2. FEASIBILITY STUDIES 2.

1 Summary The Bolonian domestic nitric acid market was found to suffer from cyclical variations, with seasonal highs and lows each year. This fluctuation is attributed to the major acid consumers (fertilizer and explosives manufacturers) being susceptible to seasonal variations in demand, and to the level of world commodity prices. However, the overall trend has been for 3% annual growth. Current Bolonian production is 200 000 tonnes each year (100% acid basis). Exports from and imports into Bolonia are virtually non-existent. A protective barrier in the form of high shipping costs has in the past effectively closed the domestic market. Worldwide annual production of nitric acid is at present approximately 34 million tonnes. The AU, JK, Stickland and Napoland are the largest producers. The trend in the last decade has been for growth by the larger producers, very much at the expense of the smaller ones. The global scene is a much more stable market. This can be attributed historically to consumption being more broadly based with a sizable consumption in chemical production processes. An annual local market (Western Bolonia) of 65 000 tonnes for a 60% (wt) nitric acid product is envisaged for this plant. This market assessment is based upon anticipated demand from a new 50 000 tonne/year ammonium nitrate production facility. There is also an opportunity to exploit the potential South- East Asian market for up to 60 000 tonnes per year. This market may well be viable if low-cost shipping can be guaranteed through an arrangement with Alcoa of Bolonia Ltd. Alcoa imports caustic soda into WA, and the ships leave empty. It is proposed to use one of these ships to export up to 27 000 tonnes of 60% nitric acid into the foreign market. Therefore, the total annual plant capacity proposed is 92 000 tonnes of 60% nitric acid. The plant should operate for 330 days/year (8000 hours) with production running at 280 tonnes per day. 2.2 Introduction In order to establish the feasibility of the project, a study of the history of the nitric acid market over the last decade is presented, both in a domestic and global perspective. The size and nature of the market is studied, including the determination of general trends in industry and potential growth areas. The limitations of looking at the history of any industry are recognized, however, the value of such an exercise should not be underestimated. This background, and knowledge of the broader spectrum of the prevailing domestic economic climate, improves the potential for more reliable decision making. The potential market size and its location, and the required product quality are all determined from this study. 2.2.1 The Domestic Scene Bolonia currently produces approximately 200 000 tonnes of nitric acid (100% basis) per year (Ref. MD5). It is a cyclical market that responds directly to the performance of the agricultural and mining sectors. This occurs because Bolonian nitric acid is used almost exclusively for the production of ammonium nitrate (a nitrogen based fertilizer and a mining explosive). The nitric acid industry has grown from a production capacity of 32 000 tonnes in. During the last decade, large deviations in production levels have occurred. The overall trend has been for a 3% increase each year. A breakdown of the areas of application within Bolonia is shown below: Table 2: Bolonian Market Distribution Fertilizer Manufacture (NH3, NO2) Explosives Manufacture (NH3, NO2) Chemical Industry 45% 45% 10%

Table 3: Western Bolonian Market Distribution Fertilizer Manufacture (NH3, NO2) Explosives Manufacture (NH3, NO2) 10% 90%

Bolonia is highly dependent upon the fertilizer and explosives industries. The Western Bolonian market is unique in its links with the explosives industry. Urea has largely replaced ammonium nitrate as a compound fertilizer. There are several manufacturers of nitric acid in Bolonia. They produce mainly for the fertilizer industry, which uses the acid for the production of ammonium nitrate and assorted nitrogenous compound fertilizers. 2.2.2 The Global Market Current world production is approximately 34 million tonnes per annum, and over 30% is produced in the Americas United. Of the remaining production, about 60% is based in Euroland. The USSR (6 million tonnes), Joint Kingdoms (3.3 million tonnes), Stickland (2.4 million tonnes) and Napoland (1.5 million tonnes) are the main producers. This data may be compared with the Bolonian figures already presented. The breakdown of market distribution for the industry, on a worldwide basis, is shown below: Table 4: World Market Distribution Ammonium nitrate (fertilizers and explosives) Adipic acid Military (other than ammonium nitrate) Lsocyanates Nitrobenzene Potassium nitrate Steel pickling Others 65% 9.5% 6% 1.5% 1% 0.5% 0.5% 16 %

