168. PROFILE ON PRODUCTION OF PINE

OIL

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TABLE OF CONTENTS

PAGE

I. SUMMARY 168-3

II. PRODUCT DESCRIPTION & APPLICATION 168-3

III. MARKET STUDY AND PLANT CAPACITY 168-4

A. MARKET STUDY 168-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME 168-8

IV. MATERIALS AND INPUTS 168-9

A. RAW & AUXILIARY MATERIALS 168-9

B. UTILITIES 168-10

V. TECHNOLOGY & ENGINEERING 168-11

A. TECHNOLOGY 168-11

B. ENGINEERING 168-12

VI. MANPOWER & TRAINING REQUIREMENT 168-13

A. MANPOWER REQUIREMENT 168-13

B. TRAINING REQUIREMENT 168-14

VII. FINANCIAL ANALYSIS 168-14

A. TOTAL INITIAL INVESTMENT COST 168-14

B. PRODUCTION COST 168-15

C. FINANCIAL EVALUATION 168-16

D. ECONOMIC BENEFITS 168-17

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I. SUMMARY

This profile envisages the establishment of a plant for the production of pine oil

with a capacity of 360 tonnes per annum.

The present demand for the proposed product is estimated at 16,500 tonnes per annum.

The demand is expected to reach at 42,695 tonnes by the year 2022.

The plant will create employment opportunities for 29 persons.

The total investment requirement is estimated at Birr 5.49 million, out of which Birr

3.25 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 32 % and a net

present value (NPV) of Birr 5.71 million, discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Pine oil is obtained from pine oleoresin (sometimes called as gum oleoresin or crude

turpentine) which in turn is made from pine trees by a process called tapping.

Pine oleoresin contains about 20% spirits of turpentine (turpentine oil), 65% rosin (resin),

5 to 10% water, some bark and dust, etc.

In this project profile, the pine oleoresin (mixture of turpentine oil and resin (rosin)) is

considered as raw material to produce turpentine oil and another co-product rosin (resin).

The turpentine oil is further processed into pine oil. Therefore, the products and co-

products of the envisaged project are:

a) Turpentine oil (sprits of turpentine)

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b) Rosin and

c) Pine oil

Turpentine oil (sprits of turpentine) is used as a thinning material in the paint and varnish

industry, as a solvent for rubber, to manufacture printing cloth, water proofing

compounds, leather dressings, many pharmaceuticals and large number of other

chemicals.

Rosin, on the other hand, is used for preparing paints and varnished, polishes waxes,

soaps, oil cloth , linoleum, sealing wax, printing ink roofing and floor covering,

adhesives, plastics, rubber, wood preservatives, disinfectants, drugs and various

chemicals. Rosin is used in the paper industry for sitting, i.e for imparting luster and

weight and hindering absorption of ink or moisture. Rosin oil finds its use in the

manufacture of greases, lubricants and solvents. A quite familiar use of rasin is in

gymnasium floors to prevent slipping especially for basket ball games.

Pine oil is used as an input in paint and varnish industry, as frothing agent in the

floatation of ores and in metal polishes and solvents.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Current Demand

'Naval stores' is the inclusive term used to denote pine oil and their derivatives. Over

centuries pine resin and pitch were so useful to the sailing ships of the navies of the world

that even today the most commonly used term for pine oil products is 'naval stores'. The

term is now a misnomer, as only a small fraction of the products derived from the

oleoresins is used for these purposes; nevertheless, it is still widely used in trade to

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denote these products. The crude oleoresin is processed to yield turpentine, an essential

oil and non-volatile rosin, among other products.

There are three distinct sources of pine oil. Gum pine oils are traditionally obtained by

wounding or tapping the resin ducts in the xylem vessels of living pine trees with a sharp

axe or a shaving tool. This is the oldest method of extracting pine oleoresin. It has only

recently been replaced with more effective tapping techniques of stimulation of the tree

wound by applying acid pastes, and the development of new bark 'chipping' methods that

do not wound the xylem.

Wood pin oil are derived from the resinous wood of old stumps either through destructive

distillation ('tar burning') or through the extraction of pine resin from finely chipped

stump wood with steam or organic solvents.

