ANALYSIS OF DEMAND AND SUPPLY FOR SECONDARY FIBER
IN THE U.S. PAPER AND PAPERBOARD INDUSTRY
Volume Two
Section IX - Process Economics
Prepared for
Resource Recovery Division
Office of Solid Waste Management Programs
Environmental Protection Agency
Washington, D.C. 20460
Under Contract No. 68-01-2220
Attention: Project Officer
Resource Recovery Division (AW463)
March 1975
(Revised October 1975)
C-76644
Arthur D Little, Inc.
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TABLE OF CONTENTS
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IX. PROCESS ECONOMICS
• A. Basis of Economic Analysis IX-A-1
B. Capital Requirements IX-B-1
| C. Operating Cost Estimates IX-C-1
D. Interpretation of Variables IX-D-1
E. Containerboard IX-E-1
I F. Groundwood Papers IX-F-1
G. Tissue and Other Machine Creped Paper IX-G-1
| H. Folding Boxboard IX-H-1
_ I. Printing and Writing Papers IX-I-1
J. Industrial Packaging, Converting and IX-J-1
Miscellaneous Papers
• K. Construction Papers IX-K-1
• L. Market Pulp IX-L-1
M. Slush Pulp (Virgin) IX-M-1
• N. Summary and Discussion IX-N-1
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IX. PROCESS ECONOMICS
This section presents the economic models for selected pulp, paper, and
paperboard manufacturing operations. Plant investment and operating
cost schedules are shown for the manufacture of these selected products
from virgin, secondary, and blends of secondary and virgin fibers.
The information presented here was developed from in-house information
and from consultation with Charles T. Main, Inc., whom we retained as
advisor for this segment.
A. BASIS OF ECONOMIC ANALYSIS
1. Monetary Base
Because plant investment and operating costs have been escalating rapidly
in recent months, we have based our economic models on mid-second-quarter
1974 costs. Further, because of the uncertainty of future prices, all of
our analyses are based on second-quarter 1974 conditions without any
escalation for further inflation. However, we have indicated in a quali-
tative manner what the recent cost (price) trends have been for major
cost elements and their likely future performance.
Wherever it was reasonable to do so, we have used actual second-quarter
1974 costs and selling prices. For some waste paper grades (e.g.,
No. 1 News and OCC), where second-quarter conditions were particularly
unstable, we have estimated more realistic price levels in terms of
second-quarter dollars. In the case of product categories, whose selling
price varies widely with product quality, we have estimated a second-
quarter price that reflects this.
2. Units of Measurement
The metric system of measurements has been used as the standard for this
report. All units are reported on this basis, with two exceptions: to
remain consistent with standard cost and physical properties data, we
have reported wood cost and consumption in cunits* and energy cost and
consumption in millions of Btu**.
*0ne cunit equals 100 cubic feet, or approximately 2.83 cubic meters, of
solid wood. It also equals approximately 1.20 cords of softwood or
1.27 cords of hardwood.
**0ne million Btu equals approximately 0.252 million kilocalories.
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Other units and terms used in the cost models which should be noted are:
ADMT: Air-Dried Metric Ton (90% solids, 10% moisture)
MDMT: Machine-dried Metric Ton (92% to 95% solids, 5% to
8% moisture, depending on product)
BD: Bone Dry (100% solids)
3. Selection of Economic Models
Specific paper and paperboard products were selected from each of the
principal functional groups for economic analysis. The selection was
based upon the relative importance of the specific grade (i.e., its
tonnage), its ability to accommodate secondary fiber, and the compet-
itive position of a recycled product vs. a virgin fiber product for a
studied application. For example, secondary fiber is not used in the
manufacture of solid bleached sulfate board (SBS), but as it competes
with recycled clay-coated board in a number of folding boxboard applications
it was included in the economic analysis. The process economics position
of virgin vs. S/F, and hence their competition for specific grades, can
be quite dissimilar; accordingly, in many of the functional groups more
than a single product was selected for analysis.
Note also that while we have compared the costs of products made from
virgin vs. recycled fiber, in many instances these products are comple-
mentary and not necessarily in direct competition for a selected end-
use. In the discussions of the specific economic models, we have noted
which are complementary and which are in direct competition. Table IX-A-1
indicates the products that were selected for economic modeling.
4. Characteristics of the Economic Models
The cost models have been developed for a typical scale of operation
and extrapolated to show how changes in design capacity affect the cost.
All costs are based on mills operating at their design capacity; thus, a
decrease in scale of operation represents a smaller mill, not one running
at less than 100% of capacity.
All cost models are developed for new mill installations, typical of good
technical practice in 1974. For integrated operations, this could be the
cost of a new paper machine added to an existing pulp mill, but not the
cost of incremental capacity expansion or mill upgrading. None of the
models represent the costs of an actual mill.
For virgin fiber pulping, we have taken a relatively large capacity,
considered economical by 1974 standards, but not the largest possible.
For papermaking operations integrated to virgin pulping, we have selected
the largest practical size for a single machine, as this is typical of
current installations. For nonintegrated secondary fiber operation,
we have selected a single machine capacity lower than the largest
practical; this is representative of the existing industry, since the
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TABLE IX-A-1
ECONOMIC
See
Functional Group* Section
1.
2.
3.
4.
5.
6.
7.
8.
Containerboard E
Liner
Medium
Groundwood F
Newsprint
Publication
Tissue G
Toilet/Facial
Folding Boxboard H
18 Pt. Clay-coated
SBS
Printing and Writing I
Bond
Book
Industrial & Converting J
Unbl. Bag
Tube
Construction Paper K
Roofing Felt
Market Pulp L
Bl. SW Kraft
Bl. HW Kraft
Recycled Fiber
Unbl. Kraft from OCC
Groundwood from Old News
MODELS ANALYZED
Virgin
X
X
X
X
X
X
X
X
X
X
X
X
100%
S/F
X
X
X
X
X
X
X
X
X
X
X
X
Blend
Virgin + S/F
x
x
X
X
X
X
X
X
X
*Not included in the functional groups (but presented in Section M) are economic
models for bleached and unbleached kraft and groundwood slush pulp manufacture.
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economic availability of secondary fiber rather than machine size alone
is the limiting factor in plant capacity.
We have defined mill capacity on a daily tonnage basis, and calculated
annual capacity as daily capacity multiplied by net operating days per
year. The latter are total days of actual mill operation per year after
subtracting scheduled down-time for holidays and estimated maintenance
shutdowns. In all cases, we have allowed 7 days for scheduled maintenance
and 4 days for holiday shutdowns, giving a net on-stream time of 354 days
per year. We have allowed seven total paid holidays and assumed that
the mill would operate on three of them. Of the 354 on-stream days,
we have estimated that commodity grades (newsprint, board products,
corrugating medium, and market pulp) would have a total productive
operation of 340 to 345 days. For noncommodity grades, plus jute liner
and bogus medium, we have estimated 330 productive days to reflect more
frequent clean-up and grade changes.
Plant site selections have been consistent with existing paper industry
patterns. For products where a number of geographic areas could be
considered typical, we have concentrated our models in one area to
emphasize fiber furnish and product grade as the primary variables in
cost and profitability estimates.
A large portion of the kraft pulp sector is located in the Southeast,
where costs differ considerably from those in other areas. We have
found it more typical to locate our models for bleached kraft paper
grades in the Northeast; however, bleached softwood and hardwood kraft
pulp models have also been prepared for the Southeast to indicate the
influence of plant location on the cost: of these products.
5. Nature and Precision of Specified Conditions
To prepare our cost estimates, we have had to make specific judgments
regarding operating and selling conditions for each model. Some
conditions are affected by plant location: for example, the cost of
fuel and power, the cost of virgin and secondary fiber, and the
availability of virgin fiber as roundwood or chips. Other conditions
are affected by plant size, such as whether it is more economical to
generate or to purchase power. (See Section C.)
Some conditions are more arbitrary. Manning requirements, maintenance,
utility consumption, chemical usage, fiber yield, and factory over-
head can vary considerably from one mill to another for the same product
and capacity. Selling price, sales expense, general administration
costs, and freight (as affected by the distribution of customers) are
all influenced by individual company characteristics. Our models are
based on the use of a single paper machine; however, the same amount
of a product could be made on two or more smaller machines at sig-
nificantly different cost. While we have made every effort to select
typical conditions, different but equally valid assumptions can be
made which could also be considered typical.
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Effluent treatment costs are particularly variable with respect to
plant size, location, and site specifics, as well as with effluent stand-
ards. We have attempted to include typical costs based on 1977 guide-
lines, which include primary and secondary treatment but exclude ter-
tiary treatment or color removal. We have selected an aerated stabi-
lization basin as opposed to activated sludge as the most economical
method for secondary treatment in all models. However, site dif-
ferences would affect this assumption, and actual effluent treatment
costs could vary widely from any typical model.
In addition to variations from the conditions we have specified, there
is an inherent lack of precision in estimating present costs, or up-
dating historical costs, when economic conditions are fluctuating
rapidly. To acknowledge the effects of variations due either to dif-
ferent assumed conditions or precision of estimates, we have calculated
and presented graphically the sensitivity of total delivered cost
(manufacturing cost) and profitability (return on fixed capital) to
variations in selected key variables.
One of the key variables is scale of operations (plant capacity). Two
points should be noted: (1) we have held to a single machine operation
for all capacities, and (2) the source of power at all other capacities
is the same as the base-level model, whether purchased or generated.
Each group of models for a particular product is summarized in a
preceding "Economic Comparison" table. It is the intent of these
comparisons to present the data from comparable models so that differences
among them may be seen readily. However, the specific assumptions made
for each model also apply to these summary comparisons. Variations
in any of the assumptions and conditions, most notably scale of oper-
ations and secondary fiber prices, will result in considerable dif-
ferences in the comparative economics for any group of models.
In comparing the relative attractiveness of the models as an invest-
ment opportunity, one must consider the actual magnitude of total
capital requirements, as well as changes in the design conditions and
variations around those conditions as expressed in the sensitivity
charts for delivered cost and pre-tax return on fixed capital.
6. Slush Pulp Cost
Virgin fiber kraft pulp is the basis for several paper and board grades
as well as for market pulp. Because any combination of drying and
papermaking operations may be integrated to kraft pulping, papermaking
capacity for a given product is independent of pulp mill capacity. For
this reason, we have found it convenient to develop a total factory
operating cost for bleached kraft slush pulp as a raw material input
to papermaking operations. The base-level slush pulp cost is related
to a particular pulp mill capacity, specifically 730 ADMT/day. We have
defined slush pulp cost by subtracting converting and capital costs
allocated to pulp drying from total factory operating cost in our 730-ADMT
virgin market-pulp models.
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Associated with the slush pulp are the potential utilities (steam and
power generation, water supply, and effluent treatment) allocated to
pulp drying. Figure IX-A-1 represents this relation graphically.
To use this potential for utility supply it is necessary to include
allocated investment and operating costs with the papermaking operation.
Thus, the investment and operating cost schedules for integrated paper-
making include the total amounts directly associated with forming
(stock preparation, machine, dryer, and roll finishing) plus allocated
amounts for utilities and auxiliary facilities shared with the kraft
pulp mill. For example, the investment for steam and power generation
in an integrated paper mill is an allocated portion of a larger recovery
boiler, power boiler, and turbine generator.
In addition to shared physical facilities, integrated papermaking oper-
ations also have the benefit of sharing many of the costs included with
factory overhead. We have reflected this by developing an overhead
schedule for a 730-ADMT/day market pulp mill, which provides the basis
for factory overhead costs on all models integrated to bleached kraft
pulping.
The factory operating cost for slush pulp as transferred to integrated
papermaking also includes the capital-related costs for pulping, whereas
the investment schedule for papermaking includes only the capital allocated
to or directly associated with the paper mill. To determine the total
capital employed, we must add a portion of the pulp mill investment, pro-
portional to the amount of slush pulp transferred to a given papermaking
operation. We have estimated this by calculating investment per daily
ADMT of slush pulp for our 730-ADMT kraft pulp models.
In a similar manner, virgin groundwood pulp at 400 ADMT/day and unbleached
kraft softwood pulp at 730 ADMT/day are also the basis for several paper and
board grades. We used the same technique of developing a slush pulp
transfer cost to an integrated papermaking operation. Thus, in calcu-
lating profitability (ROI), the pulp mill investment associated with
that quantity transferred to the papermaking operation was added to that
for the paper mill to obtain total capital requirements.
The use of this modular approach in developing the process economics
results in a single entry for slush pulp cost in those economic examples
in which the pulp mill size is disproportionate to the papermaking oper-
ation. Accordingly, if we were to postulate a change in the energy
cost for newsprint manufacture, we would have to determine its effect on
slush pulp cost as well as on the papermaking operation. (See p. IX-M-1).
In presenting the sensitivity of delivered cost and profitability to varia-
tions in fixed capital for those models which use slush pulp, only var-
iations in the capital associated with papermaking are considered. For
delivered cost, the capital related costs associated with slush pulp
are considered as part of slush pulp as a raw material cost. For profit-
ability, the return is calculated on total fixed capital for slush pulp
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plus papermaking, but the capital associated with slush pulp is held
constant and variations are considered only for the capital associated
with papermaking.
Appendix D-8 lists the moisture content used in each model and the raw
material for the papermaking operation (i.e., pulpwood or slush pulp).
Where slush pulp was used, a portion of the pulp mill was allocated to
the investment for the papermaking operation to derive ROI.
B. CAPITAL REQUIREMENTS
1. Total Fixed Capital
We have developed "budget" estimates for the construction of new plants
for each of the selected paper and paperboard products. These estimates
are based upon our in-house information, supplemented by information
from Charles T. Main, Inc. Since budget estimates are generally under-
stated, the likely range of precision is +25%/-10% — i.e., they could be
low by as much as 25% or high by as much as 10%.
Total fixed capital is the total of physical plant cost plus other fixed
capital. Capital cost schedules have been developed for a typical size
mill for each product studied. Extrapolations of the fixed capital
requirements to smaller and larger facilities are shown in Appendix D-7.
We have allocated the capital cost to each major process step; e.g.,
wood preparation, pulping, and papermaking. The cost distribution for
the process equipment is apparent, but the allocation for "shared
facilities" (steam and power generation, shops and stores, etc.) is more
complicated. Where possible, the cost of 'shared facilities" has been
allocated according to the usage of that facility by the individual
process step. For example, the investment for steam and power facilities
is allocated to wood preparation, pulping, etc., on the basis of their
respective requirements for steam and power. On the other hand, invest-
ment for other shared facilities, such as laboratories or shops and
stores, is allocated on the basis of the direct capital cost for the
process step. Obviously, the latter is a judgmental allocation, and
other techniques could have been used.
We have not included capital costs for woodlands operations in any of
our capital estimates. Where a woodlands position exists, its capital
and operating costs, as well as profitability, are reflected within
the cost of wood as delivered to the mill site.
a. Physical Plant Cost
The physical plant cost consists of the direct plant cost plus
the estimated cost of construction supervision and overhead,
engineering, and an allowance for contingencies. Direct plant
cost is the installed cost of purchased equipment, buildings,
and site work, excluding the bare cost of land. Each plant item
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includes purchased equipment and building materials, piping,
instrumentation, electricals, structures, foundations, and
associated labor costs. Tables showing the components of the
direct plant cost are presented in Appendix D for each product
considered.
b. Other Fixed Capital
We have also estimated the additional capital cost items, (spare
parts, pre-startup and startup costs, project management, etc.)
that normally are associated with a new venture but not in-
cluded in the physical plant cost.
2. Working Capital
Experience has demonstrated that the working capital required for:
• raw materials,
• goods in process,
• inventory, and
• accounts receivable (less accounts payable)
is generally equivalent to three months' production at total factory
cost. Accordingly, we have estimated working capital requirements on
this basis.
C. OPERATING COST ESTIMATES
We have prepared operating cost schedules for all the products listed
in Table IX-A-1. As with the plant investment estimates, the costs
are developed for a typical size facility. Graphs (see Appendix D)
have been prepared to illustrate the effect of operating scale on these
costs. As with the investment schedule, operating costs have been
developed for virgin fiber and secondary fiber manufacturing facilities,
and for facilities that utilize secondary fiber to supplement a virgin
fiber supply.
Table IX-C-1 summarizes the unit costs used in the economic models.
1. Raw Materials
This includes all raw materials for manufacture, net credit for any by-
product recovery, and auxiliary materials such as chemicals for water
and effluent treatment.
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TABLE IX-C-1
SUMMARY OF COSTS USED IN ECONOMIC MODELS
Item Basis
RAW MATERIALS
Pulpwood :
Rough-Softwood
Hardwood Del'd
Wood Chips-Softwood Price
Hardwood
Waste Paper:
Old Corrugated Containers
OCC
Dbl. Kraft Lined Corr. Cuts
News
No. 1 News Del,d
Pulp Substitutes Price
Ledger
Manila Tab Card
Unbleached Kraft Grades
Mixed Waste Paper
No. 1 Mixed
Unit
Cunit
Cunit
Cunit
Cunit
M.T.
M.T.
M.T.
M.T.
M.T.
M.T.
M.T.
Unit Cost ($)
North-
east
41
37
41
37
50
70
45
157
230
100
25
North
Central
32
27
N.A.**
N.A.**
55
75
40
140
270
95
30
Chemicals Estimated separately for each paper grade
CONVERSION (Less Capital-Related)
Average Labor Rate:
Direct
Maintenance
Fringe Benefits @ 32% of Hourly Rate
Man-hr
Man-hr
Supplies:
Operating |
Packaging > Estimated separately for each
Maintenance )
Utilities:
Fuel Del'd Price
Power Purchased
MM Btu
kWh
4.8
5.5
5.2
6.0
paper grade
2,0
0,021
1.8
0.017
South
32
27
32
27
60
75
45
135
320
95
30
5.5
6.4
1.0
0.012
Pacific
N.W.
N.A.*
N.A.*
38
25
55
75
40
130
250
95
30
6.2
7.1
1.1
0.011
Factory Overhead Schedule constructed for each basic economic model and
extrapolated as a percentage of direct labor requirement
CAPITAL-RELATED f°r variations from the baslc models-
Depreciation:
Building - 33 years, i.e., 3% [~ weighted avg, est. 75% equipment and
Equipment - 16 years, i.e., 6-1/4% [building = 5.4% Total Fixed Capital
25%]
Local Taxes and Insurance @ 2-1/2% Plant investment annually
COST OF SALES
_ f A _ > Reported as % of product selling price
Sales Expense (
Freight Estimated for each paper grade
Supporting
Data
Section IV
Sections V
and VI;
Appendix C-l
Appendix D-l
Appendix D-3
Appendix D-2
Appendices
D-5, D-6
* Rough wood not applicable in Pacific Northwest.
** Use of wood chips in North Central region is insignificant.
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a. Pulpwood
Requirements for pulpwood or other cellulosic raw material are
developed via a material balance that takes into account such
factors as wood densities, pulping yields, and process losses.
b. Slush Pulp
The total factory operating cost of slush pulp (as defined in
Section A.6) is considered as a raw material cost for any paper-
making operation integrated to a pulp mill which can provide furnish
for more than one product line.
c. Pulping and Papermaking Chemicals
The material balance also includes estimates of the pulping and
paper-making chemical requirements for the studied pulp and/or
paper product. The unit prices used are tabulated in Appendix D.
Where applicable, chemical by-products (turpentine and tall oil)
are indicated. In addition, the summary material balance indi-
cates the quantity of residue fuel generated in the conversion of
wood to pulp (or paper). The amount of residue fuel is subse-
quently used in the derivation of an energy balance.
For clarity in the material balance, we have shown typical fresh
chemical makeup rates to pulping and bleaching operations, but
have accounted only for the fiber output from these operations.
Chemical losses are equal to chemical makeup rates less any
by-product recovery, and we have not attempted to detail internal
chemical recovery and recycling.
For papermaking chemicals, a major portion of the additives become
part of the product; thus, we have accounted for papermaking chemical
losses and, by difference, papermaking additives recovered with the
finished sheet.
d. Other Chemicals
In addition to the pulping and papermaking chemicals that are in-
cluded in the sample material balance, other chemical raw materials
are used in the manufacture of pulp and paper products. These
include detergents, slimicides, antifoam agents, retention aids,
pitch control agents, water softening agents (or ion exchange
resins for boiler feed water treatment), etc. These materials
are used in small quantities, but when aggregated they constitute
an identifiable cost in the manufacture of a product.