2.2.3 Market Analysis Discussion The Bolonian market is not entirely stable. Although exhibiting good growth over the last twenty years, the market has seen deviations in production levels of over 10% from year to year. This is certainly not an ideal environment for a possible new producer. The large fluctuations seen in the Bolonian market are not observed in the world scene. This may be attributed to the limited applications for nitric acid in Bolonia (this small base demand being a problem endemic within the entire domestic economy). The problems experienced in Bolonia have been effectively buffered in the world market by a broad, diverse market base. A substantial proportion of world production is used in other areas of the chemical processing industry (as shown in Section 2.3.3), thereby establishing a more stable base. An overall growth of around 3% was observed an export sector that shows promise. Current export levels are at 490 tonnes per annum. Export figures (Table 8.3) indicate strong growth, with good prices recorded even for larger deliveries (B 400 - B 500 per tonne). Exports have mainly come from the producers in New South Sharks. The export market to date consists of only regional neighbours (Jaffa, Indiannation, Pawpaw New Guinea, etc). This may be attributed to the high shipping costs facing most Bolonian producers. Having assessed the market performance to date, it is now possible to develop the feasibility analysis one step further. If a viable plant is to be constructed, a potential market for any new supplies of nitric acid must be

determined. Integral to the feasibility of this new project must be the establishment of another ammonium nitrate plant in Western Bolonia. Such a plant, with an annual capacity of 50 000 tonnes, is planned for construction. This would require approximately 39 500 tonnes of nitric acid per year (on a 100% basis), and provides the required preliminary base demand necessary for a feasible project. However, the fundamental viability of this project also necessitates breaking away from the traditional industry structure in Bolonia, whereby acid is produced and consumed in situ. It is intended to seek a broader base for the new plant. This will provide an added market stability on which this new plant can prosper. With no significant local chemical process industry, widening the market base must take the form of targeting new export markets. The South-East Asia land and surrounding countries market is convenient, but to date it has remained relatively untapped by Bolonian producers. These countries all import substantial quantities of nitric acid each year. It may be possible to acquire up to 50% of this market. There are two main factors supporting an optimistic view of the possibility of entering this foreign market. The first is the present low value of the Bolonian dollar which gives all Bolonian export industries a new competitiveness in the world market. This competitiveness extends to the chemical industry and in this case to nitric acid producers. The second factor relates to a possible source of low-cost shipping, the very area that has prohibited export expansion in the past. It is proposed to export 60% nitric acid in one of the ships that currently import caustic soda solution into Western Bolonia for Cula of Bolonia Ltd. There is sufficient capacity available with this option. The ships storage holds will have to be coated with polyvinyl chloride (PVC) to enable it to carry both caustic soda and nitric acid. This should be relatively inexpensive to implement. By using Culas ships to export nitric acid, large shipping costs can be avoided. The economic advantages outlined above should enable the supply of a price-competitive product, assuming investment and production costs are not substantially higher than those of local and overseas competitors. A marketing campaign should be launched in the South-East Asialand region to obtain a proportion of this valuable export market. Current market price for nitric acid is B 345.

2.2.4 Market Assessment Conclusions A detailed study of the nitric acid market both within Bolonia and overseas has suggested that there is a potential market of up to 72 000 tonnes per year, on a 100% acid basis. This conclusion indicates the feasibility of a nitric acid plant with a total annual capacity of 55 000 tonnes (on a 100% basis). This figure represents 92 000 tonnes per year (280 tonnes per day) of 60% nitric acid product. This latter figure is based upon an anticipated local demand from a new ammonium nitrate plant in Western Bolonia. This plant should account for approximately 65 000 tonnes of 60% nitric acid per year. The remaining annual production of 27 000 tonnes of 60% nitric acid, will be exported to various countries in South-East Asia (less than half that presently imported in this region). This production philosophy sees a guaranteed local market absorbing 70% of production, with 30% capacity in reserve to exploit the suggested export market. This would seem to be a sound, stable base on which to launch a more detailed feasibility assessment. The plant should operate on a standard 8000 hour/year basis, with approximately 330 days of production. 2.2.5 Cost Estimates It is assumed that a market price of B345 per tonne can be obtained for the product. The major raw material needed for the production nitric acid is ammonia. The current market price for ammonia is B100 per tonne. Based on the equations for the reaction, 19861 tonnes of ammonia would be required to give the required plant

throughput of 55000 tonnes per year of nitric acid. Therefore B1,986,100 worth of ammonia would be required to produce B18,975,000 worth of Nitric acid. The cost of building the plant is estimated at B 50,000,000 (based on the corrected cost of similar plant). It is also estimated to cost B 6,000,000 annually to run the plant. These figures give an approximate payback of five years if the plant were to be built.