Sulphate pine oil are obtained as a by-product of chemical pulping (kraft) of pine wood.

Sulphate turpentine is condensed from the cooking vapours, while crude tall oil (CTO) is

obtained from the alkaline liquors, and is latter fractioned into various products, including

tall oil rosins (TOR) and tall oil fatty acids.

Turpentine and rosin are two constituent parts of the pine oleoresins. One tonne of gum

oleoresin provides about 700 kg of rosin and between 100 and 200 litres (about 87 to 174

kg) of turpentine. For many years they were used in unprocessed form in the soap, paper

and varnish industries. Today, most rosin is used in various modified forms in a wide

range of products, including paper size, adhesives, printing inks, rubber compounds and

surface coatings. The composition of turpentine varies considerably according to the

species of pine exploited. Turpentine and its constituents, particularly alpha-pinene and

beta-pinene are widely used in chemical industry, particularly fragrance, flavour, vitamin,

insecticides and polyterpene resin manufacture (Copper et al, 1984). More and more

specialised uses are being found for pine resin products, particularly those of high

quality. Turpentine derived from pine resin is also used as a source of aroma chemicals in

flavour and fragrance industry.

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As the local end users of the product are in the early stage of development, the envisaged

product is mainly targeted at the export market.

During the period 2000 – 2005 world, pine oil production from all the three sources is

estimated at 1.2 million tones. Compared from the 1980’s there has been shifts in the

supply structure of the product. Rising labour costs and reduced labour availability have

brought about a substantial decrease in supplies of pine oil from major producers of the

1980’s such as the USA, France, Spain, Greece and Mexico.

At present China and Portugal dominate the world production of pine oil. China has

emerged as the world's largest producer of rosin, with annual production level of 200,000

to 250,000 tonnes. Portugal produces about 90,000 tonnes of pine oil annually. Other

producers include the USA, Spain, Mexico, France, India, Malaysia, Russia, Poland and

Honduras. The USA and Russia mainly produce for domestic consumption.

Pine oil industry is rapidly developing in some of the third world countries. Brazil, for

example has moved from being a net importer of naval stores to a net exporter, and in

1999, it produced about 51,000 tonnes from 42 million trees . Indonesia has also recently

emerged as a major producer and supplier of the product to the world. Current estimates

of its production are more than 100,000 tonnes.

The world's total annual average import/export of pine oil during the period 2000 – 2005

was around 330,000 tonnes . Registering an anuall averge growth rate of 7% during the

same period. Portugal and China with total annual exports of around 200,000 tonnes,

dominate the international pine oil trade, while minor suppliers include Honduras,

Mexico and USA.

The list of countries importing pine oils is quite long - well over 100. Japan, Germany,

UK, France, the Netherlands, Italy, Belgium/Luxembourg, Australia, Austria, Canada,

Colombia, Switzerland, South Africa, Zaire and Nigeria being the major importers. Japan

is the largest importer of pine oil. About 50 percent of the total exports of the product

from China enter Japanese markets.

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In estimating the present demand for pine oil, the average level of 2000 - 2005 global

import is assumed to reflect the current demand for the product. Accordingly, the present

global demand for the product is estimated to be 330,000 tonnes. Assuming that by

maintain product quality and aggressive promotion locally produced pine oil could

capture 5% market share the present demand for locally produced pine oil is estimated at

16,500 tonnes.

2. Projected Demand

In projecting the global demand for pine oil, the average growth rate of the product’s

export/ import registered during 2001 – 2005, i.e., 7% is assumed to continue in the near

future. Accordingly, taking the estimated present demand as a base and applying a 7 %

growth rate the projected demand for the product is shown in Table 3.1.

