japan with RM 5.94 per

kg.

The highest price of Malaysia’s 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 Malaysia’s import of oleic acid is from

Netherlands with the average price of RM 3.66 per kg.

In 2011, Malaysia’s 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 Malaysia’s import of oleic acid which is RM 31.82 per kg. The

cheapest average price is from Taiwan with RM 3.18 per kg. Malaysia’s import of oleic

acid from China, Japan, United States and Singapore are consistent in the three

consecutive years.

0

20

40

60

80

100

120

2009 2010 2011

Pri

ce/k

g (R

M)

Year

China

Korea, South

Japan

United States

Singapore

India

Belgium

France

Germany

Netherlands

Sweden

Switzerland

United Kingdom

Figure 2.5 Average Price for Malaysia’s Import of Oleic Acid

30

Figure 2.6 showed the average price trend for Malaysia’s import of oleic acid. The

average price for Malaysia’s 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 Malaysia’s 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.

0

2

4

6

8

10

12

14

2009 2010 2011

Ave

rage

Pri

ce (

RM

/kg)

Year

Figure 2.6 Average Price Trend for Malaysia’s Import of Oleic Acid

31

Source: MATRADE,2011

3

3.5

4

4.5

5

2009 2010 2011

Ave

rage

Pri

ce (

RM

/kg)

Year

Trending Price of Oleic Acid

Country Price (RM/kg)

2009 2010 2011

World 3.61 4.47 3.22

Korea, South - - 16.73

Brazil - - 8.65

Pakistan 12.79 2.00 6.84

Netherlands 5.25 5.58

Japan 7.42 5.73 5.32

United States - - 5.02

Australia - 4.08 4.98

Germany 3.61 4.47 4.19

Taiwan - 6.50 3.43

China 5.68 4.72 3.22

Hong Kong - 10.97 -

India - 2.57 -

Table 2.3 Average Prices of Malaysia Oleic acid Export

32

Figure 2.7 Average price of Malaysia Oleic Acid Exports

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.

0

2

4

6

8

10

12

14

2009 2010 2011

Pri

ce (

RM

/kg)

Year

Korea, South

Brazil

Pakistan

Netherlands

Japan

United States

Australia

Germany

Taiwan

China

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 Average Prices of Malaysia Export of Oxygen

Country Price (RM/m3)

2009 2010 2011

World 181.58 422.09 541.56

Indonesia - 649.40 1,062.79

Brunei Darussalam 790.64 543.94 653.02

Singapore 139.90 381.32 322.30

Philippines - 445.41 -

Thailand - 423.06 -

Source : MATRADE,2011

Figure 2.9 Average price of Malaysia Oxygen Exports

0

100

200

300

400

500

600

2009 2010 2011

Ave

rage

Pri

ce (

RM

/m3)

Year

Price Trending of 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 O2 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 O2 to its respected

country.

Figure 2.10 Average Prices of Malaysia Export of Oxygen

Based on the chart above, the average price of Malaysia’s 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 m3. 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

Malaysia’s export of oxygen to Indonesia is the highest with RM 1,062.79 per m3 and

the lowest is Singapore with RM 322.30 per m3.

0

200

400

600

800

1000

1200

2009 2010 2011

Pri

ce (

RM

/m3 )

Year

Indonesia

Brunei Darussalam

Singapore

Philippines

Thailand

35

2.6.3 Azelaic Acid

Country Average Price (RM/kg)

2009 2010 2011

World 10.44 20.97 8.22

Greece - - 5.52

South Korea 23.89 - 12.30

India 25.14 25.33 -

Indonesia 3.95 17.02 -

Taiwan 23.37 - -

Source: MATRADE, 2011

Based on Figure 2.11 that showed the average prices for Malaysia’s 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

0

5

10

15

20

25

30

2009 2010 2011

Pri

ce (

RM

/kg)

Year

Greece

Korea, South

India

Indonesia

Taiwan

Table 2.5 Average Prices for Malaysia’s Export of Azelaic Acid

Figure 2.11 Average Prices for Malaysia’s Export of Azelaic Acid

36

25.33 per kg. In 2011, Malaysia’s 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.