For purposes of analysis, the costs of these materials are combined and
reported as a single unit per ton of product. Mill records and our
experience have been used to estimate the total cost.
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2. Conversion
This includes all factory labor, supplies, utilities, and expense other
than raw materials or capital-related costs.
a. Direct and Indirect Labor
Manning tables have been prepared for each of the studied economic
models. Many manning schedules are based upon in-house informa-
tion pertaining to actual mill practice; others are based upon more
thorough pre-engineering cost studies that we have prepared for
various product areas. Total man-hour requirements are based on
2,068 man-hours per man-year (47 weeks at 44 hours). Holidays and
vacations are included in fringe benefits at 32% (included in
hourly rate).
b. Maintenance Labor & Supplies
For new plants, the costs of maintenance labor (as well as
supplies) are frequently estimated on the basis of plant investment.
A total cost for maintenance labor and supplies of about 4% of
the new plant investment is typical for pulp and paper manufacture.
Industry experience indicates that the total cost is about equally
split between materials and labor. Use of the 4% figure is a
reasonable method for deriving the maintenance cost for a new
plant, but we have chosen to develop a manning table for mainten-
ance labor and to estimate maintenance supplies at 1.5% to 2% of
physical plant cost. This specifically excludes any labor or
materials associated with capital improvement or replacement
projects.
c. Supplies
The operating supply item includes replaceable parts such as
felts, wires, lubricating oil and grease, rags, and fuel (for
fork lift trucks). Units and unit costs for this entry are
not meaningful. In-house mill records and industry records
provide the most reliable source of information on this cost
for the various pulp and paper grades.
Packaging supplies also vary widely among the paper grades selected
for economic analysis. For example, linerboard requires just a
core, plugs, and steel strapping; the total cost for these supplies
is $0.50 - 1.00 per ton. On the other hand, the supplies used in
packaging tissue, which include printed folding boxes and corru-
gated containerboard, cost about $50 per ton. Accordingly, for
most commodity grades (linerboard, newsprint, folding boxboard,etc.),
where packaging supplies are a minor item, we have shown a single
entry based upon industry practice. For tissue we have made a
separate estimate, including packaging supplies, of the cost of
converting from jumbo rolls to packaged product.
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d. Utilities
The unit requirements for fuel and power have been derived by an
energy balance. The balance indicates the consumption of these
utilities by major process steps—e.g., wood preparation, pulping,
bleaching, and papermaking. The source of energy (bark, black
liquor, fossil fuel) also is indicated. In this manner, the quantity
of supplementary fossil fuel may be adjusted to reflect alternative
assumptions that may apply. Only the portion of the total steam
requirement generated from fossil fuel represents an actual fuel cost.
Charges or credits for power represent the cost of power actually
supplied from outside sources or, in the case of integrated paper or
board production, the value of power credited as an excess in the
pulping operation. Whenever total steam requirements for a product
(including the combination of pulping and forming for integrated
operations) exceed 75,000 kilograms per hour (equivalent to 7,500
kw of power), we have included the cost of an extraction turbine
generator in the estimated capital requirements. Thus, for all
operations that require at least 75,000 kg of steam per hour,
power is generated on-site. All smaller operations use power pur-
chased from external sources. Extracted and purchased power are
indicated separately in the operating cost tables.
We have not made a detailed study of the economics of generating
vs. purchasing power for each model. The minimum of 7500 kw for
on-site power represents our judgment of a reasonable average
for second-quarter 1974 conditions; this minimum would, of course,
vary from one location to another, depending on regional and local
power costs, specific conditions of the mill, and capital cost
of generating facilities. Tables of fuel costs and power rates
in various parts of the country are included in Appendix D.
No purchase costs are included for water, as we have included
the capital, labor, and chemical treatment costs for water supply
and effluent disposal in all estimates. This assumption facilitates
direct comparison of the estimates, but it should be recognized
that smaller secondary fiber mills in urban locations might use
municipal facilities for water supply and effluent disposal. In
this case, the cost of the water would be $0.20 to $0.50 per 1000
gallons ($0.053 to $0.15 per cubic meter), with $0.30 per 1000
gallons ($0.08 per cubic meter) a typical value.
e. Factory Overhead
Factory overhead includes on-site management, salaried supervision,
the salareis of office clerical, technical, and laboratory staff,
on-site office and laboratory supplies and expense, and personnel
expenses. It excludes off-site overhead, such as corporate
administration and sales expense, which are shown as separate
non-factory costs. Factory overhead is expressed as a percentage
of total labor, direct and indirect (but excluding maintenance labor).
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Factory overhead costs for two different types of mills, one non-
integrated and the other integrated, are derived in Appendix D-7.
(The first is included with the economic model for tissue from 100%
secondary fiber, and the second is with the models for bleached kraft
market pulp.) By using the ratio of factory overhead to direct and
indirect labor costs in the appropriate one of these two examples and
making suitable modifications to reflect the characteristics of differ-
ent mills, we estimated the factory overhead costs for the other models.
3. Capital-Related
a. Depreciation
We have assumed straight-line depreciation in our cost calculations.
For new mills, the rate is derived by taking the weighted average
of equipment and buildings at 16 and 33 years respectively.
Typically, equipment constitutes about 75% of the new plant invest-
ment and building 25%, yielding a weighted average annual depre-
ciation of about 5.4%.
b. Interest on Borrowed Funds
Typically, a paper and/or paperboard manufacturer borrows money
for both fixed and working capital requirements. The amount
varies widely, depending on the mill and the industry sector. To
avoid speculation in this area, we have simply indicated the total
capital requirements and acknowledged that interest on loans is not
included in the derived operating cost estimates.
c. Local Taxes and Insurance
Local taxes on new facilities are typically 2 to 2 1/2% of new
investment. Hence, for new facilities, the contribution of this
item to operating cost can be derived readily.
4. Cost of Sales
a. General Administration
General administration includes all allocated corporate (non-factory)
costs, such as central engineering, purchasing, and research, corporate
management and legal staff, office overhead, etc. This cost is
affected by the corporate structure, the size of the operation, and
the value of the product. Typically, it ranges from about 3% to
10% of the total factory cost; however, it varies widely and is
strongly dependent upon the marketing characteristics of the indi-
vidual product. We relied upon our experience to select a "typical"
cost for this item for each of the studied paper and paperboard
products.
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b. Sales Expense
Sales expense is shown as a separate item, since it can be either a
corporate cost for marketing and sales staff and expenses, or an
external cost for broker's fee and commission. This item varies
widely between functional groups as well as within individual product
categories. For example, the cost for this item differs between
Tissue and Groundwood (functional groups) as well as within the
Groundwood group (newsprint vs. uncoated groundwood paper) product
categories.
Obviously, the sales expense for commodity products, such as liner-
board, newsprint, or bag paper, is significantly less than that for
retail-oriented products such as tissue, printing paper, and writing
paper. Moreover, there is also a wide variation within each major
category, reflecting the costs associated with marketing brand-name
or "private label". We used our judgment to select an appropriate
value from within the range of costs experienced by the industry
for this item.
c. Freight
The cost of shipping the finished product to market has been esti-
mated on an individual product basis. Variations in freight rates
reflect:
• differences in product value;
• industry practices wherein some board grades are exchanged
between manufacturers; or
• distribution patterns based on paper grades and mill size.
(For example, we used substantially higher freight costs for
SBS than for combination board, because SBS mills are character-
istically larger and more distant from the metropolitan areas
than those that make combination board.)
Again, general industry averages have been used in the analysis of
the economic model.
D. INTERPRETATION OF VARIABLES
1. Scale of Operations
We have calculated and plotted the effect of scale of operations on
total fixed capital requirements and operating costs for each model.
Scale of operations is defined as the mill design capacity, with the
mill actually operating at that capacity; it does not apply to a larger
mill operating at less than full capacity.
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We have selected a high and low point for each model, based on a survey
of current industry capacity ranges. Individual cost items from the basic
model have been extrapolated to the high and low points of scale of oper-
ations, taking into consideration how much each item is affected by
capacity. New capital and operating cost: totals were determined for two
capacities in addition to the basic models, and these have been plotted.
In no case did we consider a capacity change greater than 50% of the
basic model capacity. We have drawn curves through the calculated points
and extended these over a wider range to indicate the rate of change. How-
ever, these curves are primarily intended to determine intermediate points
within the calculated range and are less accurate elsewhere.
Two points must be emphasized in the scale-of-operations relationship:
(1) All models at all capacities are based on a single-machine
operation. We have not calculated or represented the effect
of making the same volume of the same product by using two
or more machines.
(2) Whether the basic model has purchased or on-site power, the
extrapolations from that model have the same source. Thus,
in starting with a small mill based on purchased power, the
extrapolation to a larger mill is also based on purchased
power without an exact determination of whether this meets
our criteria for purchased versus on-site power. Conversely,
in starting from a larger mill with on-site power generation,
the extrapolation to a smaller mill would also be based on
generated power.
2. Sensitivity Charts - Delivered Cost
We have calculated and plotted the effect on operating cost of changes
in selected key cost variables, including scale of operations. These
charts include the possible range of each variable as an actual range
and as a percentage change, so that all variables can be plotted
against the same scale. The total possible range for each variable is
plotted; intermediate values can be read easily by expressing the change
in a variable as a percentage increase or decrease from the best guess,
and reading the percentage change directly on the chart.
The sensitivity charts present a clear picture of the relative importance
of each variable, both in terms of equal percentage changes and total
possible range. They permit a rapid calculation of the effect of changes
in design conditions and assumptions, changes due to the accuracy of
estimating techniques, or actual changes in the cost data used. For
example, a change in fiber cost can be read directly as a new operating
cost. The range of operating costs due to the accuracy range of capital
estimates can be read directly. For a change in mill location, one can
determine the total changes in operating cost resulting from each regional
cost factor, as summarized in Table IX-C-1.*
*For details on the handling of slush pulp cost changes, see p. IX-M-1.
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3. Sensitivity Charts - Return on Fixed Capital
The pre-tax return on fixed capital or investment (pre-tax ROI) is shown
for each model. Pre-tax ROI is defined as annual profit before income
taxes, devided by total fixed capital (but excluding working capital),
expressed as a percentage. To derive the fixed capital required for an
integrated pulp and papermaking operation, we added the allocated invest-
ment for the pulp mill to the estimated fixed capital for the papermaking
operation.
We have also calculated and plotted a sensitivity chart for each model to
show the effect on ROI of changes in selected key variables. These charts
are similar to those described above for delivered cost and are read and
used in the same way; however, they emphasize the effect of changes in
the variables on the relative attractiveness of a new venture. Specific-
ally, they highlight the importance of selling price in the evaluation
of product profitability.
Note that the range in capital requirements for an integrated mill is the
result of possible variations for the papermaking operation only, as the
allocated investment for the pulp mill is assumed constant. Changes in
pulp mill size and other cost variations that may occur in pulp manufac-
ture are reflected as variations in the transfer cost of slush pulp.
E. CONTAINERBOARD
1. Linerboard
a. Basis of Models
Four economic models have been prepared for the production of liner-
board from virgin or secondary fiber, and blends of both. As the products
from these models serve competitive markets, they must be of approximately
equivalent quality. Industry experience* has shown that the inclusion of
OCC in linerboard up to 20% of total fiber furnish does not adversely
affect product- quality or board machine operation; thus, we have used this
ratio for the blended models.
In the case of jute liner from OCC, we have chosen an asphalt
dispersion system for secondary fiber preparation, in combination with
the use of dry-strength additives introduced at the board machine. This
method is suitable for making a product from 100% OCC that is comparable to
one made from virgin fiber. Several other options are available to improve
the quality of linerboard made from secondary fiber: namely, the addition
of virgin kraft fiber with dry-strength beater additives (starch), increasing
the basis weight of the product for the same selling price (i.e., weight
giveaway), and higher energy input in fiber refining. All of these methods,
* G.T. Edmonds, "Economics of Recycle Usage," TAPPI, Vol. 57, No. 12,
December 1974.
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Arthur D Little, Inc
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including the asphalt dispersion and chemical additive methods we have
chosen, yield a product that will compete with virgin or blended liner.
In spite of measures taken to improve S/F product quality, the price for
jute liner is generally discounted by about $5/ton. This price differ-
ential generally prevails in an excess supply situation but is eliminated
in a supply-limited market such as existed in 1973 to mid 1974. In our
analysis, we used a $5/ton price differential.
Linerboard production from virgin fiber is concentrated in the South
and Pacific Northwest, and essentially none is made in the North Central
or Northeast regions; therefore, we have chosen a Southeast location for
the virgin fiber and blended models as typical of existing industry
patterns and potential growth. Regional variations can be evaluated
through use of the regional data previously presented (Table IX-C-1 and
the sensitivity charts included for each model.
The virgin fiber model is sized at 910 MDMT/day, which is typical of a
new installation. The associated pulp mill is assumed to be in balance
with the board machine requirements.
Jute liner, the second example, is primarily manufactured in metropolitan
areas, with a high concentration in the North Central region. We have
used this region for our typical model; the economics of other regions
can be determined through the use of the regional data and sensitivity
charts. We have selected mill capacity at 300 MDMT/day based on the
existing industry characteristics and on our judgment of the availability
of fiber at competitive cost to supply a mill. The operation is not
limited to 300 tpd by technical considerations.
Two examples of blended liner production are given next. In Case I,
the capacity of the mill is 910 MDMT/day; the fiber furnish is assumed
to be obtained from a 730-tpd virgin pulp mill and a 180-tpd secondary
fiber (OCC) pulping operation. Case II is based on a 910-tpd virgin
pulp mill and a 230-tpd secondary fiber pulping operation. Although Case
II is based on a new installation and hence simply reflects economy of
scale as compared with Case I, it also is indicative of the prospects
of adding incremental capacity to a board machine via the introduction
of S/F. With some modifications and major capital expenditures, the cap-
acities of some board machines can be increased incrementally, perhaps
5-15% (e.g., 50-150 tpd for a 910-tpd machine). Since it is highly
unlikely that the pulp mill would have that much reserve capacity, the
incorporation of S/F can provide a convenient method of expanding pro-
duction. Determining how many machines have this potential incremental
capacity and how much the expansion would cost is beyond the scope of
this work, as it requires individual engineering studies for each
specific installation.
Another alternative which may be postulated in the fiber blend models
is to replace some virgin pulp with secondary fiber. Implicit in this
approach is that there would be an alternative use for the unbleached
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kraft liner-grade pulp or that the production of the pulp mill would be
curtailed. Again, it is not within the scope of this program to deter-
mine how many mills have the potential of diverting their virgin pulp
production to alternative uses or the cost for partially curtailing their
production. Nevertheless, Case II provides the framework from which the
potential costs and profitability may be determined, given the appropriate
specific conditions.
b. Comparative Economics
Table IX-E-1 summarizes the capital requirements, operating costs, and
profitability of the selected examples.
Total fixed capital for the virgin fiber and two blended models at
$110, $106 and $119 million, respectively, includes wood preparation,
pulping, and board production with on-site power generation. Total
capital at $30 million for the jute liner model is based on up-to-date
technology; it includes the asphalt dispersion system discussed prev-
iously, a single Fourdrinier board machine, and steam/power generating
facilities for on-site power generation.
When we consider that jute liner not only requires a smaller investment
than virgin kraft per daily ton of capacity, but also can be economically
manufactured on a much smaller scale, we find that there is an order-of-
magnitude difference in the fixed capital requirements. The implication
of these differences will be discussed in the profitability analysis
which follows.
The comparison of operating costs indicates that, based upon the selective
assumptions, the delivered cost of jute liner at $169/ton is significantly
greater than that of virgin or blended liner.
The most significant difference in delivered cost is the relatively high
cost of raw materials for the manufacture of jute liner. Part of the
cost difference is due to chemical additives and part to actual fiber
cost. This cost difference in raw materials is independent of scale of
operations; hence the jute liner facility is not disadvantaged by virtue
of its smaller size. However, because the cost of OCC has been extremely
volatile recently, we have reflected the result of possible fiber cost
changes in the sensitivity charts. At the low end of the cost range
for OCC, ($28/ton) , the delivered cost of jute liner is much more compet-
itive with both virgin and blended liner. Compared with cost of raw
materials, the remaining cost variables are significantly less important.
At second-quarter 1974 costs for OCC ($55/ton) , the return on investment
for jute liner was significantly lower than that for kraft liner. At
current prices for OCC ($28/ton), however, the ROI would be about the
same.
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If the cost of OCC drops, the blended models have the combined advantage
of large scale of operations with decreasing raw material costs, and they
become more attractive than virgin liner in terms of both delivered cost
and return on capital. Even at the lowest cost for OCC, they are more
attractive than jute liner; however, since the blended models are far less
sensitive than jute liner to the cost of OCC, the difference narrows as
OCC cost decreases.
By virtue of its low total investment, jute liner could be a viable alter-
native in situations where total capital is limited and there is no oppor-
tunity to add incremental capacity to an existing mill, or where there is
limited product demand and/or no opportunity for a mill using virgin fiber.
Where the possibility of virgin pulp production exists, blended liner may
provide a better return than kraft liner, particularly at the higher capa-
city. With a stable, low-cost source of OCC, blended liner becomes even
more attractive, and jute liner becomes a competitive alternative.
IX-E-4
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TABLE IX-E-1
Economic Comparison of Linerboard Manufacture
Functional Group Container Board
Kraft
Grade T .
Liner
Jute
Liner
Blended
Liner
Blended
Liner
Basis Weight (g/m2) 205 (42 lb/1000 sq ft)
Fiber Furnish 100% Virgin
Plant Size (MT/day) 910
Plant Location Southeast
Plant Specifics Integrated
Total Fixed Capital ($ Million) 110
($000/Daily Ton) 121
Total Delivered Cost ($/MDMT) 137. A
Raw Materials ($/MT, delivered) 47.4
Conversion ($/MT) 36.1
Capital-Related ($/MT) 26.9
Sales Cost (Less Freight) ($/MT) 7.0
Freight in ($/MT Product)* 14.1
Freight out ($/MT Product) 20.0
Selling Price ($/MDMT) 200
Return on Fixed Capital, pre-tax (%) 17.9
100% Secondary
300
North Central
Non-Integrated
30
100
168.8
75.9
50.8
23.1
7.0
11.5
12.0
195
8.7
80% Virgin
20% Secondary
910
Southeast
Integrated
106
116
140.5
51.3
36.3
25.9
7.0
13.1
20.0
200
17.6
1140
Southeast
Integrated
119
104
137.4
51.2
35.9
23.3
7.0
13.1
20.0
200
20.7
*Not included in total delivered cost
IX-E-5
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TABLE IX-E-2
DESIGN BASIS
Functional Group Containerboard
Grade Unbleached kraft liner
Basis Weight 205 g/m2
(42lb/1000sqft)
Production 910 MDMT/day;
31 4,000 MDMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS
($000)
Physical Plant 100,000
Other Fixed Capital 10,000
Total Fixed Capital 110,000
Working Capital 11,000
Total Capital Required 121,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Wood Preparation - 100
Pulping 1,600 105
Power & Steam Generation 1 ,600 160
(incl. recovery and
liquor prep.)
Effluent Treatment — 30
Board Making 4,000 360
Misc. & Auxiliaries 800 95
Total 8,000 850
Process Kraft pulping/continuous digester
Fiber Furnish 100% virgin fiber
20% hard wood);
(80% softwood.
