28.

PROFILE ON PRODUCTION OF CARBON

BLACK
 28-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 28-3

II. PRODUCT DESCRIPTION & APPLICATION 28-3

III. MARKET STUDY AND PLANT CAPACITY 28-4

A. MARKET STUDY 28-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 28-6

IV. MATERIALS AND INPUTS 28-7

A. RAW & AUXILIARY MATERIALS 28-7
B. UTILITIES 28-8

V. TECHNOLOGY & ENGINEERING 28-9

A. TECHNOLOGY 28-9
B. ENGINEERING 28-9

VI. MANPOWER & TRAINING REQUIREMENT 28-11

A. MANPOWER REQUIREMENT 28-11
B. TRAINING REQUIREMENT 28-12

VII. FINANCIAL ANLYSIS 28-12

A. TOTAL INITIAL INVESTMENT COST 28-12
B. PRODUCTION COST 28-13
C. FINANCIAL EVALUATION 28-14
D. ECONOMIC BENEFITS 28-15
 28-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of carbon black
with a capacity of 1,000 tonnes per annum.

The present demand for the proposed product is estimated at 1,564 tonnes per annum. The
demand is expected to reach at 2,800 tonnes by the year 2017.

The plant will create employment opportunities for 57 persons.

The total investment requirement is estimated at Birr 6.81 million, out of which Birr 2.36
million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 20.18 % and a net
present value (NPV) of Birr 3.10 million, discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

The term ''Carbon Black'' is used for a group of well defined, industrially manufactured
products which are produced under carefully controlled conditions. Carbon blacks are
essentially elemental carbon with extremely small particles. They are differentiated from bulk
commercial carbons such as cokes and charcoals by the fact that carbon blacks are composed of
spherical particles.

All carbon blacks are produced either by partial combustion or thermal decomposition of liquid
or gaseous hydro carbons, and are classified as lamp black, channel black, furnace combustion
black, and thermal black. Lampblack are made by the burning of petroleum or coal tar residues,
channel blacks by impingement of under ventilated natural gas flames, and furnace combustion
blacks by partial combustion of either natural gas or liquid hydrocarbons. Thermal blacks are
produced by thermal decomposition of natural gas. Acetylene black, which is classified as a
thermal black is produced by the exothermic decomposition of acetylene.

More than 90% of the carbon black produced is used by the rubber industry as reinforcing filler
in mechanical rubber goods. Furnace blacks are predominantly used in rubber processing. Most
 28-4

of the remainder carbon black is used for the manufacture of printing inks, colouring plastics,
fibbers, lacquers, coatings and paper. Besides these main uses, small amounts of carbon blacks
are used by the electrical industry to manufacture dry cells, electrodes, and carbon brushes.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Carbon black has wide application in the manufacture of various products. Despite its wide
application, the country requirement of the product is entirely met through imports. The
quantity of carbon black imported during the period 1997 - 2006 shown in Table 3.1.

Table 3.1
IMPORT OF CARBON BLACK (TONNES)

Year Quantity
1997 1,024.2
1998 1,894.6
1998 1,197.1
2000 2,220.8
2001 1,277.2
2002 1,233.0
2003 1,643.2
2004 703.7
2005 1,778.4
2006 1,349.0

Source:- Ethiopian Customs Authority.

As can be seen from Table 3.1, the quantity supplied through import fluctuates from year to
year but on the average 1,432 tonnes of carbon black has been supplied to the domestic
market annually during the period 1997 - 2006. The maximum level of import is 2,221 tonnes
 28-5

in year 2000 and the minimum 703.7 tonnes in year 2004. In the remaining eight years the
imported quantity ranged from about 1,024.2 tonnes to 1894.6 tonnes.

The demand for carbon blacks is influenced among other things by the growth of rubber and
plastic industries, production of printing ink, carbon paper, type writer ribbons, paint
pigments and the like. Assuming supply was driven by demand, the import data is
considered as a proxy in estimating the current effective demand. Accordingly, by taking the
recent two years average import, current effective demand is estimated at 1,564 tonnes.

2. Projected Demand

The demand for carbon black is mainly influenced by the growth of the user industries and
their respective production. Taking this into consideration, annual average growth rate of 6%
which is almost equal to the growth of the manufacturing sector, is applied to forecast the
future demand. The forecasted demand up to the year 2017 is provided in Table 3.2.