As shown in Figure 2.12, the average price for Malaysia’s 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

Raw Material Price (RM/kg) Source Country

Oleic acid

3.38 http://www.icis.com England

13.41 http://www.chemistrystore.com United States

4.62 http://www.alibaba.com China

0

5

10

15

20

25

2009 2010 2011

Pri

ce (

RM

/kg)

Year

Figure 2.12 Average Price Trend for Malaysia’s Export of azelaic Acid

Table 2.6 Typical Price of Oleic Acid

37

2.7.2 Price of Products

Products Price (RM/kg) Source Country

Azelaic acid

310.27 http://www.alibaba.com China

250.72 http://chemicalland21.com Indonesia

348.17 http://www.coleparmer.com United States

Pelargonic acid

156.70 http://chemicalland21.com Korea

14.73 http://www.made-in-china.com China

205.89 http://www.tcieurope.eu Europe

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. average per unit sales price

ii. average per unit VC

Table 2.7 Typical Price of Azelaic Acid and Pelargonic Acid

38

iii. average annual FC

The basic equation for determining BEP unit is:

BEP = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑛𝑛𝑢𝑎𝑙 𝐹𝐶

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑒𝑟 𝑈𝑛𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 𝑃𝑟𝑖𝑐𝑒 −𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑒𝑟 𝑈𝑛𝑖 𝑡 𝑉𝐶

The basic equation for determining breakeven sales:

Breakeven sales = 𝐴𝑛𝑛𝑢𝑎𝑙 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡

1−(𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑒𝑟 𝑈𝑛𝑖𝑡 𝑉𝐶 ÷ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑒𝑟 𝑈𝑛𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 𝑃𝑟𝑖𝑐𝑒 )

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 company’s

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 The List of Important Cost

Factor Description

1. Fixed Costs Factors not affected by the level of production

1.1 Depreciation Costs related with the physical plant (buildings, equipment,

etc.). Legal operating expenses for tax purposes.

1.2 Local taxes and

insurances

Costs related with property and liability insurance. Based on

plant location and severity of the process.

1.3 Plant overhead

costs

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.

39

2. Variable Costs Factors that vary with the rate of production

2.1 Raw materials Costs of chemical feed stocks required by the process.

2.2 Waste treatments Costs of waste treatment.

2.3 Utilities Cost of utilities required by process (water, electrical power,

etc.).

2.4 Operating labor Costs of personnel required for plant operations

2.5 Direct supervisory

and clerical labor

Costs of labor and materials associated with the

maintenance.

2.6 Maintenance and

repairs

Costs of labor and materials associated with maintenance.

2.7 Operating supplies 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

Cost of using patented or licensed technology.

3. General Expenses Costs related with an overhead burden that is necessary

to carry out business functions.

3.1 administration

costs

Costs for administration.

3.2 distribution and

selling costs

Costs of sales and marketing required to sell products.

3.3 research and

development

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. Cost of operating labor (COL)

iii. Cost of utilities (CUT)

iv. Cost of waste treatment (CWT)

v. 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

Cost Item Multiplying Factor

1. Variable Cost (VC)

Raw materials CRW

Waste treatment CWT

Utilities CUT

Operating labor COL

Direct supervisory and clerical labor 0.18COL

maintenance and repairs 0.06FCI

operating supplies 0.009FCI

laboratory charges 0.15COL

patent and royalties 0.03COM

Total VC CRW + CWT + CUT + 1.33COL + 1..33COM + 0.069FCI

Fixed Cost (FC)

Depreciation 0.1FCI

Local taxes and insurances 0.032FCI

plant overhead costs 0.708COL + 0.036FCI

total FC 0.708COL + 0.068FCI + depreciation

3. General Expenses

administration costs 0.177COL + 0.009FCI

distribution and selling costs 0.11COM

research and development 0.05COM

41

2.8.2 Cost Estimation

2.8.2.1 Total Capital Investment

Estimation of Purchased Equipment Cost, E

Equipment Quantity Estimated Cost (RM)

Total Estimated Cost (RM)

1 Storage tank 5 351362 1756810

2 Absorber 1 272899.5 272899.5

3 Reactor 3 528918.6 1586756

4 Distillation Column 3 515789.4 1547368

5 Evaporator 1 287591.7 287591.7

6 Heat Exchanger 8 28446.57 227572.5

7 Electrostatic Precipator 1 1857064 1857064

9 Oxygen Generator 1 5000000 5000000

10 Ozone Generator 1 2500000 2500000

11 Flaker 1 150673 150673

15186735

Total E = RM 15,186, 735

Estimation of Total Building Cost (B)