50/50 round wood /chips
Pulp Yield Unbleached - 52%
Mill Location Southeast
Boundary Limits Wood preparation through board
making
OPE RATING COST*
($/MDMT)
Fiber Furnish
Other Raw Materials
Total Raw Materials Cost
Labor + Fringe @ 32% of Hourly Rate
Supplies
Energy
Factory Overhead
Total Conversion Costs
Capital-Related Costs
• Total Factory Operating Cost
GS&A
Freight Out
Total Cost of Sales
• Total Del ivered Cost
43.8
3.6
47.4
13.2
11.2
6.9
4.8
36.1
26.9
110.4
7.0
20,0
27.0
137.4
($100.27
MOST)
(S124.6/
MOST)
"Totals may not add due to rounding
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Roundwood
Softwood
Wood (737) 0.58 cunit
Bark (122)
Hardwood
Wood (184) 0.14 cunit
Bark (31)
FIG. IX-E-1
MATERIAL AND ENERGY BALANCE
(Basis: 1 machine-dry metric ton of kraft liner)
Chips
Softwood (708) 0.56 cunit
Hardwood (177) 0.14 cunit
(885)
Wood (921)
Bark (153)
Wood
Preparation
4%
Wood Losses*
(36)
(885)
(1770)
Bark
(153)
(189)
1.18 MM kcal
Fuel Oil
[4.7 MM Btu]
0.40 MM kcal
[1.6 MM Btu]
( ) indicates BD kg
*2% loss on barking, suitable for fuel
recovery, + 2% loss on chipping,
suitable for fuel or fiber recovery
**Rosin 3 kg, alum 5 kg
Additives*
(8)
Pulping
(918)
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Paperboard
Making
48% Dissolved
Solids
Vi% Rejects
(860)
(920) 1.0MDMT
^ @ 8% Moisture
Fiber
Losses Ad'ditive
Losses
(2) @ 50%
(4)
8000 kg Steam
Power
Extracted
800 kWh
To Process
(30,000 kW)
Purchased Power 50 kWh
850
kWh
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TABLE IX-E-3
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF LINERBOARD
FROM 100% VIRGIN FIBER
Item
R.AT* MATERIALS
Pulpwood :
Softwood (80%)
Hardwood (20%)
Chemicals
Pulping (credit)
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Operating Cost
Unit
Gun it
Cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
32
27
7.3
7.3
8.4
-
1.0
1.0
-
0.012
Units per
MDMT
1.13
0.28
0.8
0.3
0.6
13.3
4.7
1.6
800
50
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. 9 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
$/MDMT
36.2
7.6
(l.D
2.8
2.0
47.4
5.7
2.5
5.1
3.0
1.5
6.7
-
4.7
1.6
-
0.6
4.8
36.1
18.9
7.9
26.9
110.4
4
3
20
27.0
137.4
$000/Yr
11,350
2,370
(350)
860
640
14.870
1,800
770
1,600
940
470
2,100
_
1,480
500
-
190
1,500
11 r3sn
5,940
2,500
8.440
34.660
1,260
940
6,280
8,480
43,140
for fixed and working capital)
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Delivered Cost,$/MDMT
Base:
$137.4
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60% 40% 20%
I
Possible Decrease |
in Variable |
40% I 60%
Possible Increase
in (Variable
varial
Q
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/Cunit
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -40
+20, -20
+25, -10
+50, -10
Best
Guess
910
31
110
1.0
Possible
High
1370
37
138
1.5
Possible
Low
545
25
99
0.9
"Average Pulpwood Cost
FIGURE IX-E-2
SENSITIVITY OF THE MANUFACTURING
COST OF UNBLEACHED KRAFT LINER
TO KEY VARIABLES
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Return (percent)
Base: 17.9%
60% 40%
I
Possible Decrease
in Variable
©
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Possible Increase
in Variable
I
60%
KEY VARIABLES
1 • Scale of Operations, MTPD
2- Delivered Cost of Fiber,* $/Cunit
3- Fixed Capital, $ Million
4- Selling Price, S/MDMT
Percent
Variation
+50, -40
+20, -20
+25, -10
+15, -15
Best
Guess
910
31
110
200
Possible
High
1370
37
138
230
Possible
Low
545
25
99
170
"Average Pulpwood Cost
FIGURE IX-E-3 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF UNBLEACHED KRAFT LINER TO KEY
VARIABLES
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TABLE IX-E-4
DESI
Functional Group Containerboard
Grade Jute liner
Basis Weight 205 g/m3
(42lb/1000sq tt)
Production 300 M DMT/day;
1 00,000 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 27,600
Other Fixed Capital 2,800
Total Fixed Capital 30,000
Working Capital 4,000
Total Capital Required 34,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
A.D.S/F Plant 1,000 95
Pulping - 230
Board Making 4,000 80
Effluent Treatment — 30
Misc. & Auxiliaries 1,000 215
Total 6,000 650
GN BASIS
Process S/F pulping
Fiber Furnish 100% secondary fiber;
OCC
Pulp Yield n.a.
Mill Location North Central
Boundary Limits S/F preparation through
board making
OPERATING COST
($/MDMT)
Fiber Furnish 63.3
Other Raw Materials 12.6
Total Raw Materials Cost 75.9
Labor + Fringe @ 32%
of Hourly Rate 12.9
Supplies 7.1
Energy 24.3
Factory Overhead 6.5
Total Conversion Costs 50.8
Capital-Related Costs 23.1
• Total Factory Operating
Cost 149.8 ($136.5/
MOST)
GS&A 7.0
Freight Out 12.0
Total Cost of Sales 1 9.0
• Total Delivered Cost 168.8 ($153.17
MOST)
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FIG. IX-E-4
MATERIAL AND ENERGY BALANCE
(Basis: 1 machine-dry metric ton of jute liner)
Caustic (3)
J
occ
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Rec'd.@10% (1048) (1022)_ ni. (913)
Moisture
1,165kg
Discards
@ 2-y>%
(26)
Soluble
Loss @ 4%
Trash
& Fiber
Losses
@7%
(112)
Additives*
(23)
I
Paperboard (920)
Making
Fiber
Loss @
i y2%
T (5)
Additive
Loss @ 50%
(11)
( ) Indicates BD kg
*Starch 15 kg, rosin 3 kg, alum 5 kg
Fossil Fuel
1.0MDMT
@8%
Moisture
(920)
3.3 MM kcal ^_
[13 MM Btu]
Power
Boiler
i
6000 kg
.Steam
!
' J--1 Power
l"**^ Extracted
600 kWh ^
(7. BMW)
Purchased Power 50 kWh ^
J
To Process
650 1
kWh
IX-E- 13
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TABLE IX-E-5
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF LINERBOARD
FROM 100% SECONDARY FIBER
Item
RAW MATERIALS
Secondary Fiber:
OCC
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
M. Ton
as rec'c
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
55
6.9
6.9
7.9
1.8
-
0.017
Units per
MDMT
1.15
0.7
0.7
0.5
13
600
50
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
63.3
10.6
2.0
75.9
4.6
4.6
3.7
1.7
1.7
3.7
23.4
-
0.9
6.5
50.8
16.2
6.9
23.1
149.8
4.0
3.0
12.0
19.0
168.8
g Cost
$000/Yr
6,330
1,060
200
7,590
460
460
370
170
170
370
2,340
-
90
650
5,080
1,620
690
2,310
14,980
400
300
1,200
1,900
16,880
for fixed and working capital)
-------
Delivered Cost,$/MDMT
(200.5)
Possible Increase
in Variable
Possible Decrease I
in Variable
I
60%
- 140
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -30
+50, -50
+25, -10
+30, -30
Best
Guess
300
55
30
1.8
Possible
High
450
83
38
2.3
Possible
Low
210
28
27
1.3
FIGURE IX-E-5 SENSITIVITY OF THE MANUFACTURING COST OF
JUTE LINER TO KEY VARIABLES
IX-E-16
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Return (percent)
20-
©
_ _/__! Q
Possible Increase
in Variable
Possible Decrease
in Variable
60%
60%
©
KEY VARIABLES
1, Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/ADMT
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+50, -30
+50, -50
+25, -10
+15, -15
Best
Guess
300
55
30
195
Possible
High
450
83
38
224
Possible
Low
210
28
27
166
FIGURE IX-E-6 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF JUTE LINER TO KEY VARIABLES
IX-E-17
ArfhurHI
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TABLE IX-E-6
DESK
Functional Group Containerboard
Grade Blended linerboard
Basis Weight 205 g/m2
(42lb/1000sqft)
Production 910 M DMT/day;
31 4,000 MDMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS
($000)
Physical Plant 96,700
Other Fixed Capital 9,700
Total Fixed Capital 106,000
Working Capital 11,000
Total Capital Required 117,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Wood Preparation - 80
Pulping 1,300 84
Power & Steam Gen-
eration (incl. re-
covery & liquor
preparation) 1,300 136
A.D. Secondary Fiber
Plant 200 20
Stock Preparation - 50
Paper Making 4,000 360
Effluent Treatment - 30
Misc. & Auxiliaries 800 90
Total 7,600 850
3N BASIS
Process Kraft pulping/ continuous
digester
Fiber Furnish 80% virgin fiber, 20% S/F
50/50 roundwood/chips
(64% SW, 1 6% HW) + 20%
OCC
Pulp Yield Unbleached - 52%
Mill Location Southeast
Boundary Limits Wood and S/F preparation
through board making
OPE RATING COST*
($/MDMT)
Fiber Furnish 47.9
Other Raw Materials 3.3
Total Raw Materials Cost 51.3
Labor + Fringe@32%
of Hourly Rate 13.2
Supplies 9.4
Energy 9.1
Factory Overhead 4.8
Total Conversion Costs 36.3
Capital-Related Costs 25.9
• Total Factory Operating Cost 1 1 3.5 ($103.0/
MOST)
GS&A 7.0
Freight Out 20.0
Total Cost of Sales 27.0
• Total Delivered Cost 140.5 ($127.57
MOST)
*Totals may not add due to rounding.
IX-E-18
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FIGURE IX-E-7
MATERIAL AND ENERGY BALANCE
(Basis: 1 machine-dry metric ton of blended liner)
Roundwood
Softwood
Wood (593) 0.46 cunit
Chips
Softwood (568)
0.45 cunit
occ
Rec'd @ 10% Moisture
233kg
oarx o/i
rdwood
Wood (149)
Bark (24)
jod (742)
Hardw
0.11
0.11 cunit
(711)
Bark (121) Disc
@2
(b)
Wood (712) r (1423)
Preparation
4%
>d Losses*
(36)
48%
So
Bark ,/%
(121) %
(151)
1.79MMkcal
[7.1 MM Btu]
Fossil
Fuel
0.33 MM kcal^
[1.3 MM Btu]
aod (143)
cunit (210)
'^205) Additives**
I ~ Pulping 1 .J.J.
/»% T
f 7*3*3 \ ' 'fQifii Paperboard
L^ \ 1 OO1 \i3 1 U^
Pulping s ^ Mdkiny
1
Dissolved Soluble Loss @ 4%
lids Trash & Fiber ' '
Rejects Losses @ 7% ,, Fiber Loss
90) (22) T @%%
' Additive (2)
Recovery
Loss @ 50%
4180kg (5)
Steam
Power
Boiler
Lime
Reburning
620 k^
Steam
3110k(
Steam
7910 kg
Steam
XX
tp \
\ ' b Power
r^ssr,. •"""-
(30 MW) |
k^ 850 J
"^ kWh
Purchased Power 60 kWh
1.0MDMT@
-^.8% Mois.
(920)
( ) Indicates BD kg
*2% loss on barking, suitable for fuel
recovery, + 2% loss on chipping, suitable
for fuel or fiber recovery.
* 'Starch 3 kg, rosin 3 kg, alum 5 kg
IX-E-19
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TABLE IX-E-7
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF LINERBOARD
FROM VIRGIN AND SECONDARY FIBERS (Case I - 910 TPD)
Item
RV-T MATERIALS
Pulpwood :
Softwood (80%)
Hardwood (20%)
Secondary Fiber:
OCC
Chemicals
Pulping (credit)
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related) :
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
Cunit
Gun it
M. Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
32
27
60
7.3
7.3
8.4
-
1.0
1.0
-
0.012
Units per
MDMT
0.9
0.22
0.2
0.7
0.4
0.6
10.9
7.1
1.3
790
60
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
28.9
5.8
13.2
(0.9)
2.2
2.0
51.3
5.2
3.1
4.9
3.0
1.5
4.9
-
7.1
1.3
-
0.7
4.8
36.3
18.2
7.7
25.9
113.5
4
3
20
27
140.5
g Cost
$000/Yr
9,080
1,830
4,140
(280)
700
630
16,100
1,620
960
1,530
940
470
1,530
-
2,230
400
-
220
1.500
11.400
5,720
2,420
8,140
35,640
1,260
940
6,280
8,480
L_ 44,120
for fixed and working capital)
IX-E- 21
Arthur HI ittt*> If
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Delivered Cost,$/MDMT
60%
Possible Decrease
in Variable
60%
Possible Increase
in Variable
KEY VARIABLES
1. Scale of Operations, MTPD
2. B Del ivered Cost of Fiber, * S/^MT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -40
+20, -20
+50, -50
+25, -10
+50, -10
Best
Guess
910
31
60
106
1.0
Possible
High
1365
37
90
133
1.5
Possible
Low
545
25
30
95
0.9
*2A-Virgin, 2B-Secondary Fiber
FIGURE IX-E-8 SENSITIVITY OF THE MANUFACTURING COST OF
BLENDED LINER (CASE I) TO KEY VARIABLES
IX-E-22
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Return (percent)
Base:
Possible Increase
in Variable
I
Possible Decrease
in Variable
- 6
*2A-Virgin, 2B-Secondary Fiber
FIGURE IX-E-9
SENSITIVITY OF THE PRE-TAX RETURN ON
FIXED CAPITAL OF BLENDED LINER (CASE I)
TO KEY VARIABLES
IX-E-23
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
A /Cunit
2, D Delivered Fiber Cost,* $/ADMT
b
3. Fixed Capital, S Million
4. Selling Price, $/MDMT
Percent
Variation
+50, -40
+20, -20
+50, -50
+25, -10
+15, -15
Best
Guess
910
31
60
106
200
Possible
High
1370
37
90
133
230
Possible
Low
545
25
30
95
170
Arthur D Little In
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TABLE IX-E-8
DESIGN BASIS
Functional Group Containerboard
Grade Blended linerboard
Basis Weight 205 g/m2
(42lb/1000sqft)
Production 1140 MDMT/day;
393,000 MDMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 108,500
Other Fixed Capital 10,900
Total Fixed Capital 119,000
Working Capital 13,000
Total Capital Required 132,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Wood Preparation — 80
Pulping 1,300 80
Power & Steam Gener-
ation (incl. recovery
and liquor prep ) 1 300 140
A.D. Secondary Fiber
Plant 200 20
Stock Preparation — 50
Board Making 4,000 360
Effluent Treatment — 30
Misc. & Auxiliaries 800 90
Total 7,600 850
Process Kraft pulping/continuous
digester
Fiber Furnish 80% virgin fiber, 20% S/F
50/50 roundwood/chips
(64% SW, 16% HW) +20%
OCC
Pulp Yield Unbleached - 52%
Mill Location Southeast
Boundary Limits Wood and S/F prepara-
tion through board mak-
ing
OPE RATING COST*
($/MDMT)
Fiber Furnish 47.9
Other Raw Materials 3.3
Total Raw Materials Cost 51 .2
Labor + Fringe @ 32%
of Hourly Rate 11.8
Supplies 9.1
Factory Overhead 4.3
Total Conversion Costs 35.9
Capital-Related Costs 23.3
• Total Factory Operating
Cost 110.4($100.2/
MOST)
GS&A 7.0
Freight Out 20.0
Total Cost of Sales 27.0
• Total Delivered Cost 137.4 ($124.6/
MOST)
"Totals may not add due to rounding.
IX-E-24
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FIGURE IX-E-10
MATERIAL AND ENERGY BALANCE
(Basis: 1 machine-dry metric ton of blended liner)
Roundwood
Softwood
Wood (593) 0.46 cunit
Bark (97)
Chips
Softwood (568)
0.45 cunit
Hardwood (143)
0.11 cunit
occ
Rec'd @ 10% Moisture
233kg
(210)
Wood (149)
Bark (24)
Wood (742)
i
0.11 cunit
Bark (121
Wood
Preparation
4%
>od Losses*
(36)
)
(712) '
Bark
(121)
(151)
1
ssil Fuel ^
(711)
D
Paperboard
P *• Making
1
Soluble Loss @
Trash and Fit
Losses @ T%
(22)
Recovery
Power Boiler
Lime
Reburning
4180k
»^
Steam
620kg
Steam
3110k
Steam
i
4%
er ' '
Fiber Loss
@ y4% (2)
i '
g Additive
Loss @ 50%
(5)
1
7910kg
Steam 791 Okg Steam
•1 *
**^ Power Extracted T« Dm/-oc
1.0
.MDMT
@8%
Moisture
(920)
(30 MW)
Purchased Power 220 kWh
630 kWh
850 kWh
t
( ) Indicated BD kg
* 2% loss on barking, suitable for fuel recovery, -t- 2% loss on chipping, suitable for fuel or fiber recovery
" Fiber loss (suitable for recovery in lower-grade products)
IX-E-25
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TABLE IX-E-9
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF LINERBOARD
FROM VIRGIN AND SECONDARY FIBERS (CASE 11-1140 TPD)
Item
RA'T MATERIALS
Pulpwood
Softwood (80%)
Hardwood (20%)
Secondary Fiber
OCC
Chemicals
Pulping (credit)
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
Gun it
Cunit
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
32
27
60
7.3
7.3
8.4
-
1.0
1.0
-
0.012
Units per
MDMT
0.9
0.22
0.2
0.7
0.3
0.5
10.9
7.1
1.3
630
220
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation (§5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
28.9
5.8
13.2
(0.9)
2.2
2.0
i.L.2
5.0
2.2
4.6
3.0
1.5
4.6
-
7.1
1.3
-
2.6
4.3
35.9
16.4
6.9
23.3
110.4
4
3
20
27
137.4
$000/Yr
11.37C
2.28C
5.19C
(35(
86C
78(
20,130
1,960
860
1,790
1,180
590
1,790
-
2,790
500
-
1,040
1,600
14,100
6,430
2,710
9,140
43,370
1,570
1,180
7,860
10.610
53,980
for fixed and working capital)
IX-E-27
Arthur D Little, Inc
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Delivered Cost,$/MDMT
Possible Decrease
in Variable
160 -
_ 130
Possible Increase
in Variable
K- 120
KEY VARIABLES
1 . Scale of Operations, MTPD
A , Cunit
2. B Delivered Fiber Cost, $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+20, -50
+20, -20
+50, -50
+25, -10
+50, -10
Best
Guess
1140
31
60
119
1.0
Possible
High
1365
37
90
149
1.5
Possible
Low
570
25
30
107
0.9
*2A-Virgin, 2B-Secondary Fiber
FIGURE IX-E-11
SENSITIVITY OF THE MANUFACTURING
COST OF BLENDED LINER (CASE II) TO
KEY VARIABLES
IX-E-28
Arthur D Little; Ir
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Return (percent)
32-
0
Possible Increase
in Variable
Possible Decrease
in Variable
60%
60%
o
KEY VARIABLES
1 . Scale of Operations, MTPD
A /Cunit
2. B Delivered Fiber Cost,* S/ADMT
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+20, -50
+20, -20
+50, -50
+25, -10
+15, -15
Best
Guess
1140
31
60
119
200
Possible
High
1370
37
90
149
230
Possible
Low
570
25
30
107
170
*2A—Virgin, 2B—Secondary Fiber
FIGURE IX-E-12
SENSITIVITY OF THE PRE-TAX RETURN ON
FIXED CAPITAL OF BLENDED LINER (CASE II)
TO KEY VARIABLES
IX-E-29
Arthur D Little, Irx
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E. CONTAINERBOARD (cont'd)
2. Corrugating Medium
a. Basis of Models
Three economic models have been prepared for the production of corrugat-
ing medium from virgin, secondary fiber, and a blend of both. As the
products from these models serve competitive markets, they must be
of approximately equivalent quality.
In the manufacture of semi-chemical corrugating medium, 15-20% softwood
kraft long fiber is generally added to the virgin NSSC hardwood furnish
to provide strength in the papermaking operation. We used 15% new
double lined kraft clippings as a source of softwood kraft fiber,
which is typical of industry practice.
Although some mixed waste and/or waste news reportedly can be used im
the fiber furnish of bogus medium with no loss of product quality,
we used 100% OCC for this cost model.
A combination of 33% OCC, 15% new double lined kraft clippings, and 52%
NSSC pulp was used in the blended fiber model. Obviously, the ultimate
selection of fiber blend is influenced by the competitive costs of the
alternative raw materials at any specific mill site.
