CHAPTER 2 MARKET NEEDS OF CUMENE

2.1 Introduction

This chapter will discuss regarding the market trends of the production of

cumene and their respective raw materials needed for the production of cumene.

This chapter is discussed to ensure that the company can gain benefit from the

production and receive the capital invested within 5 years of payback period.

In this chapter, there are 4 parts, namely the global market trend, Asia

market trend, market supply of raw material and the rate of production of

cumene. In the global market trend, the world demand and the production are

analysed and evaluated while on the Asia market trend, the demand and the

production of the cumene along the Asian region are determined using big

manufacturing companies as the basis. In the third part, which is the market

supply of the raw material, the amount of raw material produced and their

availability in their region is analysed. Lastly, the production rate is determined

to evaluate the suitable plant size to be built.

2.2 Global Market Trend

Cumene is widely used for the production of phenol and acetone, which

consumes about 98% of the cumene produced in the industry. Hence, cumene

market demand is very dependent on the market of phenol and acetone.

Globally, the cumene market was valued at $15,466.1 million in 2012 and

expected to reach up to $24,129.06 million in 2018 (Micromarket Monitor, 2017).

This is due to the growth in the market for epoxy resins and polycarbonates

demand that is the end product of phenol and acetone, which drives the

demand of cumene. Other than that, the use of cumene as a blending in the

gasoline pool slightly affects the demand of the cumene globally. It is used to

avoid benzene restrictions in gasoline as it has a high octane rating (HIS Markit,

2016).

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 The demands of cumene globally are dispersed to 3 main regions which

are in Europe, America and Asia. Among all the selected regions, Asia is the

largest region that requires the highest demand of cumene, taking 43% of the

world cumene demand. The second largest continent that has a high demand of

cumene is shared by North America and Western Europe, each demanding 22%

of the world cumene demand. Figure 2.1 shows the distribution of the market

demands of cumene globally.

Figure 2.1: The distribution of the global cumene market demand (HIS Markit,

2016)

In Europe, the leading cumene demand includes fast developing countries

such as Germany, Belgium, France, Italy, Spain, etc. Among all the developing

countries, Belgium leads the cumene consumerism with 28.9% of the total

cumene supplied to the European region valued at 3,786 kilotonnes in 2012. The

trends of cumene demand in Europe is also expected to increase at a rate of 4.1%

from 2013 up until 2018 (Micromarket Monitor, 2017). In the North America

region, the United States of America has the highest cumene consumption

taking up about 98.8% of the cumene demand in the region. The estimated

amount of cumene demand for the North America region reaches up to 3,364

kilotonnes.

2
 Most of the cumene produced in the world contributes to the production

of phenol and acetone. Figure 2.2, 2.3 and 2.4 show the phenol supply and

demand throughout the year according to the respective regions.

Figure 2.2: Phenol Supply and Demand in Europe (Pandia, 2013)

Figure 2.3: North America Phenol supply and Demand (Pandia, 2013)

Figure 2.4: North Asia Phenol supply and demand (Pandia, 2013)

The figure of phenol demand increases throughout the year up until 2016

and has been increasing in a stable pattern in Europe, North America and North

3
Asia. This is due to the advancement of technology that uses phenol as

bisphenol-A, phenolic resins, etc.

2.3 Asia Market Trend

Asia is the region where most of the cumene demand is from taking up

43% of the world cumene demand. The demand of cumene is especially rising in

the Asia-Pacific region as it accounts for 35% of the cumene demand globally,

where cumene is used for the production of plastics, composites, laminates, etc.

Along the Asian region, Taiwan is the highest consumer of cumene, consuming

25.4% from the total cumene demand in Asia followed by Japan, China and

South Korea. In essence, the demand is expected to keep increasing and one of

the fastest expected growing market demands is India (Grand View Research,

2017). The demands in Asia are increasing due to the trend of using heavy

feedstock including benzene instead of lighter naphtha. In China, the cumene

demand is increasing from the growing number of aromatic facilities, therefore

affecting the demands of cumene. Other than that, the applications of phenol

product, such as bisphenol-A in industries that produces water bottle, DVD and

CDs, sports equipment also increases the market needs of cumene as an

intermediate product to produce high-end quality products.