Direct Plant Cost Fraction Total (RM)

Installation 0.39E 5922826.462

Instrumentation 0.28E 4252285.665

Electrical 0.1E 1518673.452

Piping 0.31E 4707887.701

Building 0.22E 3341081.594

Expansion 0.1E 1518673.452

Service facilities 0.55E 8352703.985

29614132.31

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 = 0.34E = 0.34(RM 15,186, 735) = RM 5, 163, 488

Total I = 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 = RM 60, 922, 509

Contractors fee’s = 0.05(D+I) = RM 3, 046,125

Contingency = 0.10(D+I) = RM 6, 092, 251

FCI = (D+I) (1 + 0.05 + 0.10) = RM 70, 060, 885

Working Capital Cost = 0.10(FCI) = RM 7, 006, 089

Total Capital Investment = 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 Multiplying Factor Estimated cost

Depreciation 0.1FCI RM 7, 006, 089

Local taxes and insurances 0.032FCI RM 2, 241, 948

plant overhead costs 0.708COL + 0.036FCI 0.708COL + RM 2, 522, 192

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 Estimated Cost

Raw materials CRW = 0.25X 0.25X

Waste treatment CWT = 0.10X 0.10X

Utilities CUT = 0.10X 0.10X

Operating labor COL = 0.10X 0.10X

Direct supervisory and clerical labor

0.18COL = 0.18(0.15X) 0.027X

maintenance and repairs 0.06FCI RM 4, 203, 653

operating supplies 0.009FCI RM 630, 548

laboratory charges 0.15COL = 0.15(0.15X) 0.025X

patent and royalties 0.03COM / 0.05X 0.05X

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 Multiplying Factor Estimated Cost

administration costs 0.177COL + 0.009FCI / 0.5COL 0.5(0.10X)

distribution and selling costs

0.11COM / 0.10X 0.10X

research and development

0.05COM / 0.03X 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 Breakeven Calculation

COP = RM 16, 604, 430 + 0.9482X

Raw material cost, CRM = 0.25X

Production Data

Raw material Oleic Acid

Price (RM/kg) 3.38

Price (RM/tonne) 3380

Usage demand (tonne/year) ≈ 1,500

Cost (RM/year) 5, 070, 000

Products Azelaic Acid

Price (RM/kg) 80

Price (RM/tonne) 80,000

Production demand (tonne/year) ≈ 1,000

Sales (RM/year) 80, 000, 000

2.8.4.1 First Method

CRM = 0.25X

RM 5, 070, 000 = 0.25X

X (total product cost) = RM 20, 280, 000

COP = RM 16, 604, 430 + 0.9482X, X = RM 20, 280, 000

COP = 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 = COP

RM 80, 000(N) = RM 35, 833, 926

N = 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 Represent by Value

TC Y RM 35, 833, 926

FC C RM 16, 604, 430

VC(X) M(X) RM 13, 520 (X)

Total Cost Equation Total Revenue Equation Breakeven Point

Equation

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

Figure 2.13 The Breakeven Chart

From the breakeven chart,

Breakeven point = 250 tonne

Actual Sales = 1000 tonne

Margin of safety = 1000 tonne – 250 tonne = 750 tonne

0

10000000

20000000

30000000

40000000

50000000

60000000

70000000

80000000

90000000

0 200 400 600 800 1000 1200

Co

sts

an

d R

eve

nu

e (

RM

)

(output, tonne)

The Breakeven Chart

Total Cost (TC)

Total Revenue (TR)PROFIT

SAFETY MARGIN

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 Specific Factor

Raw material availability for industry Availability of low cost labor and services

Reasonable land price Effluents and waste disposal facilities

Source of utilities Incentive

Climate status 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 & Gamble’s joint venture

with Felda) and Uniqema (Malaysia) Sdn Bhd. Other local major producers are Palm-

Oleo 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 high-

tech, 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 2nd 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 SITE SELECTION

3.3.1 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 Bukit Minyak Industrial Park Pulau Indah Industrial Park

Distance from town 48 km from Johor Bharu 19 km from Butterworth 53 km from Kuala Lumpur