Despite the fact that there is little significant difference in quality
among these products, the marketplace tends to distinguish bogus medium
and discount it approximately $5/ton. We have accounted for this dif-
ference in our selling price estimate and return on capital calculations,
although it would not be likely to hold up under conditions of tight
supply. The effect on return on capital by eliminating this price
difference can be determined from the sensitivity chart for bogus
medium.
NSSC corrugating medium is produced in all geographic regions. We
have chosen a Southeast location for the virgin and blended models
as typical of the existing industry and consistent with the frequent
combination of linerboard and corrugating medium with cross-recovery
of pulping liquors. Regional variations can be evaluated through
use of the regional data previously presented (Table IX-C-1), in combi-
nation with the sensitivity charts for each model.
IX-E- 30
Arthur D Little, Inc
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The virgin and blended corrugating medium models are sized at 410
ADMT/day to reflect a competitive scale of operations for a new mill.
This is typical of the largest existing installations, but not the
largest corrugating medium machine that is technically feasible.
The 410-tpd capacity for the semichemical medium production is also
consistent with NSSC/kraft spent-liquor ratios suitable for cross-
recovery of the pulping liquor in typical combination medium and liner-
board mills. Since the blended fiber model represents a total new
mill installation, it is only qualitatively indicative of the economics
or the possible advantages of adding secondary fiber capacity in a
situation where machine capacity might be economically expanded even if
pulping capacity were limited. (We have not attempted to determine how
many machines have the potential for capacity expansion.) We have not
idled pulp mill capacity for replacement with secondary fiber in the
blended model, and it in no way indicates the economics of such an
operation.
Bogus medium production is centered in metropolitan areas, with some
concentration in the North Central region. We have used this region
for our typical model; the economics of other regions can be determined
through the use of regional data and sensitivity charts. We have selected
mill capacity at 300 ADMT/day, based on the existing industry character-
istics and on our judgment of the availability of fiber at competitive
cost to supply a mill; however, it is not technically limited to this
capacity.
b. Comparative Economics
Total fixed capital for the NSSC and blended models includes wood
preparation, pulping, and medium production, with on-site power gen-
eration. A wide variety of process conditions are possible for NSSC
pulping. We have selected a sodium-based process with purchases sulfite
and soda ash chemical makeup. A fluidized bed disposal burner with byproduct
credit for saltcake is used; however, the potential for cross-recovery
of pulping chemicals in combination with kraft lin er production also
exists. Total capital for bogus medium production is based on a single
machine and does not include on-site power generation, as the total
steam requirements are below the minimum we have established for on-site
power (see Section C.2.d). It does not include an asphalt dispersion
system for OCC pulping, as this is not required to meet product quality
requirements.
The total capital requirements for bogus medium are considerably lower
than for either the NSSC or blended models, both in total magnitude
and investment per daily ton. In terms of return on capital, this tends
to offset the higher operating cost and lower selling price for bogus
medium; thus, all three models have comparable returns.
The delivered cost disadvantage of bogus medium is its raw material cost
rather than its lower scale of operations. This difference is totally
due to cost of fiber and could be completely eliminated within the
IX-E- 31
Arthur D Little, Inc
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highly volatile range of OCC cost, as demonstrated on the sensitivity
chart. Because of the lower capital requirements for bogus medium,
its return on investment is even more sensitive than delivered cost,
relative to the other models, to decreases in OCC cost.
While the basic models are approximately comparable in return on capital,
with NSSC pulping the most attractive, the relationship changes dramatically
as the cost of secondary fiber drops. Bogus medium would be the most
attractive alternative with a stable, low-cost source of OCC, even with the
disadvantage of a selling price discount not based on product quality;
if the selling price discount were eliminated by market conditions, it
obviously would be even more attractive. Depending on the cost of OCC,
either NSSC corrugating medium or bogus medium would show a higher
return than the blended model. Thus, blended medium would probably be
an attractive alternative only in special situations.
IX-E- 32
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ECONOMIC
Functional Group
Grade
2
Basis Weight (g/m )
Fiber Furnish
Plant Size (MT/Day)
Plant Location
Plant Specifics
Total Fixed Capital ($Million)
TABLE IX-E-10
COMPARISON OF CORRUGATING MEDIUM
Containerboard
Corrugating Medium
127 (26 lb/1000 sq'ft)
85% Virgin
15% S/F
410
Southeast
Integrated
45
($000 Daily Ton) 110
Total Delivered Cost ($/MDMT)
146.4
Raw Materials ($/MT, delivered) 48.9
Conversion ($/MT)
Capital-Related ($/MT)
Sales Cost (less freight)
Freight in ($/MT Product)*
Freight out ($/MT Product)
Selling Price ($/MDMT)
52.1
24.5
($/MT) 7.0
9.5
14.0
190
Return on Fixed Capital, pre-tax (%) 13.7
100% S/F
300
No . Central
Nonintegrated
24
80
156.6
68.4
50.7
18.5
7.0
11.8
12.0
185
11.8
57% Virgin
43% S/F
410
Southeast
Integrated
44
107
148.2
55.2
50.4
23.9
7.0
10.1
14.0
190
12.7
*Not included in total delivered cost
IX-E- 33
Arthur HI ittlelnr
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TABLE IX-E-11
DESI
Functional Group Contains rboard
Grade NSSC Corrugating
Medium
Basis Weight 127g/m2
(26lb/1000sqft)
Production 410 MDMT/day;
141,OOOMDMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 41,000
Other Fixed Capital 4,100
Total Fixed Capital 45,000
Working Capital 5,000
Total Capital Required 50,000
ENERGY REQUIREMENTS
(perMDMT)
Steam Power
(kg) (kWh)
Wood Preparation - 100
Pulping 1,000 150
Power & Steam Gen.
(incl. recovery &
liquor prep.) 1,600 160
Stock Preparation — 150
Effluent Treatment - 30
Board Making 4,000 100
Misc. & Auxiliaries 400 110
Total 7,000 800
GN BASIS
Process NSSC pulping, Na base
Fiber Furnish 85% virgin, 15% S/F
(kraft chippings)
Pulp Yield Unbleached - 75%
Mill Location Southeast
Boundary Limits Wood and S/F preparation
through paperboard making
OPERATING COST*
($/MDMT)
Fiber Furnish 34.9
Other Raw Materials 14.0
Total Raw Materials Cost 48.9
Labor + Fringe @ 32% of
Hourly Rate 19.3
Supplies 8.5
Energy 16.2
Factory Overhead 8.2
Total Conversion Costs 52.1
Capital- Related Costs 24.5
• Total Factory Operating
Cost 125.4
GS&A 7.0 <$H3.7/MDST)
Freight Out 14.0
Total Cost of Sales 21.0
• Total Delivered Cost 146.4
($132.8/MDST)
*Totals may not add due to rounding.
IX-E- 34
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FIGURE IX-E-13
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT corrugating medium)
160kg
kraft clippings
as rec'd
@ 10% Moisture
(144)
Discards
(Negl.)
0.39 cunit
Chips
0.40 cunit
Roundwood
Wood Bark
(530)
47 kg Na2CO3
140kgNa2S03
5% Losses: Soluble
and Cleaning Rejects
O30) 1.0 MDMT «
7% Moisture
1.7% Wood
Loss
(18)
Bark
(52)
25% Dissolved
Solids
(265)
120 kg Salt Cake
Fossil Fuel
"Including washing and acid making
! ) Indicates BD kg
Purchased Power 100kWn
7,000 kg
Steam
To Process
IX-E-35
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TABLE IX-E-12
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF CORRUGATING
MEDIUM FROM 85% VIRGIN FIBER, 15% SECONDARY FIBER
Item
RAW MATERIALS
Pulpwood (85%)
Hardwood
Secondary Fiber (15%)
Kraft Clippings
Chemicals
Pulping
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
Cunit
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
30.0
70.0
6.9
6.9
7.9
-
1.0
-
0.012
Units per
MDMT
0.79
0.16
1.3
0.8
0.6
0.6
15
700
100
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation (3 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
23.7
11.2
10.5
1.5
2.0
48.9
9.0
5.5
4.8
4.3
0.6
3.6
-
15.0
-
1.2
8.2
52.1
17.2
7.2
24.5
125.4
4.0
3.0
14.0
21.0
146.4
g Cost
$000/Yr
3,340
1,580
1,480
210
280
6,890
1,250
780
670
610
80
510
-
2,110
-
170
1,160
7,340
2,430
1,020
3,450
17.680
560
420
1,980
2,960
20,640
for fixed and working capital)
IX-E-37
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60%
Possible Decrease
in Variable
Delivered Cost,$/MDMT
170-
- 130
- 120
KEY VARIABLES
1 . Scale of Operations, MTPD
A Cunit
2. B Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+30, -40
+20, -20
+25, -10
+50, -10
Best
Guess
410
30
70
45
1.0
Possible
High
530
36
84
56
1.5
Possible
Low
245
24
56
41
0.9
"Graph Shows Percentage Change in Combined Total Fiber Cost
2A-Virgin, 2B-Kraft Clippings
FIGURE IX-E-14 SENSITIVITY OF THE MANUFACTURING COST OF
NSSC CORRUGATING MEDIUM TO KEY VARIABLES
IX-E-38
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Base: 13.7%
I I—
60% 40%
I
Possible Decrease
in Variable
Return (percent)
Possible Increase
in Variable
-\
40%
"Graph Shows Percentage Change in Combined Total Fiber Cost
2A-Virgin, 2B-Secondary
FIGURE IX-E-15
SENSITIVITY OF THE PRE-TAX RETURN ON
FIXED CAPITAL OF NSSC CORRUGATING
MEDIUM TO KEY VARIABLES
IX-E-39
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+30, -40
+20, -20
+25, -10
+15, -15
Best
Guess
410
30
70
45
190
Possible
High
530
36
84
56
219
Possible
Low
245
24
56
41
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Arthur D Little Ii
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TABLE IX-E-13
DESIGIS
Functional Group Containerboard
Grade Corrugating (bogus)
Medium
Basis Weight 127g/m2
(26 I b/ 1000 sq ft)
Production 300 M DMT/day;
1 00,000 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 22,100
Other Fixed Capital 2,200
Total Fixed Capital 24,000
Working Capital 4,000
Total Capital Required 28,000
ENERGY REQUIREMENTS
(perMDMT)
Steam Power
(kg) (kWh)
Pulping - 230
Board Making 4,000 80
Effluent Treatment — 30
Micr & Anviliaripc ROD 915
Total 4,600 555
'Totals may not add due to rounding.
I BASIS
Process S/F pulping
Fiber Furnish 100% Secondary fiber
(OCC)
Pulp Yield 89%
Mill Location North Central
Boundary Limits S/F preparation through
board making
OPERATING COST
($/MDMT)
Fiber Furnish 64.9
Other Raw Materials 3.5
Total Raw Materials Cost 68.4
Labor + Fringe @ 32% of
Hourly Rate 11.2
Supplies 6.7
Energy 26.5
Factory Overhead 6.3
Total Conversion Costs 50.7
Capital- Related Costs 18.5
• Total Factory Operating
Cost 137.6
GS&A 7.0 <*124'^DST)
Freight Out 12.0
Total Cost of Sales 19.0
• Total Delivered Cost 156.6
($142.0/MDST)
IX-E-40
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EIG. IX-E-16
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT corrugating medium)
Caustic
(5)
nrria9 (1060) (1039) ^
10% Moisture
,
Pulping
(935)
Paperboard
Making
, I ,
(930) ^ 1.0 MDMT
@ 7% Moisture
i
2Va% Discards Losses: 1/z% Fiber Loss
(21) 4% Soluble (5)
+6% Trash
(104)
) indicates BD kg
Fossil Fuel
2.4 MM kcal
[9.5 MM Btu]
Steam
Generation
4,600 kg
Steam
1
To Process
Purchased Power 555 kWh
1
IX-E-41
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TABLE IX-E-14
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF CORP.UGATING
MEDIUM FROM 100% SECONDARY FIBER
Item
RAW MATERIALS
Secondary Fiber
OCC
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
M.Ton
as rec1
•
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
55
1
6.9
6.9
7.9
1.8
0.017
Units per
MDMT
1.18
0.5
0.7
0.4
9.5
555
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPG
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
64.9
1.5
2.0
68.4
3.3
4.6
3.3
1.7
1.7
3.3
17.1
9.4
6.3
_50.7
13.0
5.5
18.5
1 17.6
4.0
3.0
12.0
19.0
156.6
g Cost
$000/Yr
6,490
150
200
6,840
330
460
330
170
170
330
1,710
940
630
5,070
1,300
550
1,850
1 1 760
400
300
1.200
1.900
15,660
for fixed and working capital)
IX-E-43
ArthurDLittlelnc
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Delivered Cost, $/MDMT
189.1
Base:
$156.6
60% I
I
40%
^^»
1
20% (3 ) I
Possible Decrease
in Variable
124.2
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+30, -30
+50, -50
+25, -10
+30, -30
Best
Guess
300
55
24
1.8
Possible
High
390
83
30
2.3
Possible
Low
210
28
22
1.3
FIGURE IX-E-17
SENSITIVITY OF THE MANUFACTURING COST OF
BOGUS MEDIUM TO KEY VARIABLES
IX-E-44
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25.3
Return (percent)
©
Base:
11.8%
Possible Increase
in Variable
60%
40%
60%
Possible Decrease
in Variable |
©'
©
-1.7
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/ADMT
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+30, -30
+50, -50
+25, -10
+15, -15
Best
Guess
300
55
24
185
Possible
High
390
83
30
213
Possible
Low
210
28
22
157
FIGURE IX-E-18 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BOGUS MEDIUM TO KEY VARIABLES
IX-E-45
Arthur D Little Inc
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TABLE IX-E-15
DESIGN BASIS
Functional Group Containerboard
Grade Blended corrugating
medium
Basis Weight 127g/m2
(26lb/1000sqft)
Production 410 MDMT/day;
141,OOOMDMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 39,600
Other Fixed Capital 4,000
Total Fixed Capital 44,000
Working Capital 5,000
Total Capital Required 49,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Wood Preparation — 70
Pulping (NSSC) 700 100
(S/F) - 80
^tnrk Prpnaratinn 100
Board Making 4,000 100
Steam & Power Gen.
(incl. recovery &
liquor prep.) 1,200 100
Effluent Treatment - 30
Misc. & Auxiliaries 500 110
Total 6,400 690
Process NSSC pulping, Na base
Fiber Furnish 57% virgin fiber (NSSC),
10% kraft clippings, 33%
OCC
Pulp Yield Unbleached - 75%
Mill Location Southeast
Boundary Limits Wood & S/F preparation
through board making
OPERATING COST*
($/MDMT)
Fiber Furnish 44.7
Other Raw Materials 10.5
Total Raw Materials Cost 55.2
Labor + Fringe© 32% of
Hourly Rate 19.4
Supplies 8.5
Energy 14.3
Factory Overhead 8.3
Total Conversion Costs 50.4
Capital- Related Costs 23.9
• Total Factory Operating
Cost 129.5 ($117.57
GS&A 7.0 MDST)
Freight Out 14.0
Total Cost of Sales 21.0
• Total Delivered Cost 150.5 ($136.5/
MOST)
*Totals may not add due to rounding.
IX-E-46
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FIGURE IX-E-19
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT corrugating medium)
3 kg Caustic.
335 kg OCC
as rec'd
10% Moisture
107 kgkraft
clippings @
10% Moisture
Chips
0.29 cunit
HW Rouru
Wood Bark (35)
(302)
(296) __
1 fc 2% Di«™»rri Ifil ""
(96) ^
L^ Disca
(Ne
cunit <384>
IS
wood |
(91 )_
I •*
rds (5)
3I.) j
and Cleaning Reject
Ma PH
Na2SO3
S/F
Pulping
(2)
(30)
s
-^ 50% Chemical
Loss
(31)
^"
(93) ^_
\
(357)
Losses: 4% Soluble,
6% Trash
1.7% Wood
Loss
(14)
Bark
(35)
25% Dissolved
Solids
(192)
1.0 MDMT @
7% Moisture
'/4% Fiber Loss (2)
50% Chemical Loss (67)
80 kg Salt Cake
Fossil Fuel
_^
Fluidized
bed
Burning
3.45 MM kcal
(13.7 MM Btul
Okg
Steam
185kg
Power
Boiler
6,215k
Steam
9
6,400 kg
Steam
Extracted
Power
640 kWh
) Indicates BD kg
[11 MW]
Purchased Power 50 kWh
To Process
690 kWh
\
IX-E-47
Arthur D Little, Inc
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Table IX-E-16
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF CORRUGATING
MEDIUM FROM 57% VIRGIN FIBER, 43% SECONDARY FIBER
Item
R.4TJ MATERIALS
Pulpwood
Hardwood (57%)
Secondary Fiber
Kraft Clippings (10%)
OCC (33%)
Chemicals
Pulping
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
Cunit
M.Ton
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
30.0
70
60
6.9
6.9
7.9
-
1.0
-
0.012
Units per
MDMT
0.57
0.107
0.335
1.3
0.8
0.6
0.4
13.7
640
50
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPG
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
17.1
7.5
20.1
7.0
1.5
2.0
55.2
9.1
5.5
4.8
4.3
0.6
3.6
-
13.7
-
0.6
8.3
50.4
16.9
7.0
23.9
129.5
4.0
3.0
14.0
21.0
150.5
$000/Yr
2,410
1,060
2,830
990
210
280
7,780
1,280
780
670
610
80
510
-
1,930
-
80
i ,i7n
7,110
2,380
990
3.370
18.260
560
420
1.980
2.960
21,220
for fixed and working capital)
IX-E-48
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Delivered Cost,$/MDMT
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Possible Increase
in Variable
Possible Decrease
in Variable
60%
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
tCunit
2. Delivered Cost of Fiber,* $/)ADMT
B ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+30, -40
+20, -20
+50, -50
+25, -10
+50, -10
Best
Guess
410
30
70
60
44
1.0
Possible
High
530
36
84
90
55
1.5
Possible
Low
245
24
56
30
40
0.9
*2A—Graph Shows Combined Total of Virgin Fiber Plus Kraft Clippings
2B-OCC
FIGURE IX-E-20
SENSITIVITY OF THE MANUFACTURING COST OF
BLENDED MEDIUM TO KEY VARIABLES
IX-E-49
Arthur D Little
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60%
Return (percent)
24 -
Possible Increase
in Variable
Possible Decrease
in Variable
60%
o
©
KEY VARIABLES
1. Scale of Operations, MTPD
A |Cunit
2. Delivered Cost of Fiber,* $/' Jp[Jf
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+30, -40
+20, -20
+50, --50
+25, -10
+15, -15
Best
Guess
410
30
70
60
44
190
Possible
High
530
36
84
90
55
219
Possible
Low
245
24
56
30
40
161
*2A—Graph Shows Combined Total of Virgin Fiber Plus Kraft Clippings
2B-OCC
FIGURE IX-E-21
SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BLENDED MEDIUM TO KEY VARIABLES
IX-E-50
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F. GROUNDWOOD PAPERS
1. Newsprint
a. Basis of Models
Three economic models have been prepared for the production of newsprint—
from virgin fiber, secondary fiber, or a blend of both. The products
from these models are commodities that serve competitive markets and
thus must be of approximately equivalent quality.
Virgin newsprint is commonly made with a predominantly groundwood furnish
which includes some chemical fiber, either semi-bleached kraft or sulfite.
We have used 75% groundwood and 25% semi-bleached kraft for our model.
Industry experience has indicated that 100% waste newsprint, properly
cleaned, can be used to make a product of the same quality; thus we
have used this as the furnish for our secondary fiber. Since waste news-
print can be used without any deterioration of product quality, furnish
for the blended model is somewhat arbitrary; we have used 33% No. 1 news
and 67% virgin newsprint furnish (75% groundwood and 25% semi-bleached
kraft).
Despite the fact that there is little difference in quality among these
products, the marketplace tends to distinguish recycled newsprint by
discounting it approximately $5/ton. We have accounted for this dif-
ference in our selling price estimate and return on capital calculations,
although it would not be likely to hold up under conditions of tight
supply. The effect on return on capital by eliminating this price dif-
ference can be determined from the sensitivity chart for secondary
newsprint
Virgin newsprint is produced in the Northeast, Pacific Northwest, and
South. Secondary newsprint is produced in metropolitan areas of the
Northeast, North Central, and Southwest. We have chosen a Northeast location
for all models because it is typical of the existing industry and offers
a common basis for comparison. Regional variations can be evaluated
through use of the regional data previously presented (Table IX-C-1) in com-
bination with the sensitivity charts for each model.