There are various companies that take the opportunity to increase their

cumene production rate and some new companies have started to establish a

new plant for the purpose of cumene production. SABIC is one of the main

companies that produces cumene and consumes it. It is one of the largest

cumene production plants in Saudi Arabia. Before the advancement of

technology, cumene is extracted from crude oil. However, with the advancement

of technology, cumene is now produced synthetically. The plant produces about

290,000 metric tonnes of cumene per year with 8000 hours of on-stream factor

leading to about 36 metric tonnes cumene produced per hour. It uses a zeolite-

based catalyst from EXXON MOBIL for the process. The raw materials needed

4
for their production is 190,904 metric tonnes of benzene and 102,728 metric

tonnes of propylene annually. This leads to around 12.841 metric tonnes of

benzene and 23.863 metric tonnes of propylene per hour (Haridasani, 2012).

In Malaysia, the uses of cumene vary, whether it is used for the

production of rubber, epoxy resins or even polycarbonate sheet. There are many

companies in Malaysia that utilise this product and produce them. Some

companies in Malaysia that manufacture polycarbonates are Everise Stellar (M)

Sdn Bhd, Golden Millenium, YS Polycarbonates, etc. The main usage of cumene

is to produce phenol, hence some of the phenol manufacturing company includes

MITSUI Chemicals and their plants in Selangor, Wilayah Persekutuan Kuala

Lumpur and Melaka.

2.4 Market Supply of Raw Materials

Benzene and propylene as the raw materials of cumene production have

affected the production rate globally and locally. In the United States of America,

benzene is mostly used up in order to manufacture cumene and products that

uses cumene as an intermediate, as shown in Figure 2.5 (DeWitt, 2017). From

Figure 2.5, 0.661 of cumene manufactured from benzene in United States is

transported and sold to other plant, while 0.928 tonnes of phenol is

manufactured where cumene is used as an intermediate for phenol production.

Figure 2.5: Usage of benzene to products (DeWitt, 2017)

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 In Malaysia, there are many benzene and propylene suppliers as both raw

materials can be widely found in petroleum. According to the Petrochemical

Industry in Malaysia report published by Federation of Malaysia Manufacturers

(2017), benzene and propylene are widely produced locally in West Malaysia.

Feedstock at competitive prices has made Malaysia a viable petrochemical hub

in the ASEAN region attracting more than $9 billion in investments from

leading petrochemical and chemical manufacturers.

As indicated from Table 1.3, Titan Petchem (M) Sdn Bhd manufactures both

of the vital raw materials of cumene, which are benzene and propylene. Benzene

and propylene plants of the company are located in Pasir Gudang, Johor.

Subsequently, the availability and prices of raw materials for feed streams

play a vital role in determining the plant location. For the most part, proximity

to chemical operations of raw materials is an added advantage to ease the

logistics cost.

2.5 Production Rate

According to a market research by ICIS in the year 1999, by 2000,

cumene capacity will stand at 10,000,000 tonnes per year. In conjunction, the

production capacity of cumene was averaged at 3,143,392 tonnes in 2011 and

3,138,857 tonnes in 2012 (Dietrich, 2013). Subsequently, it is expected that the

cumene supply will continue to rise up to 14,000,000 tonnes in 2020.

Researches by ICIS (1999) and Dietrich (2013) indicated that the global

demand of cumene at 8,607,235 tonnes in 2000 had exponentially amounted to

12,394,375 tonnes in 2011. The development of the demand is anticipated at a

compound annual growth rate (CAGR) of 4.2% to touch 17,988,934 tons by 2020

as shown in Table 2.2 and Figure 2.8. At a global level, production and demand

of cumene have been largely dominated by established countries. The global

share held by the Asia-Pacific region has increased the large capacity additions

6
in the form of aromatic plants in China, where the substantial market share has

already accounted for the relatively developed Japanese market (King, 2013).

Table 2.2: World Cumene Supply and Demand

Year 2000 2011 2012 2020

1 2 2 2
Supply (tonnes) 10,000,000 3,143,392 3,138,857 14,000,000
Demand (tonnes) 8,607,235
3
12,394,375
3
12,400,400
3
17,988,934
3

Balance (tonnes) -1,392,765 9,250,983 9,261,543 3,988,934

1 2 3
Note: ICIS, 1999 Dietrich, 2013 King, 2013

20,000,000

15,000,000

10,000,000
Production Capacity, Tonnes Supply
5,000,000 Demand
Balance
0

-5,000,000
Year

Figure 2.8: Global Cumene Demand

Additionally, cumene global demand is expected to rise to 17,988,934

tonnes in the year 2020, whereas the global production capacity of cumene is

predicted to be above 14 million tonnes per year (King, 2013). Based on Figure

2.8, the demand for cumene is higher than the supply in 2020. The balance of

cumene needed is about 3,988,934 tonnes per year. On the other hand, the raw

material supply available in Malaysia is 775,000 tonnes for benzene and 854,000

tonnes for propylene. Based on the market survey, there is no company that

produces cumene in Malaysia. Since the raw materials are available locally and

there is a demand of the cumene in Malaysia, it is advisable to build a small

plant to fulfill local demand. The amount of cumene produced should be able to

supply the needs of local demand to assist in reducing the taxes and logistics

fees made through importing from another country.