Table 3.1

PROJECT GLOBAL DEMAND AND ETHIOPIA’S MARKET SHARE

Year Projected Global Demand (Tonnes)

Ethiopia's Market Share

2008 331,155 16,558 2009 354,336 17,717 2010 379,139 18,957 2011 405,679 20,284 2012 434,077 21,704 2013 464,462 23,223 2014 496,974 24,849 2015 531,763 26,588 2016 568,986 28,449 2017 608,815 30,441 2018 651,432 32,572 2019 697,032 34,852 2020 745,825 37,291 2021 798,032 39,902 2022 853,894 42,695

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3. Pricing and Distribution

China remains a dominant force in setting price trends. In the absence of information on

price of Chinese exports, however, FOB prices of Indonesian pine oil are considered,

which ranged form USD 1,297 in 2004 to USD, 1,459 per tonne in 2005. Therefore in

order to be competitive, the envisaged plant’s selling price is set at USD 1n347 (Birr

12,460) per tonne. The product can be distributed by direct exporting to end-users.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant capacity

Table 3.2 shows the annual production capacity of the proposed project. The plant

capacity for the production of turpentine and rosin is based on 300 working days and

three shift per day. On the other hand, the capacity of the pine oil processing unit is

based on 100 working days and single shift per day.

Table 3.2

ANNUAL PRODUCTION CAPACITY OF THE PROJECT

Sr.

No.

Product Production Capacity

(Tonnes)

1 Turpentine 80

2 Rosin 260

3 Pine oil 20

2. Production Programme

The production program of the project is indicated in Table 3.3. At the initial stage of

production, the project may require some years to penetrate the market. Therefore, in the

first and second year of production, the capacity utilization rate will be 70% and 90%,

respectively. In the third year and then after, full capacity production shall be attained.

Turpentine is produced both as final and intermediate product to produce pine oil.

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Table 3.3

PRODUCTION PROGRAMME

Production Year Sr.

No. Product 1 2 3-10

1 Turpentine (tonnes) 56 72 80

2 Rosin (tonnes) 182 234 260

3 Pine oil (tonnes) 14 18 20

Capacity utilization Rate (%) 70 90 100

IV. MATERIAL AND INPUTS

A. RAW AND AUXILIARY MATERIALS

Table 4.1 shows the annual raw and auxiliary materials requirement and cost. To produce

turpentine and rosin, pine oleoresin would be required. In addition, for the production of

pine oil turpentine, sulfuric acid, caustic soda and acetone are major inputs.

Pine oleoresin is supposed to be purchased from owners of pine trees after harvesting by

tapping.

To estimate the raw material requirement of the project the following assumptions have

been made.

a) A pine tree can deliver on average 2.75 kg of pine oleoresin.

b) Pine oleoresin contains about 20% turpentine, and 65% rosin

c) About 1.433 kg of turpentine is required to produce 1 kg of pine oil.

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Table 4.1

RAW AND AUXILIARY MATERIALS REQUIREMENT & COST (AT FULL

CAPACITY, TONNES)

Materials Qty Cost (‘000 Birr) Sr.

No. LC FC Total

1 Pine oleoresin 400 900 - 900

2 Sulfuric Acid 6.4 38.14 - 38.4

3 Caustic soda 6.4 35.22 - 35.22

4 Aceton 1.33 - 6.65 6.65

Total 973.62 6.65 980.27

B. UTILITIES

Electricity, furnace oil and water are the principal utilities of the project. The annual

utility requirement and its cost are indicated in Table 4.2.

Table 4.2

ANNUAL UTILITIES REQUIREMENT AND COST

Sr.

No.

Utility Unit Qty Cost (‘000

Birr)

1 Electricity kWh 180,000 85.32

2 Furnace oil Lt 150,000 811.65

3 Water m3 5,000 50

Total 946.97

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V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

a) Turpentine and Rosin Production Unit

Pine oleoresin is first washed and cleared and then charged into the stainless steel batch

stills to evaporate the turpentine. The stills are internally heated by passing live steam

through a spirally coiled pipes. The vapor which contains water and turpentine enters to

the condenser and then separated by decantation. The hot molten residue that remains in

the still constitutes the rosin.

b) Pine oil Production Unit

Pine oil is produced by the action of sulfuric acid on turpentine. The by- products of the

reaction are D. D. turpentine and pine tar which are also useful products to fetch good

market price.

Turpentine is fed to a lead lined reactor fitted with stirrer and heating arrangements.

Dilute sulfuric acid is slowly added and temperature is raised to 40-50oC, with continued

stirring. In addition, acetone is added with sulfuric acid.