The virgin and blended models are sized at 500 MDMT/day to reflect a compet-
itive scale of operation for a new newsprint machine installation. This
machine would be integrated to a larger facility that provided chemical
fiber furnish, specifically the 730-tpd bleached kraft mill described in
Section A.6. The chemical fiber component was transferred at the total
slush pulp cost. Similarly, for the virgin groundwood fiber component,
pulp was transferred at the total cost for slush pulp manufacture.
In this instance we assumed a 400-tpd operation.
IX-F-1
Arthur D Little, Inc
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For the blended model we have used the same slush pulp unit costs, which
presumes that the excess groundwood pulp would be used elsewhere on site.
(See Slush Pulp Cost, Section A.6.) Since the blended model represents
the newsprint portion of a larger total new mill installation, it is
not directly indicative of the economics or possible advantages of
adding secondary fiber capacity in a situation where existing machine
capacity might be expanded. (See Containerboard, Section E.I.a.) We
have not attempted to determine how many machines have the potential
for capacity expansion, nor have we idled pulp mill capacity when using
secondary fiber in the blended model. The blended model provides a
framework from which the potential costs and profitability of adding
incremental capacity may be determined, given the specific conditions.
For recycled newsprint, we have set the mill capacity at 300 MDMT/day,
based on the existing industry characteristics and on our judgment of
the availability of fiber at competitive cost to supply a mill; however,
there are no adverse effects from recycling the old news that would
limit the capacity of the machine to this level.
b. Comparative Economics
Table IX-F-1 summarizes the total capital, delivered cost, and return
on capital for the three newsprint models.
Total fixed capital for the virgin and blended newsprint models of
$99 and $92 million respectively includes papermaking, deinking for the
blended model, and an allocation of the capital costs for stone ground-
wood and semi-bleached kraft slush pulp production. On-site power
generation is included for both.
Total fixed capital requirement of $40 million for secondary newsprint
production is based on a single machine and does not include on-site
power, as the total steam requirements are below the minimum we have
established for on-site power (see Section C.2.d.) Capital has been included
for the deinking and cleaning equipment necessary to make an acceptable
product from No. 1 news. The total capital requirements and investment per
daily ton for secondary newsprint are considerably lower than for either the
virgin or blended models.
The delivered cost for secondary newsprint at $193.6/MDMT is lower than
either the virgin model at $204.1 or the blended model at $199.8. This
advantage could be increased within the highly volatile range of No. 1
news cost, as demonstrated on the sensitivity chart for delivered cost
(Figure IX-F-5) which clearly identifies delivered fiber cost as the most
sensitive component.
Of the three models, secondary newsprint has the most attractive return
on capital by virtue of its lower total capital and delivered cost. It
would become even more attractive with a stable, low-cost source of
No. 1 news.
IX-F-2
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While the blended model is less attractive than 100% S/F, its lower raw
material cost compared with 100% virgin fiber indicates that the pulp-
ing of No. 1 news is a more economical way to increase pulp capacity
than is virgin fiber pulping, provided a stable price and volume of No.
1 news is available. In the manufacture of blended newsprint, return on
capital is most sensitive to selling price (Figure IX-F-9); thus, second-
ary newsprint would have an additional advantage if its price discount
were eliminated by a tight supply market.
Power is a large cost component in the manufacture of virgin newsprint.
When considering the effect of a possible increase in energy cost, one
must determine its impact on the cost of slush pulp manufacture (Section
IX-M) as well as on the paper-making operation as reported in this section.
IX-F-3
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TABLE IX-F-1
Economic Comparison of Newsprint Manufacture
Functional Group Groundwood Papers
Grade Newsprint
0
Basis Weight (g/m ) 49 (30 lb/3000 sq ft )
67% Virgin
Fiber Furnish 100% Virgin
Plant Size (MT/DAY) 500
Plant Location Northeast
Plant Specifics Integrated
*
Total Fixed Capital ($ Million) 99
($000/Daily Ton) 198
Total Delivered Cost ($AtDMT) 204.1
Raw Materials ($/MT, delivered) 108.4
Conversion ($/MT) 36-9
Capital-Related ($/MT) 26-2
Sales Cost (less freight) ($/MT) 12-6
Freight in ($/MT Product)** 12-7
Freight out ($/MT Product) 2°'°
Selling Price ($/MDMT) 240
*
Return on Fixed Capital, pre-tax (%) 6.2
100% Secondary 33% Secondary
300 500
Northeast Northeast
Non-Integrated Integrated
40 92
133 184
193.6 199.8
66.1 94.1
72.8 44.2
30.1 28.9
12.6 12.6
12.5 12.4
12.0 20.0
235 240
10.6 7.4
*Including pulping
**Not included in total delivered cost
IX-F-5
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Table IX-F-2
DESIGN BASIS
Functional Group Groundwood Papers
Grade Newsprint
Basis Weight 49 g/m2
(30lb/3000sqft)
Production 500 M DMT/day;
170,000 MDMT/yr
Net Operating Days 340/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 52,700
Other Fixed Capital 5,300
Total Fixed Capital 58,000
Working Capital 9,000
Total Capital Required 67,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Wood Preparation - 120
Paper Making 2,700 200
Effluent Treatment - 1 5
Misc inct Auxiliaries 450 15
Total 3,150 350
Process Integrated to semi-
bleached kraft
Fiber Furnish 100% virgin (75% ground
wood slush pulp, 25%
semi-bleached kraft
slush pulp)
Pulp Yield Groundwood — 95%
Mill Location Northeast
Boundary Limits Wood preparation and
transfer of slush pulp
to paper making
OPE RATING COST*
($/MDMT)
Fiber Furnish 105.5
Other Raw Materials 2.8
Total Raw Materials Cost 108.4
Labor + Fringe @ 32%
of Hourly Rate 10.0
Supplies 11.2
Energy 12.9
Factory Overhead 2.9
Total Conversion Costs 36.9
Capital-Related Costs 26.2
• Total Factory Operating 171.5 ($155.67
Cost MOST)
GS&A 1 2.6
Freight Out 20.0
Total Cost of Sales 32.6
• Total Delivered Cost 204.1 ($185.2/
MOST)
"Totals may not add due to rounding.
IX-F-6
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Figure IX-F-1
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT newsprint)
0.257 ADMT
Semi-bleached -
Kraft Slush Pulp
(232)
0.778 ADMT
Ground wood-
Slush Pulp
(700)
Paper
Making
(930)
1.0 MDMT
@ 7% Moisture
V*% Loss
(2)
( ) Indicates BD kg
Fossil Fuel
1.59 MM kcal^_
[6.3 MM Btu]
Power
Boiler
>
\
3150kg
Steam
To Process
Power
Extracted
315 kWh
Purchased
Power 35 kWh
350
kWh
IX-F-7
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TABLE IX-F-3
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF NEWSPRINT
FROM 100% VIRGIN FIBER
Item
R.A" MATERIALS
Slush Pulp
Groundwood (75%)
Semi-Bleached Kraft (25%)
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
85.1
153.0
6.3
6.3
7.3
2.0
-
0.01
Units per
MDMT
0.778
0.257
0.6
0.3
0.7
6.0
270
80
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
66.2
39.3
0.8
2.0
108.4
3.5
1.7
4.8
3.9
2.5
4.8
12.0
-
0.8
2.9
36.9
18.4
7.8
26.2
171.5
7.2
5.4
20.0
32.6
204.1
g Cost
$000/Yr
11,260
6,680
140
340
18,420
600
290
820
660
420
810
2,040
-
140
500
6,280
3,130
1,320
4,450
ZV,LW
1,220
920
3,400
5,540
34,690
for fixed and working capital)
IX-F-9
Arthur D Little Inc
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Delivered Cost $/MDMT
Base:
$204.1
60%
Possible Decrease C 4)
in Variable
60%
KEY VARIABLES
1. Scale of Operations, MTPD
A
2. B Delivered Cost of Fiber,*$/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+ 0, -30
+20, -20
+25, -10
+30, -30
Best
Guess
500
153
85
58
2.0
Possible
High
500
184
102
73
2.6
Possible
Low
350
122
68
52
1.4
*2A-SB Kraft, 2B-Groundwood Slush Pulp
FIGURE IX-F-2
SENSITIVITY OF THE MANUFACTURING COST OF
NEWSPRINT (VIRGIN) TO KEY VARIABLES
IX-F-10
Arthur D Little Inc
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1
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Return 1
14 -
12--
Q 10-
|\
Base: fl^N.
6.2% f^^v"
1 1 ' ^^^
• 60% 40% j 20%-j^-x^ /
\
1
1
1
1
I
1
1
Possible Decrease f^}*^ / ~
in Variable ^— ' ' /
1 /
, /
/
Gf— •
percent)
_ Q
/I
/ 1
/ 1
/ 1
/ i Possible Increase
/ i in Variable
/ i
' ' 1 1
N^-x^..,^^ 20% { 40% 60%
\^ —TiSsJ <^>i
- 4 N< | \3/
\J
-2 (7)
-0
Percent Best Possible Possible
KEY VARIABLES Variation Guess High Low
1. Scale of Operati ons,** MTPD + 0, -30 500 500 350
A 153 184 122
2. B Delivered Cost of Fiber,* S/ADMT +20, -20 35 102 68
3. Fixed Capital,** $ Million +25, -10 58 73 52
4. Selling Price, $/MDMT +15, -15 240 276 204
*2A-SB Kraft, 2B-Groundwood Slush Pulp
Variation applies to paper-making operation only; allocated fixed capital for pulp manufacture
1
1
1
is assumed constant at $41 million.
FIGURE IX-F-3 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF NEWSPRINT (VIRGIN) TO KEY VARIABLES
IX-F-11
Arthur
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Table IX-F-4
DESIGN BASIS
Functional Group Groundwood Papers
Grade Newsprint
Basis Weight 49 g/m2
(30 lb/3000 sq ft)
Production 300 M DMT/day;
102,000 MDMT/yr
Net Operating Days 340/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 36,600
Other Fixed Capital 3,700
Total Fixed Capital 40,000
Working Capital 5,000
Total Capital Required 45,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Pulping & De-inking 500 420
Paper Making 2,700 200
Effluent Treatment — 40
Total 3,800 700
Process S/F pulping and
de-inking
Fiber Furnish 100% old news
Pulp Yield 80% AD S/F to MD
paper
Mill Location Northeast
Boundary Limits S/F preparation through
paper making
OPE RATING COST*
($/MDMT)
Fiber Furnish 56.3
Other Raw Materials 9.8
Total Raw Materials Cost 66.1
Labor + Fringe @ 32%
of Hourly Rate 16.4
Supplies 15.2
Energy 31 .7
Factory Overhead 9.6
Total Conversion Costs 72.8
Capital-Related Costs 30.1
• Total Factory Operating 169.0 ($153.3/
Cost MOST)
GS&A 12.6
Freight Out 12.0
Total Cost of Sales 24.6
• Total Delivered Cost 193.6 ($175.6/
MOST)
*Totals may not add due to rounding.
IX-F-12
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Figure IX-F-4
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT newsprint)
No. 1 News
@ 10% Moisture
Pulping
&
De-inking
\
17%
(1
r
Losses
91)
(932) ^_
Paper
Making
\
Y*%
(
r
Loss
2)
(930) _
1.0MDMT
@ 7% moisture
( ) Indicates BD kg
Fossil Fuel-
2.14 MM kcal ^
[8.5 MM Btu]
Steam
Generation
3800 kg
Steam
I
To Process
Purchased Power 700 kWh
IX-F-13
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TABLE IX-F-5
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF NEWSPRINT
FROM 100% SECONDARY FIBER
Item
RAW MATERIALS
Secondary Fiber
No. 1 News
Chemicals
De- inking
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead @ 80% D&1 L-
Unit
M. Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
45.0
6.3
6.3
7.3
2.0
0.021
Units per
MDMT
1.25
1.1
0.8
0.6
8.5
700
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
56.3
5.8
1.0
3.0
66.1
7.0
5.0
4.4
5.7
2.5
7.0
17.0
14.7
9.6
72.8
21.2
8.9
30.1
169.0
7.2
5.4
12.0
24.6
193.6
$000/Yr
5,740
590
100
310
6,740
710
510
450
580
260
710
1,730
1,500
980
7,430
2,160
910
3,070
17,240
740
550
1.220
2,510
19,750
for fixed and working capital)
IX-F-15
Arthur D Little, Inc
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Delivered Cost,$/MDMT
Base:
$193.6
Possible Decrease
in Variable
60%
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MM Btu
Percent
Variation
+30, -30
+50 , -50
+25, -10
+30, -30
Best
Guess
300
45
40
2.0
Possible
High
390
68
50
2.6
Possible
Low
210
23
36
1.4
FIGURE IX-F-5 SENSITIVITY OF THE MANUFACTURING COST OF
NEWSPRINT (SECONDARY) TO KEY VARIABLES
IX-F-16
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Return (percent)
Possible Increase
in Variable
Possible Decrease
in Variable
60%
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/ADMT
3- Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+30, -30
+50, -50
+25, -10
+15, -15
Best
Guess
300
45
40
235
Possible
High
390
68
50
270
Possible
Low
210
23
36
200
FIGURE IX-F-6 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF NEWSPRINT (SECONDARY) TO KEY VARIABLES
IX-F-17
Arthur-HI
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Table IX-F-6
DESIGN BASIS
Functional Group Groundwood Papers
Grade Newsprint
Basis Weight 49 g/m2
(30 lb/3000 sq ft)
Production 500 M DMT/day;
1 70,000 MDMT/yr
Net Operating Days 340/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 58,500
Other Fixed Capital 5,900
Total Fixed Capital 64,000
Working Capital 8,000
Total Capital Required 72,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Pulping & De-inking 175 190
Paper Making 2,700 200
Effluent Treatment — 1 5
Misc., incl. Auxiliaries 525 15
Tntal T 40(1 49(1
Process Newsprint de-inking, inte-
grated to semi-bleached
kraft
Fiber Furnish 67% Virgin (50% ground-
wood slush pulp, 17% SBK
slush pulp), 33% S/F
Pulp Yield 80% AD S/F to MD paper
Mill Location Northeast
Boundary Limits S/F preparation and trans-
fer of slush pulp through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 89.3
Other Raw Materials 4.9
Total Raw Materials Cost 94.1
Labor + Fringe @ 32%
of Hourly Rate 11.7
Supplies 11.8
Energy 16.7
Factory Overhead 3.9
Total Conversion Costs 44.2
Capital-Related Costs 28.9
• Total Factory Operating 167.2 ($151.77
Cost MOST)
GS&A 12.6
Freight Out 20.0
Total Cost of Sales 32.6
• Total Delivered Cost 199.8 ($181.37
MOST)
"Totals may not add due to rounding.
IX-F-18
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Figure IX-F-7
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT newsprint)
0.173 ADMT
SBK Slush Pulp
0.52 ADMT Ground-
wood Slush Pulp
(156)
(468)
0.412 MT No. 1
News as rec'd
@ 10% Moisture
(371)
Pulping
&
De-inking
T
(308) T|9j3
(624)
Paper
Making
(930)
1.0MDMT
@ 7% Moisture
17% Losses
(63)
%% Losses
(2)
Indicates BD kg
Fossil Fuel
1.89 MM kcal
[7. 5 MM Btu]
Power
Boiler
>
i
3400 kg Steam
Power
Extracted
340 kWh
To Process
Purchased Power 80 kWh
420 kWh
IX-F-19
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TABLE IX-F-7
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF NEWSPRINT
FROM VIRGIN AND SECONDARY FIBERS
Item
RAW MATERIALS
Slush Pulp
Groundwood (50%)
Semi-Bleached Kraft (17%)
Secondary Fiber:
No. 1 News (33%)
Chemicals
De-inking
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
ADMT
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
85.1
153.0
45
6.3
6.3
7.3
2.0
-
0 . 021
Units per
MDMT
0.520
0.173
0.412
0.7
0.4
0.7
7.5
340
80
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPG
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
44.3
26.5
18.5
1.9
1.0
2.0
94.1
4.5
2.4
4.8
4.5
2.5
4.8
15.0
-
1.7
3.9
44.2
20.3
8.6
28.9
167.2
7.2
5.4
20.0
32.6
199.8
g Cost
$000/Yr
7,520
4,500
3,150
320
170
340
16,000
760
410
820
770
420
820
2,550
-
290
670
7,510
3,460
1,460
4,920
28,430
1,220
920
3.400
5,540
33,970
for fixed and working capital)
IX-F-20
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230-,
60%
Possible Increase
in Variable
KEY VARIABLES
1 . Scale of Operations, MTPD
A
2. B Delivered Cost of Fiber, * $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MM Btu
Percent
Variation
+ 0, -30
+20, -20
+50, -50
+25, -10
+30, -30
Best
Guess
500
102
45
64
2.0
Possible
High
500
122
68
80
2.6
Possible
Low
350
82
23
58
1.4
*2A-Virgin (Average Slush Pulp Cost), 2B-Secondary Fiber
FIGURE IX-F-8
SENSITIVITY OF THE MANUFACTURING COST OF
NEWSPRINT (BLENDED) TO KEY VARIABLES
IX-F-21
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Return (percent)
60%
Possible Decrease
in Variable
16 -
14 _
12 -
10 _
/I
/I
/ 1
/ 1
/ 1
1
1
1
5r —
©
i
-20%
Possible Increase
in Variable
I i
40% 1 60%
h- 0
KEY VARIABLES
1. Scale of Operations,** MTPD
A
2. g Delivered Cost of Fiber,* S/ADMT
3. Fixed Capital,** $ Million
4. Selling Price, $/MDMT
Percent
Variation
+ 0, -30
+20, -20
+50, -50
+25, -10
+15.-15
Best
Guess
500
102
45
64
240
Possible
High
500
122
68
80
276
Possible
Low
350
82
23
58
204
*2A-Virgin (Average Slush Pulp Cost), 2B-Secondary Fiber
"Variation applies to paper-making operation only; allocated fixed capital for pulp manufacture
is assumed constant at $28 million.
FIGURE IX-F-9
SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF NEWSPRINT (BLENDED) TO KEY VARIABLES
IX-F-22
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F. GROUNDWOOD PAPERS (cont'd)
2. Uncoated Printing Paper
a. Basis of Models
Economic models have been prepared for the production of uncoated ground-
wood printing papers from virgin fiber, secondary fiber, or a blend of
both. This product is made in a variety of grades to suit the specific
requirements of diverse markets. We have selected the same grade for
each of our models, so that the products would serve competitive markets
and of necessity be of approximately equivalent quality.
Virgin groundwood printing papers are commonly made with a substantial
groundwood furnish, from 25% to 75%; the remainder is chemical fiber,
either semi-bleached kraft or sulfite. We have used 65% groundwood and
35% semi-bleached kraft for our model. We have selected a fiber furnish
of 80% No. 1 news and 20% white ledger for our secondary fiber model;
this is based on industry experience that No. 1 news, properly cleaned,
is equivalent to newsprint furnish (75% groundwood, 25% chemical fiber)
and that white ledger is somewhat inferior to softwood chemical fiber.
For the blended model, we have used a furnish of 41% groundwood, 26% semi-
bleached kraft, and 33% No. 1 news. This corresponds to replacing 33%
of the total furnish with No. 1 news, having a quality equal to 75%
groundwood and 25% SBK.
Despite the fact that we have selected the fiber furnish for these models
to eliminate quality differences, the marketplace tends to distinguish
recycled printing papers by discounting them approximately 10%. We have
accounted for this in our selling price estimate and return on capital
calculations, although it would not be likely to hold up under condi-
tions of tight supply. If this price difference were eliminated, the
effect on return on capital can be determined from the sensitivity
chart for the secondary fiber model (Figure IX-F-15.)
Virgin groundwood printing papers are produced in all regions of the
country. There is no specific geographic constraint on the location
of mills for making this grade from secondary fiber, except that the
logistics of fiber supply would be favored by a metropolitan location.
We have located all models in the Northeast as representative of
existing industry patterns and offering a common basis for comparison.
