Conference

and Exhibition on waste heat recovery for the cement and allied industries
14-15 June 2012, London, UK

2nd Global CemPower: 6-7 June 2013, London, UK

www.CemPower.com

Chinese or European? Capital and operating cost implications for new cement plant projects
Mark Mu'er Managing Director JAMCEM Consul7ng

Disclaimer

No ulterior mo7ve trying to present a balanced case

Based on personal experience plus experiences of those who have built, commissioned and operated cement plants. Both types of supplier are receiving signicant orders Chinese supplied plants now have a history Aim is to assist cement manufacturers in their decision making process

Chinese or European?.....

History of cement plant supply Iden7ca7on of other costs with Chinese supplied plants Comparison of total capital costs for projects Calcula7on of NPV and IRR for various scenario Conclusions

History of supply

Tradi7onal cement suppliers have generally been European

Technical developments 1920s - Lepol grate preheater Polysius 1930s - Cyclone preheater patented by FLS 1950s - Cyclone preheaters installed by KHD 1990s - Cooler xed inlet developed by IKN

History of supply

Li'le known of Chinese cement industry un7l 1990s Major players invest in Chinese market Chinese equipment suppliers enter the global market in 2000s Achieved signicant market share in short 7me Mix and match of European and Chinese supply

Review of Chinese plants

Wide range of views Posi7ves: Highly sa7sed Chinese suppliers highly willing and obliging Plants tended to reach their guaranteed performance levels Nega7ves: Poor installa7on Weak documenta7on Delayed start-up Failure of key equipment Why such dierences in views?

Other Costs
Sa7sed customers appear to have iden7ed weaknesses in Chinese supply Areas that need to be addressed to increase the chances of successful project Technical Review Contract deni7on Project management Equipment inspec7ons Documenta7on and training

Other costs
Technical review
To ensure that - equipment specica7ons are correct - full raw material inves7ga7ons are complete - materials handling design in adequate - equipment design meets local standards Cost: $0.5 million

Other costs
Contract deni7on
To ensure that: - the terms and condi7ons of the contact are legally dened - realis7c 7me-scale and milestones are put in place - penal7es for breach of contract are put in place Cost: $2 million

Other costs
Project management
To ensure that: - the Client has a team to monitor and supervise the installa7on of the plant - quality of installa7on is correct - no short-cuts are taken for example in Health and Safety, load tes7ng etc. - project milestones are met - risks are iden7ed and managed Cost: $6 million

Other costs
Equipment inspec7ons
To ensure that: - equipment is manufactured to specica7on - correct equipment is shipped to site - QA systems are adequate - manufacturers s7ck to their QA systems Cost: $1 million

Other costs
Documenta7on and training
To ensure that: - the Client receives a full set of working documents for the plant - the plant personnel are adequately trained in the opera7on and maintenance of the plant Cost: $0.5 million

Other costs
Item Technical review Contract definition
Cost $0.5 million $2 million $6 million $1 million $0.5 million $10 million

Project management Equipment inspections Documentation and training Total

There are no miracles, the big players (cement equipment suppliers) are managing the risks and as a customer we are paying a premium for those risks. This is where the savings are, if you're not ready to manage those risks, it is be'er to deal with the big players

Capital cost comparison

Parameter Clinker capacity Design runtime Clinker factor Cement capacity Value 3000 tpd 90% 0.85 1,160,000 tonnes

Cost per tonne European Chinese Chinese plus others $150 $112.5

Total cost $174 million $130.5 $140.5

Calculation of NPV and IRR

Comparison of capital costs demonstrates the poten7al saving with Chinese supply Use of nancial analysis to aid decision making process Create a number of dierent scenario to evaluate nancial impact Other factors must also be considered

Calculation of NPV and IRR

Parameter Capital cost ($ million) Kiln runtime (%) Margin ($/tonne) Plant life (years) NPV ($ million) IRR (%) European 174 90 30 30 217.6 20 Chinese 1 140.5 90 30 30 251.1 25 Chinese 2 140.5 80 30 30 207.6 22 Chinese 3 140.5 80 25 30 149.6 18

Calculation of NPV and IRR

Run7me and margin clearly having a major impact Other scenario can be considered - Shorter plant life - Addi7onal capital throughout plant life - Further reduc7on in margin

Financial analysis should be just one of the tools in the decision making process

Conclusion

Chinese supplied plants would appear to be the cheaper plant

Addi7onal costs need to be added back into the Chinese supplied price Scenario analysis can assist in the decision making process when choosing a supplier Other factors must be considered - Availability of capital - Cost of fuel and labour - Spare parts strategy

Chinese or European? Capital and operating cost implications for new cement plant projects
Mark Mu'er Managing Director JAMCEM Consul7ng