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 The production rate of cumene is determined based on the local market

demand and the investment cost available to build this plant. Since the

investment cost is RM 500,000,000 and the payback period is within the range of

5 years, the plant will decidedly be a moderately-small size.

Table 2.3 shows that the production rate of cumene of existing plant and

their respective capital cost. Based on the comparisons, most plant capacity are

300 thousand and above. Even though high plant capacity will increase the

profit and decrease the payback period of the company, but the capital cost

required per year will also increase (Refer Figure 2.9). Thus, the production

rate of cumene must below 100 thousand since the investment cost is only RM

500 million.

Table 2.3: Existing plant capacity and capital cost per year

Production rate of cumene, Tonnes Capital Cost per year Capital cost, RM per
per year year

800,000 1 265 million Euro 4 1,245,500,000

540,000 2 SGD 259,615,384.6 2 820,384,615.4

360,000 3 142,105,263.2 3 667,894,736.8

1
Cepsa, 2010 2
CCP, 2010 3
Cepsa, 2015 4
Cepsa, 2014

1,400,000,000
1,200,000,000
f(x) = 1335.57x + 154434580.03
1,000,000,000
800,000,000

Capital Cost 600,000,000

400,000,000
200,000,000
0
400,000 800,000
200,000 600,000 1,000,000

Plant Capacity

Figure 2.9: Graph of Plant Capacity versus Capital Cost

8
 The estimated capital cost needed for cumene plant is

RM 240,790,903.11(E qn 2.1) which is less than the investment cost, RM

500,000,000.

Estimated capital cost: (2.1)

0.6
S2
C2 =C1 ( )
S1
0.6
70,000
C2 =820 ,384,615.4 ( )
540,000

C2 =RM 240,790.903 .11

where C2 = Capital Cost

C1 = Capital Cost of Existing Plant

S2 = Production Rate

S1 = Production Rate of Existing Plant

Table 2.4 shows the prices of raw materials and product per tonne. The

prices for both benzene and propylene are $767.5 per tonne and $100 per tonne,

while the market price of cumene is $1,477 per tonne. In addition, byproduct

such as propane also can be sold to other industries and this will increase the

profit of the company.

Table 2.4: Tabulated prices of materials, products and by-product

Chemical Purity, % Price $/ tonne

Raw Benzene (Refined-535 Grade) 99.8-99.9 767.51
Materials Propylene (FCC Grade) 65-80 1002
Product Cumene (Polymer Grade) 99.97 14773
By-Product Propane - 268.74
Note: 1 Luyben, 2011 2
Alibaba, 2017 3
ICIS News, 2012 4
IndexMundi, 2017

Analysis is done based on varying production rates of cumene, the

percentages of raw material cost over the investment cost and the resulted

payback period, as shown in Table 2.5. The operating hours of this plant is

9
expected to be 8000 hours per year. The calculations are shown in Equation 2.1

to 2.9.

Table 2.5 shows the comparisons between different production rates of

cumene with different cost of raw materials per year, percentage of cost of raw

materials over capital cost and payback period. Based on Table 2.5, as the

production rate increases, the percentage of raw materials over the total capital

cost increases. This means more money is spent to buy the raw materials to

produce more cumene. As a result, the payback period becomes shorter.

However, production rate of 100,000 tonnes per year cannot be applied in this

case because cost of raw materials takes up more than 45% of the total capital

cost which is not ideal as the remaining capital cost is insufficient to cover the

rest of the manufacturing cost and general expenses. In the case of production

rate being 40,000 tonnes per year, although the cost of raw materials ideally

takes up less than 20% of the total capital cost, the payback period is almost 4

years and the low production rate might not be able to fulfil the local demand.

Thus, the production rate of 70,000 tonnes of cumene per year is selected

because the percentage of cost of raw materials over capital cost is 33.32% and

the payback period is 2.1 years, which is within the suitable allocated period.