Regional variations can be evaluated through use of the regional data
previously presented. (Table IX-C-1), in combination with the sensi-
tivity charts for each model.
The virgin and blended models are sized at 272 MDMT/day to reflect
a competitive scale of operations for a new printing paper machine
installation. This machine would be integrated to a larger facility
that provided chemical fiber furnish. In both cases we have integrated
the model to a 400-ADMT/day groundwood slush pulp mill and a 730-ADMT/day
IX-F- 23
Arthur D Little, Inc
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kraft mill, with the excess groundwood and kraft slush pulp used else-
where on site (see Slush Pulp Cost, Section A.6.) Since the blended
model represents the printing paper portion of a larger total new mill
installation, it is not directly indicative of the economics or the
possible advantages of adding secondary fiber capacity in a situation
where existing machine capacity might be expanded (see Containerboard,
Section E.2.a.)
We have not attempted to determine how many machines have the potential
for capacity expansion, nor have we idled pulp mill capacity when re-
placing virgin with secondary fiber. The blended model provides the
framework from which the potential costs and profitability of adding
incremental capacity may be determined, given the specific conditions.
For secondary groundwood printing papers, we have selected mill capacity
at 136 MDMT/day to reflect the fact that secondary printing products
typically serve specialized markets and are made on machines that
are smaller than those used for virgin fiber. Although fiber availa-
bility would not limit the mill to this specific size, it would be a
prime factor in the scale of operations for the secondary fiber model.
The paper machine is not limited to this sLze by technical considerations.
b. Comparative Economics
Table IX-F-8 summarizes the total capital, delivered cost, and return
on capital for the three uncoated groundwood printing paper models.
Total fixed capital for the virgin and blended models of $59 million
includes papermaking, deinking for the blended model, and an allocation
of the capital costs for stone groundwood and semi-bleached kraft slush
pulp production. On-site power generation is included for both. How-
ever, the power requirements for groundwood slush pulp production greatly
exceed the capability for power generation. Because of this high power
requirement, we have estimated purchased power cost for groundwood
slush pulp at $0.01 kWh, well below the average regional rate of
$0.021 kWh.
Total fixed capital requirement for the secondary fiber model of
$33 million is based on a single machine and does not include on-site
power, as the total steam requirements are below the minimum we have
established for on-site power (see Section C.2.d.) Capital has been
included for the deinking and cleaning equipment necessary to make
an acceptable product from No. 1 news. The total capital requirements
for this model are lower than for the virgin or blended models;
however, because the plant size is only half that of the other
models, it has a higher investment per daily ton.
The delivered cost for secondary groundwood printing papers at $324.6/MDMT
is higher than either the virgin product at $269.0 or the blended product
at $268.6. This model also has other disadvantages. Although it has
the lowest raw material cost of the three models, it requires the use
of expensive white ledger to maintain product quality. The sensitivity
IX-F- 24
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chart for delivered cost (Figure IX-F-14) indicates that because of this
high and stable cost for white ledger, the possible decrease in delivered
cost through fiber cost reductions is not as great as the possible range
for No. 1 news alone. The possible advantages in raw material costs
are offset by the high conversion and capital costs associated with
a small scale of operations, and by the higher costs of a nonintegrated
operation, highlighted by the sensitivity of the secondary model to
energy costs. Even with raw material costs at the low end of the range
and the scale of operations increased to 177 MDMT/day, the secondary model
would not overcome the comparative disadvantages of being nonintegrated.
The pre-tax return on capital of the blended and virgin models are the
same at 6.3%. The sensitivity chart for return (Figure IX-F-18) indicates
that a low-cost source of No. 1 news would make the blended model more
attractive. Its lower raw material cost, and potential for even lower
costs and better return with a stable, low-cost source of No. 1 news,
indicates that No. 1 news is an attractive source of incremental pulp
capacity compared with increased virgin fiber pulping. The secondary
fiber model is so heavily disadvantaged by its small, nonintegrated
position and dependence on a high-cost raw material that no reasonable
circumstances would make it more attractive than either the virgin or
blended fiber models; however, a combination of eliminating the selling
price differential, increasing the scale of operations, and establishing
a stable, low-cost fiber source would make it competitive.
We have included an operating cost estimate only for one additional model,
a nonintegrated virgin fiber mill(integrated to groundwood only), using
market pulp as the chemical fiber raw material, and we have prepared a
summary sheet (Table IX-F-15) to compare it with the 100% secondary
fiber model. The costs for the nonintegrated virgin fiber model have
been developed by taking the same capacity as the secondary fiber model
and substituting market pulp for secondary fiber and groundwood slush
pulp for secondary newsprint (No. 1 news), with corresponding reductions
in conversion and capital costs. The investment and operating costs for
the deinking operation were deleted in developing the costs for the market
pulp model.
Thus, the nonintegrated virgin fiber model represents a new single-
machine installation. Since this is a hypothetical case not directly
representative of either the existing industry or probable capacity
expansions, we consider it unrealistic to perform sensitivity and
profitability calculations for this model. Our intent in including it
is to provide a comparison on an equivalent basis of high-grade pulp
substitute deinking waste papers and market pulp as alternative
fiber sources for nonintegrated papermaking.
The nonintegrated virgin fiber model provides a framework for estimating
actual mill costs, but one must keep in mind that the nonintegrated paper
industry has no new or recent installations, and that its production is
not accurately characterized by a single-machine operation.
IX-F-25
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The total delivered cost of $360.3 and raw material cost of $180.4 per
metric ton for the nonintegrated virgin fiber model compare with a
delivered cost of $324.6 and raw material cost of $109.8 for secondary
fiber. These relative cost differences are due to fiber source alone,
and would be true at other levels of actual operating cost if the costs
of conversion, capital, and sales differed from those in our models.
The fiber cost differences, while not as great as for models using
100% chemical fiber, explain the high cost and extensive utilization
of high-grade pulp substitute deinking secondary fiber sources. Thus,
the existing nonintegrated paper mills could provide a ready market
if new sources of these secondary fiber grades could be developed.
Utilization would remain high at much greater secondary fiber tonnages
than presently generated, so long as market pulp prices were at a level
where our comparison is valid.
IX-F-26
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TABLE IX-F-8
1
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1
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*
1
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Economic Comparison of Groundwood Printing Paper Manufacture
Functional Group
Grade
2
Basis Weight (g/m )
Fiber Furnish
Plant Size (MT/DAY)
Plant Location
Plant Specifics
*
Total Fixed Capital ($ Million)
($000/Daily
Total Delivered Cost ($/MDMT)
Groundwood Papers
Uncoated Printing Paper
57 (35 lbs/3000 sq ft)
100% Virgin
272
Northeast
Integrated
59
Ton) 216
269.0
Raw Materials ($/MT, delivered) 128.2
Conversion ($/MT) 53.3
Capital-Related ($/MT)
32.4
Sales Cost (less freight) ($/MT) 25-0
Freight in ($/MT Product)** H-7
Freight out ($/MT Product)
Selling Price ($/MDMT)
*
Return on Fixed Capital, pre-tax
30.0
310
(%) 6.3
100% Secondary
136
Northeast
Non-Integrated
33
243
324.6
109.8
113.6
56.2
25.0
13.0
20.0
280
- 6.1
67% Virgin
33% Seconda
272
Northeast
Integrated
59
216
268.6
113.1
62.9
37.6
25.0
11.6
30.0
310
6.3
* Including pulping and converting
** Not included in total delivered
cost
IX-F- 27
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Table IX-F-9
DESIGN BASIS
Functional Group Groundwood Papers
Grade Uncoated printing
paper
Basis Weight 57 g/m2
(35lb/3000sqft)
Production 272 MDMT/day;
90,000 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 34,900
Other Fixed Capital 4,000
Total Fixed Capital 38,000
Working Capital 6,000
Total Capital Required 44,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Paper Making 3,600 380
Effluent Treatment - 20
Misc. & Auxiliaries 600 20
Total 4,400 420
Process Integrated to semi-bleached
kraft
Fiber Furnish 100% Virgin (65% ground-
wood slush pulp, 35%SBK)
Pulp Yield n.a.
Mill Location Northeast
Boundary Limits Transfer of slush pulp
through paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 97.5
Other Raw Materials 30.6
Total Raw Materials Cost 128.2
Labor + Fringe @ 32%
of Hourly Rate 14.6
Supplies 15.3
Energy 18.6
Factory Overhead 4.8
Total Conversion Costs 53.3
Capital-Related Costs 32.4
• Total Factory Operating
Cost 214.0 (194.1/
MOST)
GS&A 25.0
Freight Out 30.0
Total Cost of Sales 55.0
• Total Delivered Cost 269.0 ($244.07
MOST)
"Totals may not add due to rounding
IX-F- 28
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Figure IX-F-10
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT uncoated paper)
Starch
Filler, Clay
0.31 3 ADMT SBK
Slush Pulp
(282)
0.583 ADMT Ground-
wood Slush Pulp
(525)
( ) Indicates BD kg
Fossil Fuel
(50)
(85)
Paper
Making
(930)
1.0MDMT
@ 7% Moisture
1/4% Fiber Loss (2)
20% Filler Loss (10)
4,200 kg Steam
2.3 MM kcal
[9.3 MM Btu]
Power
Boiler
>
1
^
'"N.
/ N
1
t ^^J
\
\
t
j*l
\
I
To Process
Power T
Extracted |
420 kWh
IX-F-29
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TABLE IX-F-10
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF UNCOATED
PRINTING PAPER FROM 100% VIRGIN FIBER
Item
RJW MATERIALS
Slush Pulp
Groundwood (65%)
Semi-Bleached Kraft (35%)
Starch
Filler Clay
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related) :
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
ADMT
Kg
Kg
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
85.1
153.0
0.23
0.09
6.3
6.3
7.3
2.0
-
0.021
Units per
MDMT
0.583
0.313
85
50
0.9
0.4
0.9
9.3
420
—
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
49.6
47.9
19.6
4.5
4.5
2.0
128.2
5.7
2.6
6.3
5.0
4.0
6.3
18.6
_
_
4.8
53.3
22.8
9.7
32.4
214.0
10.0
15.0
30.0
55.0
269.0
$000/Yr
4,470
4,310
1,760
410
410
180
11,540
510
240
570
A 50
360
570
1,670
_
430
4,800
2,050
870
2,920
19,260
900
1,350
2r700
4.950
24,210
for fixed and working capital)
IX-F- 31
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Delivered Cost $/MDMT
Possible Increase
in Variable
Possible Decrease
in Variable
60%
60%
-240
KEY VARIABLES
1. Scale of Operations, MTPD
A
2. B Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+ 0, -50
+20, -20
+25, -10
+30, -30
Best
Guess
272
153
85
38
2.0
Possible
High
272
184
102
48
2.6
Possible
Low
136
122
68
34
1.4
*2A-SB Kraft, 2B-Groundwood Slush Pulp
FIGURE IX-F-11 SENSITIVITY OF THE MANUFACTURING COST OF
UNCOATED GROUNDWOOD PRINTING PAPERS
(VIRGIN) TO KEY VARIABLES
IX-F-32
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1
1
1
1
1
Retur
14-
12 -
©p '!;
>v
Base: 6.3% /^NV 8 ~
160% ' 40% 20%^^J^^*/
Possible Decrease ^ — ' /
1
1
I
1
1
1
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1
1
1
in Variable .^ — /
| ^^^ I /
vl/ /
©"""
n (percent)
____ ©
/
/
/ Possible Increase
/ in Variable
I 1
^\^^ 20% [ 40% 60°/
"^ — ^**^>V-7>N
~ 4 ^v \i/
©
-2
-o
Percent Best Possible Possible
KEY VARIABLES Variation Guess High Low
1. Scale of Operations,** MTPD + 0, -50 272 272 136 _
A „ 153 184 122
2. B Delivered Cost of Fiber, $/ADMT +20, -20 g5 ^ 6g
3. Fixed Capital,** $ Million +25, -10 38 48 34
4. Selling Price, S/MDMT +15, -10 310 357 279
*2A-SB Kraft, 2B-Groundwood Slush Pulp
''Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $21 million.
FIGURE IX-F-12 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF UNCOATED GROUNDWOOD PRINTING
PAPERS (VIRGIN) TO KEY VARIABLES
IX-F-33
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Table IX-F-11
DESIGN BASIS
Functional Group Groundwood Papers
Grade Uncoated printing
paper
Basis Weight 57 g/m2
(35lb/3000sqft)
Production 136 MDMT/day;
45,000 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 30,000
Other Fixed Capital 3,000
Total Fixed Capital 33,000
Working Capital 4,000
Total Capital Required 37,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Pulping & De-inking 500 430
Paper Making 3,600 250
Effluent Treatment - 40
Misc. & Auxiliaries 700 40
Total 4,800 760
Process S/F pulping and
de-inking
Fiber Furnish 100% secondary fiber
Pulp Yield 80% AD S/F to MD paper
Mill Location Northeast
Boundary Limits S/F preparation through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 73.2
Other Raw Materials 36.9
Total Raw Materials Cost 109
Labor + Fringe @ 32%
of Hourly Rate 33.1
Supplies 22.8
Energy 37.2
Factory Overhead 20.7
Total Conversion Costs 1 13
Capital-Related Costs 56
• Total Factory Operating
Cost 279
GS&A 25.0
Freight Out 20.0
Total Cost of Sales 45
• Total Delivered Cost 324
8
6
2
6 (253.7/
MOST)
0
6 ($294.5/
MOST)
"Totals may not add due to rounding
IX-F- 34
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Figure IX-F-13
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT uncoated paper)
Starch
Filler, Clay
1.08 MT Waste
Paper as rec'd @
10% Moisture
(0.86 MT No. 1
news + 0.22 MT
ledger)
(972)
Pulping
&
De-inking
(807)
(50)
(85)
Paper
Making
(930)
1.0 MDMT
@ 7% Moisture
17% Losses
(165)
1/4% Fiber Loss (2)
20% Filler Loss (10)
( ) Indicates BD kg
Fossil Fuel
2.67 MM kcal
[10.6 MM Btu]
Steam
Generation
4800 kg Steam
To Process
Purchased Power 760 kWh
IX-F- 35
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TABLE IX-F-12
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF UNCOATED
PRINTING PAPER FROM 100% SECONDARY FIBER
Item
R.M-1 MATERIALS
Secondary Fiber:
No. 1. News (80%)
Ledger (20%)
Starch
Filler-Clay
Chemicals
De- inking
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related) :
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead @ 80% D&I L.
Unit
M. Ton
M. Ton
Kg
Kg
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
45.0
157.0
0.23
0.09
6.3
6.3
7.3
2.0
0.021
Units per
MDMT
0.86
0.22
85
50
2.4
1.7
1.0
10.6
760
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins.
-------
Delivered Cost $/MDMT
Base: $324.6
-310
Possible Increase
in Variable
60% 40%
Possible Decrease
in Variable
40%
©
60%
KEY VARIABLES
1. Scale of Operations, MTPD
A
2. B Delivered Cost of Fiber,* S/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+30, - 30
+50, - 50
+20, - 20
+25, - 10
+30, - 30
Best
Guess
136
45
157
33
2.0
Possible
High
177
68
188
41
2.6
Possible
Low
95
23
126
30
1.4
*2A - News, 2B - Ledger (composite variation + 35%, - 35%)
FIGURE IX-F-14 SENSITIVITY OF THE MANUFACTURING COST OF UNCOATED
GROUNDWOOD PRINTING PAPERS (SECONDARY) TO KEY VARIABLES
IX-F-38
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Return (percent)
0-
Base: -6.1%
60% 40%
Possible Decrease
in Variable
.©
Possible Increase
in Variable
40%
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
A
2. B Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+30, -30
+50, -50
+20, -20
+25, -10
+15, -10
Best
Guess
136
45
157
33
280
Possible
High
177
68
188
41
322
Possible
Low
95
23
126
30
252
*2A-News, 2B-Ledger (Composite Variation +35%, -35%)
FIGURE IX-F-15 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF UNCOATED GROUNDWOOD PRINTING
PAPERS (SECONDARY) TO KEY VARIABLES
IX-F-39
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Table IX-F-13
DESIGN BASIS
Functional Group Groundwood Papers
Grade Uncoated Printing
paper
Basis Weight 57 g/m2
<35lb/3000sqft)
Production 272 MDMT/day;
90,000 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 39,800
Other Fixed Capital 4,000
Total Fixed Capital 44,000
Working Capital 6,000
Total Capital Required 50,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Pulping & De-inking 175 230
Paper Making 3,600 250
Effluent Treatment - 25
Misc. & Auxiliaries 625 25
Tntai A dnn t^n
Process Integrated to semi -bleached
kraft
Fiber Furnish 67% Virgin (41% ground-
wood slush pulp + 26% SBK
slush pulp), 33% S/F
Pulp Yield n.a.
Mill Location Northeast
Boundary Limits S/F preparation and trans-
fer of slush pulp through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 82.4
Other Raw Materials 30.6
Total Raw Materials Cost 113-1
I ahnr + Frinnp (a) "39%
of Hourly Rate 18.4
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Figure IX-F-16
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT uncoated paper)
0.23 ADMT SBK
Slush Pulp
(208)
0.367 ADMT Ground-
wood Slush Pulp
(330)
(538)
Filler Clay
0.359 MT No. 1 News
as rec'd. @ 10%
Moisture
(323)
Pulping
&
De-inking
T
Y
Starch
(50)
(85)
Paper
Making
(930)
1.0 MDMT
@ 7% Moisture
17% Losses
(54)
1/4% Fiber Loss (2)
20% Filler Loss (10)
( ) Indicates BD kg
4400 kg
Steam
Fossil Fuel
2.44 MM kcal
[9.7 MM Btu]
Power
Boiler
>
1
To Process
Power
Extracted
440 kWh
Purchased Power 90 kWh
IX-F-41
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TABLE IX-F-14
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF UNCOATED
PRINTING PAPER FROM VIRGIN AND SECONDARY FIBERS
Item
RAW MATERIALS
Slush Pulp
Groundwood (41%)
Semi-Bleached SW Kraft (26%)
Secondary Fiber
No. 1 News (33%)
Starch
Filler Clay
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
ADMT
M. Ton
Kg
Kg
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kwh
kWh
Unit Cost
($)
85.1
153.0
45.0
0.23
0.09
6.3
6.3
7.3
2.0
-
0.021
Units per
MDMT
0.367
0.23
0.356
85
50
1.2
0.5
1.0
9.7
440
90
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPG
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
31.2
35.2
16.0
19.6
4.5
4.5
2.0
113.1
7.9
3.2
7.3
5.4
4.0
7.3
19.4
-
1.9
6.3
62.9
26.4
11.1
37.6
213.6
10,0
15.0
30.0
55.0
268.6
g Cost
$000/Yr
2,810
3,170
1,440
1,760
410
410
180
10,180
710
290
660
490
360
660
1,750
-
170
570
5,660
2,380
1,000
3.380
19,220
900
1,350
2,700
4.950
24,170
for fixed and working capital)
IX-F-42
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Delivered Cost $/MDMT
Possible Increase
in Variable
I
Possible Decrease
inlVariable
60%
60%
KEY VARIABLES
1. Scale of Operations, MTPD
A
2. B Delivered Cost of Fiber,* S/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+ 0, - 50
+20, - 20
+50, - 50
+25, - 10
+30, - 30
Best
Guess
272
110
45
44
2.0
Possible
High
272
132
68
55
2.6
Possible
Low
136
88
23
40
1.4
*2A-Virgin (Average Slush Pulp Cost), 2B-Secondary Fiber
FIGURE IX-F-17 SENSITIVITY OF THE MANUFACTURING COST OF UNCOATED
GROUNDWOOD PRINTING PAPERS (BLENDED) TO KEY VARIABLES
IX-F-43
Arthur D Little Ii
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Return (percent)
Base: 6.3%
Possible Increase
in Variable
60% I 40%
Possible Decrease
in Variable
60%
0
KEY VARIABLES
1 . Scale of Operations,** MTPD
A
2. 0 Delivered Cost of Fiber,* S/ADMT
u
3. Fixed Capital, **$ Million
4. Selling Price, S/MDMT
Percent
Variation
+ 0, -50
+20, -20
+50, -50
+25, -10
+15, -10
Best
Guess
272
110
45
44
310
Possible
High
272
132
68
55
357
Possible
Low
136
88
23
40
279
*2A-Virgin (Avg. Slush Pulp Cost), 2B-Secondary Fiber
**Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $15 million.
FIGURE IX-F-18 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF UNCOATED GROUNDWOOD PRINTING PAPERS
(BLENDED) TO KEY VARIABLES
IX-F-44
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TABLE IX-F-15
ECONOMIC COMPARISON OF GROUNDWOOD PRINTING PAPER MANUFACTURED
FROM VIRGIN VS. SECONDARY FIBER (NONINTEGRATED MILL)
Functional Group
Grade
Basis Weight (g/m2)
Fiber Furnish
Plant Size (MT/day)
Plant Location
Plant Specifics
Total Fixed Capital ($/Million)
Total Delivered Cost ($/MDMT)
Raw Materials ($/MT delivered)
Conversion ($/MT)
Capital-Related ($/MT)
Sales Cost (less freight) ($/MT)
Freight In ($/MT)*
Freight Out ($/MT)
Selling Price ($ /MT)
Return on Fixed Capital, pre-tax
Groundwood Papers
Uncoated Printing Paper
57 (35 lb/3000 sq ft)
100% Virgin
136
Northeast
Nonintegrated
27
360.3
180.4
88.9
46.0
25.0
12.3
20.0
310
-8.4
100% Secondary
136
Northeast
Nonintegrated
33
324.6
109.8
113.6
56.2
25.0
13.0
20.0
280
- 6.1
*Not included in total delivered cost
IX-F- 45
Arthur D Little, Inc
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TABLE IX-F-16
DESIGN BASIS
Functional Group Groundwood Papers
Grade Uncoated Printing
Paper
Basis Weight 57 g/m2
(35 lb/3000 sq ft)
Production 1 36 M DMT/day;
45,000 MDMT/yr
(rolls)
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 24,400
Other Fixed Capital 2,400
Total Fixed Capital** 27,000
Working Capital 4,000
Total Capital Required** 31,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
4,300 610
Process Groundwood Pulping plus
SBK market pulp
Fiber Furnish 100% virgin (65% ground-
wood slush pulp, 35% mar-
ket semi-bleached kraft)
Pulp Yield n.a.