The end of reaction is checked by noting specific gravity of the product. When it reached

to the level of 0.87, the product is removed from the reactor and washed with water and

diluted caustic soda to remove last traces of free acid . The solution is then distilled in a

still fitted with condenser to recover acetone. After the recovery of acetone, the

solutions is steam distilled to separate trepan alcohols from other reaction products and

un reacted turpentine oils.

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2. Source of Technology

Several machinery suppliers can be requested for their offer. Among them, the following

supplier of plant machinery can be contacted.

Doshi Engineering Works

Mogra Village Road, Andheri, Mumbai,

Maharashtra-400 069 India

Phone: +(91) -22-28360802

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment is indicated in Table 5.1. The total cost of

machinery & equipment is estimated at Birr 3,250,000, of which Birr 2,708,000 in

foreign currency.

Table 5.1

LIST OF MACHINERY & EQUIPMENT

Sr. No.

Description Qty

1 Receiving tank 1 2 Washing tank 1 3 Evaporator (ss) 1 4 Condenser (for turpentine) 1 5 Receiver (for turpentine) 1 6 Lead lined reaction vessel 1 7 Lead lined washing tank 1 8 Neutralizing tanks 2 9 Distillation unit

(complete with steam coils, reboiler and condenser) 1unit

10 Steam boiler 1 11 Storage tanks 3 12 Submersible pump 1

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2. Land, Building and Civil Work

The total land required by the project is about 2500 m2 out of which 700 m2 is a built-up

area. The cost of building is estimated at Birr 1.05 ,million. The lease value of land is

about Birr 200,000 at a rate of 1 Birr/m2 per year for 80 years.

3. Location and Site

Bule town is selected to be the best location for the proposed project for its proximity to

raw material sources.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The list of manpower and the annual labour cost is indicated in Table 6.1. The total

annual labour cost is estimated at Birr 309,000.

Table 6.1

MANPOWER REQUIREMENT & LABOUR COST

Sr. No.

Manpower Req. No.

Monthly Salary (Birr)

Annual Salary (Birr)

1 General manager 1 3,000 36,0002 Secretary 1 700 8,4003 Purchaser 1 1,200 14,4004 Sales officer 1 1,200 14,4005 Accountant 1 2,000 24,0006 Production head 1 2,000 24,0007 Operators 9 6,300 75,6008 Labourers 12 3,600 43,2009 Guards 2 600 7,200 Sub-total 29 20,600 24,7200 Benefits (25% of BS) 5,150 61,800 Total 25,750 309,000

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B. TRAINING REQUIREMENT

On-the-job training of manpower will take place by the experts of machinery supplier.

The cost of training is estimated at Birr 30,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the pine oil 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 5 years

Bank interest 8%

Discount cash flow 8.5%

Accounts receivable 30 days

Raw material local 30 days

Work in progress 2 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

5.49 million, of which 36 per cent will be required in foreign currency.

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

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Table 7.1

INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)

1 Land lease value 200.0

2 Building and Civil Work 1,050.0

3 Plant Machinery and Equipment 3,250.0

4 Office Furniture and Equipment 100.0

5 Vehicle 200.0

6 Pre-production Expenditure* 290.4

7 Working Capital 403.2

Total Investment cost 5,493.6

Foreign Share 36

* N.B Pre-production expenditure includes interest during construction ( Birr 140.37 thousand )

training (Birr 30 thousand ) and Birr 120 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 2.89

million (see Table 7.2). The material and utility cost accounts for 64.05 per cent, while

repair and maintenance take 6.04 per cent of the production cost.

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Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

Raw Material and Inputs 908.27 31.36

Utilities 946.97 32.70

Maintenance and repair 175 6.04

Labour direct 148.32 5.12

Factory overheads 49.44 1.71

Administration Costs 98.88 3.41

Total Operating Costs 2,326.88 80.34

Depreciation 457.5 15.80

Cost of Finance 111.98 3.87

Total Production Cost 2,896.36 100

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.

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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 = 20%

Sales – Variable Cost

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 3 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 32 % and the net

present value at 8.5% discount rate is Birr 5.71 million.

D. ECONOMIC BENEFITS

The project can create employment for 29 persons. In addition to supply of the

domestic needs, the project will generate Birr 3.55 million in terms of tax revenue.