Table 3.2
PROJECTED DEMAND FOR CARBON BLACK

Year Quantity (TONNES)

2007 1564
2008 1658
2009 1757
2010 1863
2011 1974
2012 2093
2013 2218
2014 2352
2015 2493
2016 2642
2017 2800

3. Pricing and Distribution

 28-6

Taking the recent two years average price of import, a factory gate price of Birr 12,510 per
tonne is recommended. The product can be sold directly to the end users, mainly to the
chemical industries such as rubber, plastic, paint and the like.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

The main end users of carbon black are rubber and rubber related industries. The level of
development of these industries has a significant impact on the profitability of the manufacture
of carbon black for profitability is highly tied up to the quantity of product. The reason behind
this is that the manufacture of carbon black is energy intensive. Nevertheless, Far East countries
have experienced capacities as low as 1 tonne per day. This indicates the possibility of erecting
a small plant against the European minimum economy of scale.

Import data shows increase from 1,024.2 tonnes to 1348 tonnes per annum over the past ten
years. The demand projection shows a demand of 1,564 tonnes/annum for the year 2007 and
1863 tonnes for the year 2010. Hence, a plant with a capacity of 1000 tonnes per year can be
safely operated giving due regard to the fast development of rubber industries. The plant will
operate single shift of 8 hours per day for 300 days in a year.

2. Production Programme

The production programme is worked out by deducting Sundays and public holidays and
assuming that maintenance works will be carried out during off-production hours. The
production programme is provided in Table 3.3.

Table 3.3
PRODUCTION PROGRAMME

Year 1 2 3 4
 28-7

Capacity Utilization (%) 65 75 85 100

Production (tonne) 650 750 850 1000

IV. MATERIALS AND INPUTS

A. RAW AND AUXILIARY MATERIALS

The only raw material needed is crackers residue cycle oil (aromatic residue) whose annual
requirement is given in Table 4.1.

Table 4.1
ANNUAL REQUIREMENT OF RAW MATERIAL AND COST (TONNES)

Annual Cost ('000 Birr)

Raw Material Consumption
Oil 1540 9,155
Total 9,155

The only auxiliary material is packing material whose consumption requirement is indicated in
Table 4.2. Carbon could be packed with sacks lined with polyethylene bag.
 28-8

Table 4.2
ANNUAL CONSUMPTION OF AUXILIARY MATERIAL AND COST

Annual Cost '000

Description Cons. Birr

Packing material 20,000 80

(50kg)
TOTAL 110

B. UTILITIES

The required utilities for this project are electricity, water and fuel oil. Details are shown in
Table 4.3.

Table 4.3
ANNUAL UTILITIES CONSUMPTION AND COST

Sr. Description Annual Cost '000

No. Unit Consumption . Birr
1 Electricity kWh 279,916 133.10
2 Water m3 2,165 11.91
3 Fuel oil tonne 168 908.88
1,053.89
 28-9

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The feed stock oil is injected into a high temperature high energy density zone of the oil furnace
plant as an atomized spray. The high temperature zone is created by burning light fuel such as
natural gas or oil in the absence of sufficient oxygen. The air which is deficient with respect to
the fuel oil (energy source) is not sufficient for complete combustion of the feed stock which
therefore is pyrolyzed to form carbon black at a temperature of 12000c to 19000c. After the
reaction the carbon black mixture is quenched with water and further cooled in heat exchangers.
The carbon black is separated from the tail gas. Then this product goes to a pulverizer to reduce
its size pneumatically. The ground carbon black, after being separated from the gas with
cyclone will be led to a pelletizer. Wet pellets from the pelletizer goes to drier and then to
storage tanks.

2. Source of Technology

The following company can be contacted for the supply of machinery and equipment
Asia chemical engineering Co., Ltd,
9 Qingchian Road,
Hangzhou, China.
Tel: +86-571-87228882
Fax: +86-571-87242887
WWW. Yatai.cn.