Mill Location Northeast
Boundary Limits Papermaking integrated
to groundwood pulping
and purchased chemical
market pulp
OPERATING COST
($/MDMT)
Fiber Furnish 149.8
Other Raw Materials 30.6
Total Raw Materials Cost 180.4
Labor + Fringe @ 32%
of Hourly Rate 27.8
Supplies 20.6
Energy 25.1
Factory Overhead 1 5.4
Total Conversion Costs 88.9
Capital-Related Costs 46.0
• Total Factory Operating
Cost 31 5.3 ($286.07
MOST)
GS&A 25.0
Freight Out 20.0
Total Cost of Sales 45.0
• Total Delivered Cost 360.3 ($326.87
MOST)
"Totals may not add due to rounding.
*Does not include groundwood pulping capital of $5MM
Ix-F-46
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TABLE IX-F-17
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF UNCOATED PRINTING
PAPER FROM 100% VIRGIN FIBER (NONINTEGRATED MILL)
Item
RAW MATERIALS
Slush Pulp
Groundwood (65%)
Market Pulp
Semi-bleached SW Kraft (35%)
Starch
Filler Clay
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead @ 70% D.&I.L.
Unit
ADMT
ADMT
kg
kg
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
85.1
320
0.23
0.09
6.3
6.3
7.3
2.0
0.01
Units per
MDMT
0.583
0.313
85
50
1.8
1.7
0.8
9.5
610
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. (8 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
49.6
100.2
19.6
4.5
4.5
2.0
l8o.4
11.3
10.7
5.8
7.2
4.0
9.4
19.0
6.1
15.4
88.9
32.4
13.6
46.0
315.3
10.0
15.0
20.0
45.0
3b0.3
g^ Cost
$000/Yr
14.190
16,210
for fixed and working capital)
IX-F-47
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G. TISSUE AND OTHER MACHINE CREPED PAPER
1. Box Facial and Roll Toilet Tissue
a. Basis of Models
Three economic models have been prepared for the production of tissue
paper from virgin fiber, secondary fiber, or a blend of both. This
product is made with a range in quality to suit a variety of markets.
The virgin and secondary products tend to be complementary rather than
competitive; thus, we have selected a furnish for each model which does
not attempt to give equal quality, and we have relfected quality dif-
ferences in our selling price estimates.
For the virgin model, we have used a furnish of 50% each of bleached
hardwood and softwood kraft pulp. For the secondary fiber model, we
have established a pulp substitute deinking mixture of 40% IBM cards,
40% white ledger, and 20% No. 1 news. The blended model uses the pulp
substitute deinking mixture for- 33% of the furnish and the bleached
hardwood and softwood kraft pulp mixture for the remaining 67%.
We have estimated a selling price for the secondary fiber product dis-
counted $100/MDMT from the virgin fiber price of $830/MDMT. We have
discounted the blended fiber product $30/MDMT based on its secondary
fiber content. The effect on return on capital of variations in these
price differences can be determined from the sensitivity charts included
for each model.
Virgin and secondary tissue products are produced in all regions of the
country; the secondary fiber mills are located in metropolitan areas,
with some concentration in the Northeast and North Central regions. We
have chosen a Northeast location for all models to represent existing
industry patterns and provide a common basis for comparison. Regional
variations can be evaluated through use of the regional data previously
presented (Table IX-C-1), in combination with the sensitivity charts
for each model.
The virgin and blended models are sized at 136 MDMT/day to reflect a
competitive scale of operations for a new tissue machine and converting
installation. This machine would be integrated to a larger (730 ADMT/day)
new pulping facility, with the excess pulp used elsewhere on site.
(See Slush Pulp Cost, Section A.6.) Since the blended model represents
the tissue portion of a larger total new mill installation it is
indicative (although not directly) of the economics or the possible
advantages of adding secondary fiber capacity in a situation where
existing machine capacity might be expanded. (See Containerboard,
Section E.I.a.) We have not attempted to determine how many machines
have the potential for capacity expansion, nor have we idled pulp mill
capacity when substituting secondary fiber in the blended model. The
blended model provides the framework from which the potential costs
and profitability of adding incremental capacity may be determined,
given the specific conditions.
IX-G-1
Arthur D Little, Inc
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For secondary tissue we have selected a capacity of 64 MDMT/day, which
is larger than typical of the existing industry. It is unlikely that
a mill of this size could find sufficient fiber supply at competitive
cost, but it represents a compromise between existing conditions of
capacity and fiber availability, and a scale of operations large enough
to be competitive with a virgin fiber machine. It is assumed that new
sources of fiber would have to be developed to supply a mill of this scale.
b. Comparative Economics
Table IX-G-2 summarizes the total capital, delivered cost, and return on
capital for the three tissue paper models. Total fixed capital for the
virgin and blended models of $54 million and $50 million respectively
includes papermaking, converting, deinking for the blended model, and an
allocation of the capital costs for bleached kraft slush pulp production.
On-site power generation is included for both by virtue of their inte-
gration to the larger pulping facility.
Total fixed capital for the secondary fiber model of $22 million is
based on a single machine and includes pulp substitute deinking and
tissue converting. It does not include on-site power generation, as
the total steam requirements are below the minimum we have established
for on-site power (see Section C.2.d.) The total capital requirements
and investment per daily ton for secondary tissue are lower than for
either the virgin or blended models. The implications of these dif-
ferences will be discussed in the profitability analysis which follows.
The delivered cost for secondary tissue at $663.9/MDMT is higher than
either the virgin product at $598.8 or the blended product at $628.2.
There are several other disadvantages of this model. It has the highest raw
material cost of the three models, because of the high cost of pulp
substitute deinking grades relative to virgin fiber pulp. (The effect
of fiber raw material cost on total delivered cost is shown in Figure
IX-G-5.) In addition, the small scale of operation increases
conversion and capital-related costs, and the fact that it is a
nonintegrated operation with relative sensitivity to energy cost increases
the costs of the secondary fiber model still further. However, if
secondary fiber were at the low end of its cost range and the scale of
operation were increased, the cost of this model would be lower than
that of the blended model and close to the virgin fiber model.
The most attractive pre-tax return on fixed capital is that of the virgin
fiber model (21%). As indicated by the sensitivity charts, a low-cost
source of secondary fiber and elimination of the selling price dif-
ferential would make the blended model competitive. The same factors
plus increased scale of operations would be required to make the virgin
fiber model competitive. The key to making both the blended and
secondary models more viable is an increase in secondary pulp substitute
fiber availability at a relatively low and stable cost.
IX-G-2
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We have included an operating cost estimate only for one additional model,
a nonintegrated virgin fiber mill using market pulp as the fiber raw
material. Table IX-G-13 compares this model with the 100% secondary
fiber model. The costs for the nonintegrated virgin fiber model have
been developed by taking the same capacity as the secondary fiber model
and substituting market pulp for secondary fiber, with corresponding
reductions in conversion and capital costs.
Thus, the nonintegrated virgin fiber model represents a new single-
machine installation. Since this is a hypothetical case not directly
representative of either the existing industry or probable capacity
expansions, we consider it unrealistic to do the related sensitivity
and profitability calculations. Our intent in including it is to provide
a comparison on an equivalent basis of high-grade pulp substitute deinking
waste papers and market pulp as alternative fiber sources for nonintegrated
papermaking.
The nonintegrated virgin fiber model does provide a framework for
estimating actual mill costs, but one must keep in mind that the non-
integrated paper industry has no new or recent installations, and that
its production is not accurately characterized by a single-machine
operation.
The total delivered cost of $812.3/MDMT and the raw material cost of
$450.9/MDMT for the nonintegrated virgin fiber model compare with
secondary fiber model costs of $663.9 and $357.4 respectively. These
differences are due to fiber source alone, and would also exist at
other levels of actual operating cost if the costs of conversion,
capital, and sales differed from those of our models. The fiber cost
differences readily explain the high cost and extensive use of high-
grade pulp substitute deinking secondary fiber sources.
Accordingly, the existing nonintegrated paper mills could provide
a ready market, even at reduced product selling prices, if new sources
of these secondary fiber grades could be developed. Utilization
would remain high at much greater secondary fiber tonnages than presently
generated, so long as market pulp prices were at a level where our
comparison is valid.
IX-G-3
Arthur D Little, Inc.
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TABLE IX-G-1
ECONOMIC COMPARISON OF TISSUE MANUFACTURE TO JUMBO ROLLS
Functional Group
Grade
Basis Weight
Fiber Furnish
Plant Size (MT/DAY)
Plant Location
Plant Specifics
Total Fixed Capital ($ Million)
($000/Daily Ton)
Total Factory Cost ($/MDMT)
Raw Materials ($/MT, delivered)
Conversion ($/MT)
Capital-Related ($/MT)
Sales Cost (less freight) ($/MT)
Freight in ($/MT Product)***
Freight out ($/MT Product)
Selling Price
Return on Fixed Capital, pre-tax (%)
Tissue and Towelling
Jumbo Rolls, Facial and Toilet
N.A.
100% Virgin
136
Northeast
Integrated
22*
162
257.3
169.6
51.1
36.7
19.8
100% Secondary
64
Northeast
Non-Integrated
16**
250
392.9
215.2
119.0
58.6
22.0
67% Virgin
33% Secondary
136
Northeast
Integrated
25**
183
288.7
184.4
62.2
42.0
20.1
*Papermaking only
**Papertnaking and De-inking only
***Not included in total delivered cost
IX-G-4
Arthur D Little, Inc
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TABLE IX-G-2
ECONOMIC COMPARISON OF CONVERTED TISSUE PRODUCTS
Functional Group
Grade
Basis Weight
Fiber Furnish
Plant Size (MT/DAY)
Plant Location
Plant Specifics
Total Fixed Capital *($ Million)
($000/Daily
Total Delivered Cost ($/MDMT)
Tissue & Towelling
Box Facial and Roll Toilet Tissue
N.A.
67% Virgin
100% Virgin
150
Northeast
Integrated
54
Ton) 36°
598.8
Raw Materials *($/MT, delivered) 231.2
Conversion ($/MT) 129.4
Capital-Related ($/MT) 18<6
Sales Cost (less freight) ($/MT) 153.6
Freight in ($/MT Product)***
Freight out ($/MT Product)
Selling Price ($/MDMT)
Return on Fixed Capital, pre-tax
*Includes pulping, papermaking
18.4
66.0
830
(%) 21.0
100% Secondary
70
Northeast
Non-Integrated
22
314
663.9
357.4
129.4
20.0
98.5
20.5
58.4
730
6.9
33% Secondar:
150
Northeast
Integrated
50
333
628.2
260.5
129.4
18.6
153.6
18.7
66.0
800
16.8
, and converting
**Included total factory cost, jumbo rolls
***Not included in total delivered cost
IX-G-5
Arthur HI iftln Inr
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TABLE IX-G-3
DESIGN BASIS
Functional Group
Grade
Basis Weight
Production
Jumbo Rolls
Converted & Pkgd.
Tissue & Other
Machine Creped
Paper
60% boxed facial
tissue, 40% roll
toilet tissue
n.a.
136MDMT/day;
45,000 MDMT/yr
150MDMT/day;
49,500 MDMT/yr
Net Operating Days
Process
Fiber Furnish
Pulp Yield
Mill Location
Boundary Limits
330/yr
Integrated to bl. kraft
100% virgin bl. kraft
slush pulp (50% SW,
50% HW)
n.a.
Northeast
Transfer of slush pulp
through production of
converted tissue products
CAPITAL REQUIREMENTS*
($000)
Jumbo Roll
Converted & Pkgd.
Total
Physical Plant 20,000 31,300
Other Fixed Capital 2,000 3,100
Total Fixed Capital 22,000
Working Capital 2,000
Total Capital Required 24,000
34,000
6,000
40,000
51,300
5,100
56,000
8,000
64,000
ENERGY REQUIREMENTS
(per MDMT)
Jumbo Rolls
Stock Preparation
Paper Making
Effluent Treatment
Misc. & Auxiliaries
Conversion & Packaging
Converting \
Misc. & Auxiliaries /
Total
Steam
(kg)
—
2,000
400
2,400
1,000
3,400
Power
(kWh)
150
150
20
20
340
30
370
'Totals may not add due to rounding.
IX-G-6
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TABLE IX-G-3 (Cont'd.)
OPERATING COST*
Jumbo Rolti
($/MDMT)
Converting and Packaging
($/MDMT)"
161.1
_§,§
19.6
10.5
13.1
_L8
169.6
Fiber Furnish
Other Raw Materials
Total Raw Materials Cost
Labor + Fringe @ 32% of Hourly Rate
Supplies
Energy
Factory Overhead
Total Conversion Costs
Capital-Related Costs
• Total Factory Operating Cost
GS&A
Freight Out
Total Cost of Sales
• Total Delivered Cost
"Based on gross weight of converted tissue products, including packaging.
231.2
n.a
34.2
81.4
5.2
231.2
51.1
36.7
257.3 ($233.4/MDST)
153.6
66.0
129.4
18.6
379.2
219.6
598.8 ($543.2/MDST)
FIGURE IX-G-1
MATERIAL AND ENERGY BALANCE
(Basis: 1 machine-dry metric ton of product)
Bl. SW Kraft
0.52 ADMT
Bl. HW Kraft
0.52 ADMT
Slush Pulp
(932)
Paper
Making
(930)
1.0MDMT Tissue
@ 7% Moisture
(Jumbo Rolls)
'/4% Loss (2)
Packaging Materials (108).
Tissue (Jumbo Rolls) (876)
0.93 ADMT
Converting
and
Packaging
(940) ^ 1.0 MDMT Converted
and Packaged Tissue
1.9MMkcal
Fossil Fuel
[7.8MMBtu]
( ) Indicates BD kg
Power
Boiler
1000 kg
Steam
2400kg
Purchased Power
~ 0.05 ADMT Converter
Waste + Trim (44)
3400 kg Steam
Power Extracted
240 kWh
*
To Process
370 kWh
IX-G-7
Arthur D Little, Inc
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TABLE IX-G-4
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF TISSUE PAPER
(JUMBO ROLLS) FROM 100% VIRGIN FIBER
Item
RAW MATERIALS
Slush Pulp
Bleached Hardwood Kraft (50%)
Bleached Softwood Kraft (50%)
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
136.7
173.2
6.3
6.3
7.3
2.0
-
0.021
Units per
MDMT
0.52
0.52
1.2
1.1
0.7
5.5
240
100
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense Not applicable
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
71.1
90.0
6.5
2.0
169.6
7.5
7.0
5.1
3.5
.3
6.7
11.0
-
2.1
7.8
51.1
25.8
10.8
36.7
257.3
g Cost
$000/Yr
3,200
4,050
290
90
7,630
340
310
230
160
10
300
500
-
100
350
2.300
1,160
490
1,650
11,580
for fixed and working capital)
IX-G-8
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TABLE IX-G-5
ESTIMATED OPERATING COST FOR CONVERTING TISSUE PAPER
MANUFACTURED, FROM 100% VIRGIN FIBER
Item
R.A'7 MATERIALS
Tissue (Jumbo Rolls)
Converter Waste (credit)
Chemicals
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
MDMT
ADMT
raan-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
257.3
155.0
6.3
7.3
2.0
0.021
Units per
MDMT
0.93
0.05
5.1
0.3
2.3
30
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
239.3
( 8.1)
231.2
32.0
2.2
2.2
77.0
2.2
4.6
0.6
8.5
129.4
13.0
5.6
18.6
379.2
29.1
124.5
66.0
219.6
598.8
$000/Yr
11,960
(400)
11,560
1,600
110
110
3,850
110
230
30
430
6,470
650
280
930
18.960
1,450
6,230
3,300
10,980
29,940
for fixed and working capital)
IX-G-9
Arthur D Little; Inc
-------
Base:
$598.8
Delivered Cost $/MDMT
Possible Increase
in Variable
60% 40%
Possible Decrease
in Variable
40%
- 570
60%
KEY VARIABLES
1 . Scale of Operation, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+ 0, -50
+20, -20
+25, -10
+30, -30
Best
Guess
150
155
34
2.0
Possible
High
150
186
43
2.6
Possible
Low
75
124
31
1.4
* Average Slush Pulp Cost
FIGURE IX-G-2 SENSITIVITY OF THE MANUFACTURING COST OF
BOX FACIAL AND ROLL TOILET TISSUE (VIRGIN)
TO KEY VARIABLES
IX-G-10
Arthur D Little Inc
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Base: 21.0%
60% ' 40%
Possible Decrease
in Variable
©
Return (percent)
,©
32 -
Possible Increase
in Variable
40%
60%
KEY VARIABLES
1. Scale of Operations,** MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital,* *$ Million
4. Selling Price, $/MDMT
Percent
Variation
-K), -50
+20, -20
+25, -10
+15, -10
Best
Guess
150
155
34
830
Possible
High
150
186
43
955
Possible
Low
75
124
31
747
*Average Slush Pulp Cost
**Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $20 million.
FIGURE IX-G-3 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BOX FACIAL AND ROLL TOILET TISSUE
(VIRGIN) TO KEY VARIABLES
IX-G-11
-------
TABLE IX-G-6
DESIGN BASIS
Functional Group Tissue & Other
Grade
Basis Weight
Production
Jumbo Rolls
Converted &
Machine Creped Paper
60% boxed facial
tissue, 40% roll toilet
tissue
n.a.
64 MDMT/day;
21,OOOMDMT/yr
Pkgd. 70 MDMT/day;
23,000 MDMT/yr
Net Operating Days
Process
Fiber Furnish
330/yr
S/F pulping and
100%S/F(40%
card stock, 40%
de-inking
IBM
ledger.
20% No. 1 news)
Pulp Yield
Mill Location
Boundary Limits
n.a.
Northeast
S/F preparation
through
production of converted
tissue products
CAPITAL REQUIREMENTS*
($000)
Physical Plant
Jumbo Roll
14,700
Other Fixed Capital 1,500
Total Fixed Capital 16,000
Working Capital
1,000
Total Capital Required 17,000
Convert. & Pkg.