Table 2.5: Comparisons between production rate, percentage of cost of

raw materials over capital cost and payback period
Production Percentage of
Production Cost of Raw Payback
Rate, Raw Materials
Rate, tonne per Materials, Period,
tonne per Cost over Total
year RM year(s)
hr Capital Cost, %
100,000 13 222,340,913 47.60 1.5
80,000 10 190,403,930 38.08 1.8
70,000 9 166,603,439 33.32 2.1
60,000 8 142,802,948 28.56 2.4
50,000 6 119,002,456 23.80 2.8
40,000 5 95,201,965 19.04 3.5
th
Note: The conversion rate of USD to MYR is taken at $1 to RM4.45 as of 15 March 2017.

To produce 70,000 tonnes per year (9 tonnes per hour) of cumene, the

amount of benzene and propylene are calculated as shown in Equation 2.3 to 2.4.

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Based on Equation 2.2, 9 tonnes of cumene will be produced every hour. Since

the ratio of benzene to propylene is 0.651:0.352 (CBI, 2014), there is 6 tonnes of

benzene needed per hour, which is shown in Equation 2.3, while the amount of

propylene needed is 3 tonnes per hour, as shown in Equation 2.4.

Amount of Cumene:

70,000 tonnes 1 yr tonnes (2.2)

=9
yr 8000 hr hr

Amount of Benzene:

70,000 tonnes 1 yr tonnes (2.3)

0.651 =6 =45,570tonnes / yr
yr 8000 hr hr

Amount of Propylene:

70,000 tonnes 1 yr tonnes (2.4)

0.352 =3 =24,640 tonnes/ yr
yr 8000 hr hr

Cost of benzene per year:

45,570 tonnes $ 767.50 RM 4.45 (2.5)

=RM 155,638,639 / yr
yr 1 tonne 1$

Cost of propylene per year:

24,640 tonnes $ 100 RM 4.45 (2.6)

=RM 10,964,800/ yr
yr 1 tonne 1$

Revenue of cumene per year:

70,000 tonnes $ 1477 RM 4.45 (2.7)

=RM 460,085,500/ yr
yr 1 tonne 1$

Gross Profit: (2.8)

Revenue of cumene per year - Cost of propylene per year - Cost of benzene per
year
RM 460,085,500 RM 10,964,800 RM 155,638,639

= yr yr yr

RM 293,482,061
= yr

Percentage of cost of raw materials with capital cost, %:

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 Cost of benzene+Cost of propylene RM 155,638,639+ RM 10,964,800(2.9)
100 = 100
Capital Cost RM 500,000,000

=
3 3.32

Depreciation:

Capital Cost C (2.10)

Depreciation rate per unit =
=
10 Production rate 10 V

RM 240,790,903.11
= 10 70,000

= RM 343.99 / tonne

Depreciation rate for the year = RM 343.99 / tonne 70,000 tonnes / yr

= RM 24,079,090.31/ yr
Net Gross Profit:

N P = G (1-) = Income taxes (25%) (2.11)

RM 293,482,061
= yr (1-0.25)

= RM 220,111,545.94/yr
Annual Cash Flow:

A = NP + Depreciation (2.12)
= RM 220,111,545.94/yr + RM 24,079,090.31/yr

= RM 244,190,636.25/yr
Payback Period:

Investment cost RM 500,000,000 (2.13)

= =2.05 years
Annual Cash Flow RM 2 44,190,636.25/ yr

The gross profit of cumene production is calculated as shown in equation

2.8. Equation 2.11 shows the calculation of net gross profit in which the tax rate

on company profit is 25% (Santander, 2017). On the other hand, equation 2.12

shows the formula of annual cash flow of the company. By referring to Equation

2.8, the profit of cumene per year is RM

293,482,061 . On the other hand, the

investment cost is RM500,000,000. Therefore, with reference to Equation 2.13,

the payback period is 2.05 years.

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2.7 Summary

For this section, the demand of the cumene has been proven to have a

high demand locally and globally. Based on the first part of this chapter, the

demand and trends are expected to grow throughout the year up until 2020.

From the second part of this chapter, the market trend in Asia is more

convincing as the global demands are mainly from the Asian region and still

expected to grow along with the advancement of technology. Besides, the raw

material available locally is more than enough for the production of cumene and

the plant can be established locally based on the available resources nearby.

Lastly, the production rate is suggested based on the demand of cumene and the

availability of raw products locally, which is 50,000 tonnes per year. Hence, the

payback period is calculated to be less than 4 years.

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