B. ENGINEERING

1. Machinery and Equipment

The cost of the required machinery and equipment are presented in Table 5.1

Table 5.1
 28-10

COST OF MACHINERY AND EQUIPMENT REQUIRED

Sr. Cost ('000 Birr)

No Particulars
Local Foreign Total
1 Reactor with pre-heater
and cooler
2 Drier
3 Gas solid separators
4 Pulverizer
5 Pelletizer
6 Materials handling
equipments
7 Storage
982.6 982.6
Freight & Insurance 196.52 196.52
C&F 196.52 982.6 1,179.12
8 Vehicles

-2 pick ups 272.0 - 272.0

-1 tanker truck 700.0 700.0
Sub-Total 1,168.52 982.6 2,151.12
Contingency 10% 116.9 98.3 215.2
Grand Total 1,285.42 1,080.9 2,366.32

2. Building and Civil Works

 28-11

The total land requirement is about 1500m2. Of this land area, 491m2 is a built up area for the
plant while office, canteen and other facilities require a built up area of 150m2. The construction
cost is estimated to be around Birr 1,602,500 while the land will cost Birr 150 per annum.

3. Proposed Location

The envisaged plant shall be located in Bita Genet town, Bitta Woreda, Sheka zone.

VI. MAN POWER AND TRAINING REQUIREMENTS

A. MANPOWER REQUIREMENT

The total manpower requirement for this plant will be 57 persons. Details of manpower and
salaries are presented in Table 6.1.
Table 6.1
MANPOWER REQUIREMENT AND LABOUR COST

Sr. Manpower Req. Monthly Salary Annual Salary

No No. (Birr) (Birr)
1 General Manager 1 2,000 24,000
2 Production Manager 1 1,400 16,800
3 Finance Manager 1 1,600 19,200
4 Technical Manager 1 1,400 16,800
5 Accountants 2 1,200 14,400
6 Sales/Purchase 1 500 6,000
7 Store keeper 1 500 6,000
8 Secretary 1 700 8,400
9 Clerk 2 700 8,400
10 Skilled operators 14 5,600 67,200
11 Maintenance crew 8 3,200 38,400
12 Foreman 4 2,400 28,800
13 Semi skilled operators 10 3,000 36,000
14 Unskilled workers 10 1,500 18,000
Total 57 25,700 308,400

B. TRAINING REQUIREMENT
 28-12

Training should be given abroad for three members, namely; production manager, technical
manager and one foreman. The cost of training for one month is assumed to be about Birr
90,000. The direct labour force shall take a two week on-the-job training.

VII. FINANCIAL ANALYSIS

The financial analysis of the carbon black project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30days
Raw material, import 90days
Work in progress 5 days
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 6.81
million, of which 29 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

Table 7.1
INITIAL INVESTMENT COST
 28-13

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 9.0
2 Building and Civil Work 1,602.5
3 Plant Machinery and Equipment 2,366.3
4 Office Furniture and Equipment 125.0
5 Vehicle 450.0
6 Pre-production Expenditure* 488.3
7 Working Capital 1,768.3
Total Investment cost 6,809.4
Foreign Share 29

* N.B Pre-production expenditure includes interest during construction ( Birr 338.34 thousand ) training
(Birr 90 thousand ) and Birr 60 thousand costs of registration, licensing and formation of the company
including legal fees, commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 11.51 million (see
Table 7.2). The material and utility cost accounts for 89.63 per cent, while repair and
maintenance take 1.03 per cent of the production cost.
 28-14

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 9,265.00 80.47
Utilities 1053.89 9.15
Maintenance and repair 118.32 1.03
Labour direct 153 1.33
Factory overheads 51 0.44
Administration Costs 153 1.33
Total Operating Costs 10,794.21 93.75
Depreciation 449.26 3.90
Cost of Finance 269.92 2.34
Total Production Cost 11,513.39 100

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in the
first year of operation. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total investment)
show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full
capacity ( year 3) is estimated by using income statement projection.

BE = Fixed Cost = 40 %
Sales – Variable Cost
 28-15

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back period.
The project’s initial investment will be fully recovered within 5 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 20.18 % and the net
present value at 8.5% discount rate is Birr 3.10 million.

D. ECONOMIC BENEFITS

The project can create employment for 57 persons. In addition to supply of the domestic
needs, the project will generate Birr 2.55 million in terms of tax revenue. The establishment
of such factory will have a foreign exchange saving effect to the country by substituting the
current imports.