Raw material

supplier

Pan-Century Oleochemicals Sdn

Bhd

Pacific Oleochemicals Sdn Bhd

Natural Oleochemicals Sdn Bhd

IFFCO (Malaysia) Sdn Bhd

Acidchem International Sdn Bhd

Palm-Oleo Sdn. Bhd

Emery Oleochemicals

Cognis (Malaysia) Sdn. Bhd

Palm Oleo (Klang) Sdn Bhd

Pofachem (M) Sdn Bhd

KL-Kepong Oleomas Sdn Bhd

Area available 982.41 hec 647.53 hec 592.92 hec

Population 850 000 322 650 460 000

Land Prices

(RM/ft2) RM12.00 – RM16.00 RM 25.00 RM20.00

Electricity Supply Tenaga Nasional Berhad Tenaga Nasional Berhad 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

sen/kWh

34.5

For Overall Monthly Consumption More Than 200 kWh/month

For all kWh (From 1kWh onwards)

The minimum monthly charge is RM7.20

sen/kWh

37.7

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

RM/kW

sen/kWh

25.3

28.8

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

RM/kW

sen/kWh

sen/kWh

31.7

30.4

18.7

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

Water supply

Syarikat Air Johor Holdings

Bhd (SAJ)

Loji air Sungai Layang

Loji Air Sungai Buluh

Pihak Berkuasa Air Sdn Bhd Syarikat Bekalan Air Selangor

(SYABAS)

Water tariff

(Industrial)

Industrial/Commercial

0-20m³ - RM2.22 per m3

More than 20 m³ - RM2.96

per m3

Minimum charge - RM

18.48

Industrial/Commercial

0-20m³ - RM0.52 per m3

21-40m3 – RM0.70 per m3

41-200m3 – RM0.90 per m3

More than 200 m³ - RM1.00

per m3

Minimum charge - RM 10.00

Industrial/Commercial

0-35m³ - RM2.07 per m3

More than 20 m³ -

RM2.28 per m3

Minimum charge - RM

36.00

Airport

Senai Airport

Changi Airport, Singapore

Penang International Airport Kuala Lumpur 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

Port Facilities

Pasir Gudang Port

Tanjung Pelepas Port

Tanjung Langsat Port

Penang Port Klang Port

Road 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

Types of Industry Light/medium/heavy Light/medium/heavy Light/medium/heavy

Waste management

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

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

Infrastructure allowance

Five-years exemptions on

import duty

5% discount on monthly

electricity bills

85% on tax exemption on gross

profit

Pioneer status and investment

tax allowance and reinvestment

allowance

Incentives for high-tech

industries

Discount rate on tax

assessment

Incentive for relocating

manufacturing activities to

promote areas

Infrastructure Allowance

Pioneer status and investment

tax allowance and reinvestment

allowance

Incentives for high-tech

industries

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 4-6 marks 0-3 marks

Raw material Able to obtain large supply from thus

saving on import cost.

Source of raw material from neighboring

states or countries with the distance not

acceding 80km.

Unable to obtain raw

material within 80 km.

Price and the

area of the

land

Land area exceeding 60 hectares

Price of land below RM20.00 per m3.

Land area below 60 hectares

Price of land more than RM20.00 per

m3.

Land area below 40

hectares.

Price of land exceeding

RM30 per m3.

Local

government

incentive

Incentive from the local organization of

country development.

Incentive from special company.

Incentive from the local organization of

country development.

No incentive from the local

organization of country

development.

Transportation

Complete and well maintain highways

and roads.

International airport facilities access to

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.

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.

61

Table 3.8: Weight matrix on site location

Criteria Tanjung Langsat

Industrial Complex

Bukit Minyak

Industrial Park

Pulau Indah

Industrial Park

Supply of raw material 9 7 9

Price and area of land 8 4 6

Local government

incentives 8 7 7

Transportation 8 9 7

Workers supply 8 6 7

Utilities, water and

electricity 8 9 6

Type of industrial and its

location 9 7 9

Total 58/70 49/70 51/70

83% 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. Low land prices compared to others which is at RM12.00 to RM16.00 per ft2.

ii. 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:

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.

iv. 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

v. Excellent transportation link by railway, road and international airport.

vi. Stable local government.

vii. 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

Malaysia’s 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