5,700
600
6,000
3,000
9,000
Total
20,400
2,100
22,000
4,000
26,000
ENERGY REQUIREMENTS
(per MDMT)
Jumbo Rolls
De-inking
Stock Preparation
Paper Making
Effluent Treatment
Misc. & Auxiliaries
Conversion & Packaging
Converting )
Misc. & Auxiliaries )
Total
Steam
(kg)
500
-
2,000
—
500
1,000
4,000
Power
(kWh)
300
150
150
35
35
30
700
"Totals may not add due to rounding.
IX-G-12
Arthur D Little Inc
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TABLE IX-G-6 (Cont'd.)
OPERATING COST"
Jumbo Rolls
($/MDMT)
Converting and Packaging
<$/MDMT)»*
199.8
UL3
48.1
16.1
27.2
27.6
215.2
Fiber Furnish
Other Raw Materials
Total Raw Materials Cost
Labor + Fringe @ 32% of Hourly Rate
Supplies
Energy
Factory Overhead
Total Conversion Costs
Capital-Related Costs
• Total Factory Operating Cost
GS&A
Freight Out
Total Cost of Sales
• Total Delivered Cost
'Based on gross weight of converted tissue products, including packaging.
357.4
34.2
81.4
5.2
8.5
357.4
119.0
58.6
392.8 ($356.3/MDST)
98.5
58.4
129.4
20.Q
507.0
157.0
663.9 ($602.3/MDST)
FIGURE IX-G-4
MATERIAL AND ENERGY BALANCE
(Basis: 1 machine-dry metric ton of product)
121 9 kg Waste
Paper© 10%
Moisture
(488kg IBM
card + 488 kg
Ledger + 243 kg
No. 1 News
(1097)
Pulping
and
De-Inking
(932)
Paper
Making
fc. 15% Loss (165)
(930) 1.0 MDMT Tissue
^" & /% Moisture
(Jumbo Rolls)
—a*. %% Loss (2)
Packaging Materials (108)
Tissue (Jumbo Rolls)
0.93 ADMT
(876) _
Converting
and
Packaging
(940) ^
1.0 MDMT Converted
and Packaged Tissue
~ 0.05 ADMT Converter
Waste and Trim (44)
Fossil Fuel
2.2 MM kcal
[8.9 MM BtuI
Steam
Generation
4000 kg Steam
t
To Process
Purchased Power 700 kWh
( ) Indicates BD kg
IX-G-13
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IX-G-14
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TABLE IX-G-8
ESTIMATED OPERATING COST FOR CONVERTING TISSUE
PAPER MANUFACTURED FROM 100% SECONDARY FIBER
Item
RAW MATERIALS
Tissue (Jumbo Rolls)
Converter Waste (credit)
Chemicals
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
MDMT
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
392.9
155.0
6.3
7.3
2.0
0.021
Units per
MDMT
0.93
0.05
5.1
0.3
2.3
30
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
365.4
(7.7)
357.4
32.0
2.2
2.2
77.0
2.2
4.6
0.6
8.5
129.4
13.9
6.1
20.0
507.0
25.5
73
58.4
157.0
663.9
$000/Yr
8,400
(180)
8.220
740
50
50
1,770
50
110
10
200
2,980
320
140
460
11,660
590
1,680
1,340
3,610
15,270
for fixed and working capital)
IX-G-15
Arthur D Little; Inc
-------
701.0
Base: $663.9
Possible Increase
in Variable
60%
40%
40%
60%
Possible Decrease
in Variable
©
626.8
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+30, - 30
+20, - 20
+25,- 10
+30, - 30
Best
Guess
70
164
22
2.0
Possible
High
91
197
28
2.6
Possible
Low
49
131
20
1.4
* Average Secondary Fiber Cost
FIGURE IX-G-5 SENSITIVITY OF THE MANUFACTURING COST OF BOX FACIAL AND
ROLL TOILET TISSUE (SECONDARY) TO KEY VARIABLES
IX-G-16
Arthur D Little Inc
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Return (percent)
©
Base: 6.9%
60%
40%
Possible Decrease
in Variable
©
Possible Increase
in Variable
40%
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber,* S/ADMT
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+30, -30
+20, -20
+25, -10
+15, -10
Best
Guess
70
164
22
730
Possible
High
91
197
28
840
Possible
Low
49
131
20
657
* Composite Average Secondary Fiber Cost
FIGURE IX-G-6 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BOX FACIAL AND ROLL TOILET TISSUE
(SECONDARY) TO KEY VARIABLES
IX-G-17
Arthur D Little It
-------
TABLE IX-G-9
DESIGN BASIS
Functional Group
Grade
Basis Weight
Production
Jumbo Rolls
Converted & Pkgd.
Tissue & Other
Machine Creped
Paper
60% boxed facial
tissue, 40% roll
toilet tissue
n.a.
136MDMT/day;
45,000 MDMT/yr
150MDMT/day;
49,500 MDMT/yr
Net Operating Days
Process
Fiber Furnish
Pulp Yield
Mill Location
Boundary Limits
330/yr
Integrated to bl. kraft
67% virgin bl. kraft
slush pulp( 50% SW,
50%HW),33%S/F
n.a.
Northeast
Transfer of slush pulp
and S/F preparation
through production of
converted tissue products
CAPITAL REQUIREMENTS*
($000)
Jumbo Roll
Converted & Pkgd.
Total
Physical Plant
Other Fixed Capital
Total Fixed Capital
Working Capital
Total Capital Required
22,900
2,200
25,000
2,000
27,000
1 1 ,300
1,100
12,000
6,000
18,000
ENERGY REQUIREMENTS
(per MDMT)
Steam
(kg)
34,200
3,300
Power
(kWh)
37,000
8,000
45,000
Jumbo Rolls
De-inking
Stock Preparation
Paper Making
Effluent Treatment
Misc. & Auxiliaries
175
—
2,000
—
425
100
150
150
35
35
Conversion & Packaging
Converting 1
Misc. & Auxiliaries )
Total
"Totals may not add due to rounding.
2,600
1,000
3,600
470
30
500
IX-G-18
Arthur DLitthlnc
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TABLE IX-G-9 (Cont'd.)
OPERATING COST
Jumbo Rolls
($/MDMT)
Converting and Packaging
($/MDMT)««
173.7
10.8
24.7
11.7
15.8
10.2
184.4
Fiber Furnish
Other Raw Materials
Total Raw Materials Cost
Labor + Fringe @ 32% of Hourly Rate
Supplies
Energy
Factory Overhead
Total Conversion Costs
Capital-Related Costs
• Total Factory Operating Cost
GS&A
Freight Out
Total Cost of Sales
• Total Delivered Cost
* Based on gross weight of converted tissue products, including packaging.
260.5
n.a.
34.2
81.4
5.2
8.5
260.5
62.2
42.0
288.7 ($261.9/MDST)
153.6
66.0
129.4
18.6
408.5
219.6
628.2 ($569.9/MDST)
FIGURE IX-G-7
MATERIAL AND ENERGY BALANCE
(Basis: 1 machine-dry metric ton of product)
Bl. SW Kraft
0.345 ADMT
Bl. HW Kraft
0.345 ADMT
Slush Pulp
(621)
Waste Paper
407 kg® 10%
Moisture (366)
Pulping
and
De-Inking
(311)
Paper
Making
(930)
1.0MDMT Tissue
@ 7% Moisture
(Jumbo Rolls)
Loss (2)
Packaging
Materials (108)
I Tissue (Jumbo Rolls[
t 0.93 ADMT (876)
15% Loss (55)
Converting
and
Packaging
(940)
1.0 MDMT Converted
and Packaged Tissue
2.0 MM kcal
Fossil Fuel s>
[8.0 MM Btu]
Power
Boiler
1000kg
Steam
~ 0.05 ADMT Converter
Waste and Trim (44)
3600 kg Steam
2600kg
Power Extracted
260 kWh
To Process
( ) Indicates BD kg
Purchased Power 240 kWh
500 kWh
IX-G-19
Arthur D Little, Inc
-------
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IX-G-20
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TABLE IX-G-11
ESTIMATED OPERATING COST FOR CONVERTING TISSUE PAPER
MANUFACTURED FROM VIRGIN AND SECONDARY FIBERS
Item
RMI MATERIALS
Tissue (Jumbo Rolls)
Converter Waste (credit)
Chemicals
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
MDMT
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
288.7
155.0
6.3
7.3
2.0
0.021
Units per
MDMT
0.93
0.05
5.1
0.3
2.3
30
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
268.5
( 8.0)
260.5
32.0
2.2
2.2
77.0
2.2
4.6
0.6
8.S
129.4
13.0
5.6
18.6
408.fi
29.1
124.5
66.0
219.6
628.2
$000/Yr
13,430
(400)
13,030
1,600
110
110
3,850
110
230
30
430
6,470
650
280
930
20r430
1,450
6,230
2-200
10,980
31,410
for fixed and working capital)
TX-C-71
Arthur D Little, Inc
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667.7
i/MDMT
Possible Increase
in Variable
Possible Decrease
in Variable
60%
60%
-600
KEY VARIABLES
1 . Scale of Operations, MTPD
A
2. D Delivered Cost of Fiber,* $/ADMT
D
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+ 0, - 50
+20, - 20
+25, - 10
+30, - 30
Best
Guess
150
155
164
37
2.0
Possible
High
150
186
197
46
2.6
Possible
Low
75
124
131
33
1.4
*2A—Virgin (Average Slush Pulp Cost), 2B—Secondary Fiber (Average)
FIGURE IX-G-8 SENSITIVITY OF THE MANUFACTURING COST OF BOX FACIAL AND
ROLL TOILET TISSUE (BLENDED) TO KEY VARIABLES
IX-G-22
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Return (percent)
©
Possible Decrease
in Variable
Possible Increase
in Variable
60%
40%
60%
KEY VARIABLES
1. Scale of Operations,** MTPD
A
2. Q Delivered Cost of Fiber, $/ADMT
3. Fixed Capital,** $ Million
4. Selling Price, $/MDMT
Percent
Variation
+ 0, -50
+20, -20
+25, -10
+15, -10
Best
Guess
150
155
164
37
800
Possible
High
150
186
197
46
920
Possible
Low
75
124
131
33
720
*2A - Virgin (avg. slush pulp cost), 2B - Secondary Fiber (avg.)
''Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $13 million.
FIGURE IX-G-9 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BOX FACIAL AND ROLL TOILET TISSUE
(BLENDED) TO KEY VARIABLES
IX-G-23
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TABLE IX-G-12
ECONOMIC COMPARISON OF JUMBO ROLL MANUFACTURE FROM
VIRGIN VS. SECONDARY FIBER (NON-INTEGRATED MILL)
Functional Group
Grade
Basis Weight
Fiber Furnish
Plant Size (MT/Day)
Plant Location
Plant Specifics
Total Fixed Capital
Tissue & Towelling
Jumbo Rolls, Facial & Toilet
Not Applicable
100% Virgin
64
Northeast
Nonintegrated
13
Total Delivered Cost ($/MDMT) 493.1
Raw Materials ($/MT del'd) 343.9
Conversion ($/MT) 101.5
Capital Related ($/MT) 47.7
Sales Cost (less freight)
($/MT)
Freight In ($/MT) *
Freight Out ($/MT)
Selling Price ($/MT)
Return on Fixed Capital, Pre-tax
22.9
*Not included in total delivered cost
100% Secondary
64
Northeast
Nonintegrated
16
392.9
215.2
119.0
58.6
22.0
IX-G-24
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TABLE IX-G-13
ECONOMIC COMPARISON OF CONVERTED TISSUE PRODUCTS FROM
VIRGIN VS. SECONDARY FIBER (NONINTEGRATED MILL)
Functional Group
Grade
Basis Weight
Fiber Furnish
Plant Size (MT/day)
Plant Location
Plant Specifics
Total Fixed Capital *($Million)
Total Delivered Cost ($/MDMT)
Raw Materials** ($/MT Delivered)
Conversion ($/MT)
Capital Related ($/MT)
Sales Cost (less freight)($/MT)
Freight in ($/MT) ***
Freight Out ($/MT)
Selling Price ($/MT)
Return on Fixed Capital, pre-tax
Tissue & Towelling
Box Facial & Roll Toilet Tissue
Not Applicable
I Virgin
70
theast
Integrated
19
812.3
450.9
129.4
20.0
153.6
21.3
58.4
830
2.1
100% Secondary
70
Northeast
Nonintegrated
22
663.9
357.4
129.4
20.0
98.5
20.5
58.4
730
6.9
*Includes papermaking and converting
** Includes total factory cost, jumbo rolls
***Not included in total delivered cost
IX-G-25
Arthur D Little, Inc.
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TABLE IX-G-14
DESIGN BASIS
Functional Group
Grade
Basis Weight
Production
Net Operating Days
Tissue & Towelling
60% Box Facial;
40% roll toilet tissue
n.a.
70 MDMT/day;
23,000 MDMT/yr
330/yr
Process
Fiber Furnish
Pulp Yield
Mill Location
Boundary Limits
Market Pulp
100% virgin (market pulp)
n.a.
Northeast
Nonintegrated; purchased
market pulp through con-
verting
CAPITAL REQUIREMENTS*
Jumbo Rolls Conv.
Total
Physical Plant 1
Other Fixed Capital
Total Fixed Capital 1
Working Capital
Total Capital Required
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Jumbo Rolls 2,500 520
Converting 1,000 30
2,000 5,700 17,700
1,200 600 1,800
3,000 6,000 19,000
4,000
23,000
OPERATING COST
($/MDMT)
Fiber Furnish 335.4
Other Raw Materials 8.5
Total Raw Materials Cost 343.9
Labor + Fringe® 32%
of Hourly Rate 40.9
Supplies 13.6
Energy 22.6
Factory Overhead 24.0
Total Conversion Costs 101.1
Capital-Related Costs 47.7
• Total Factory Operating
Cost 492.7 ($446.8/
MOST)
'Totals may not add due to rounding.
IX-G-26
Arthur DLitthlnc
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TABLE IX-G-15
ESTIMATED OPERATING COS"1 FOR THE MANUFACTURE OF TISSUE PAPER (JUMBO ROLLS)
FROM 100% VIRGIN FIBER (MARKET PULP)
Item
RAW MATERIALS
Market Pulp
Bleached Hardwood Kraft (50%)
Bleached Softwood Kraft (50%)
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead @ 75% D.&I.L.
Unit
ADMT
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
320
325
6.3
6.3
7.3
2.0
.021
Units per
MDMT
0.52
0.52
2.4
2.7
1.2
5.5
550
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration NQT APPLICABLE
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
166.4
169.0
6.5
2.0
343. 9
15.1
17.0
8.8
4.2
0.3
9.1
11.0
11.6
24.0
101.1
33.4
14.3
47.7
492.7
$000/Yr
10,360
for fixed and working capital)
Arthur D Little, In
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TABLE IX-G-16
ESTIMATED OPERATING COST FOR CONVERTING TISSUE MANUFACTURED
FROM MARKET PULP
Item
RAW MATERIALS
Tissue (Jumbo Rolls)
Converter Waste (Credit)
Chemicals
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related) :
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
MDMT
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
493.1
155.0
6.3
7.3
2.0
0.021
Units per
MDMT
0.93
0.05
5.1
0.3
2.3
30
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
458.6
(7.7)
450.9
32.0
2.2
2.2
77.0
2.2
4.6
0.6
8.5
129.4
13.9
6.1
20.0
600.3
29.1
12.4.5
58.4
212.0
812.3
g Cost
$000/Yr
13 r 810
18,680
for fixed and working capital)
IX-G-28
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H. FOLDING BOXBOARD
1. Recycled vs Virgin Fiberboard
a. Basis of Models
Two economic models have been prepared to compare the costs of using
secondary and virgin fiber in this functional group. The secondary
fiber example is that for an 18-point (about 68 Ib/MSF) clay-coated
recycled board; the virgin fiber model uses a 16-point (about 60 Ib/MSF)
solid bleached sulfate (SBS) board. These two dissimilar weights and
caliper products were selected because they produce about the same package
stiffness, which is one of the principal sales criteria.
In the case of the 18-point clay-coated board, we have chosen 100%
recycled fiber furnish, which is typical for this application.
The cost and board performance comparisonsare predicated on the use
of one of the new multiformer board machines rather than a cylinder
machine, which is more prevalent in the industry; this was done because
of the demonstrated superior product quality from the newer forming
devices. (See Section VIII, Substitutability of Virgin with Secondary
Fiber.) The multiformer is assumed to have on-machine coating facilities
and to produce 360 MDMT/day, which is substantially more than any
existing operation of this type. While it is technically feasible to
obtain this production on a single machine, in practice the economic
feasibility of using one or two machines depends on the product mix
(i.e., the range of grade variation and duration of machine "runs").
Note that the recycled board model includes facilities for on-site
power generation. This also is typical of existing operations and
reflects our judgment that, in light of existing energy costs, new
installations of this size would find it economically advantageous
to invest the additional fixed capital to realize a savings in
operating costs.
A North Central location was chosen for the recycled board example
as typical of existing industry patterns and potential growth oppor-
tunities. Regional cost variations can be determined by use of the
regional data previously presented (Table IX-C-1) and the sensitivity
charts for this model.
The virgin fiber mill is sized at 450 MDMT/day—again, significantly
larger than many existing operations but typical for a new installation.
The model assumes typical industry patterns in which the board .machine
is part of a larger integrated pulp and paper/paperboard manufacturing
facility. Consistent with industry practice, a Southeast location
has been chosen as typical of existing industry patterns and potential
growth opportunities.
IX-H-1
Arthur D Little, Inc
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When comparing the cost of these examples, note that in many applications
these products are complementary and not in mutual competition. For
example, end-use applications requiring a caliper greater than 18-80 points
typically use recycled board, while those requiring less than 12-14 points
typically use SBS board. Direct competition occurs primarily in appli-
cations that call for calipers of 14-18 points.
In addition to adjustments made for the greater yield per equivalent package
stiffness obtained with SBS board, this product has other cost advantages
in the automatic packaging operation that typically follows. These addi-
tional cost advantages are not reflected in our economic comparison, which
is based upon the manufacture of rolls.
b. Comparative Economics
Table IX-H-1 summarizes the capital, operating costs, and profitability of
the selected examples. Total fixed capital for the 18-point clay-coated
recycled board model is $48 million (equivalent to $133,000/daily ton), which
includes the cost of on-site power generation facilities as well as process
equipment. The investment is substantially less than for virgin fiber
board at $108 million and $240,000/daily ton respectively. (The $108
million includes $39 million for the board mill plus $69 million allocated
investment in the pulp mill.)
The delivered cost of the 18-point clay-coated ($203/ton) is significantly
less than that of SBS board ($249/ton). However, these are two distinctly
different materials with dissimilar selling prices. During the second
quarter of 1974, the period upon which this cost comparison is based, the
selling price for 18-point clay-coated was $240/ton; that for SBS board was
$330/ton. This difference more than offset the higher cost of the SBS
board, making the calculated ROI more favorable for the virgin fiber board
than the recycled product. The cost of waste paper is once again one of the
key variables. The actual fluctuation in waste paper prices that occurred
within the 1973-1974 period would have changed the calculated ROI from a
low of about 3% (when prices increased sharply in 1973 to early 1974) to a
high of 15% (when prices dropped drastically in the third quarter of 1974).
Since SBS board has a higher package stiffness per unit weight than
recycled board, their costs can be compared on the basis of equivalent
weight rather than actual weight. Thus, the converter has the option of
buying a ton of recycled board for $240 or 0.88 ton of SBS for $290 to
obtain the equivalent yield while maintaining the same package stiffness.
The apparent cost advantage is still with the recycled product; however,
because of the better appearance of SBS board and the savings that accrue
in the box plant when it is used, it has been able to compete successfully
in spite of its higher price.
IX-H-2
Arthur D Little, Inc
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1
1
1
1
1
1
1
1
1
1
1
1
1
.
TABLE
IX-H-1
Economic Comparison of Folding Boxboard Manufacture
Functional Group
Grade
2
Basis Weight (g/m )
Fiber Furnish
Plant Size (MT/DAY)
Plant Location
Plant Specifics
*
Total Fixed Capital ($ Million)
($000/Daily Ton)
Total Delivered Cost ($/MDMT)
Raw Materials ($/MT, delivered)
Conversion ($/MT)
Capital-Related ($/MT)
Sales Cost (less freight) ($/MT)
Freight in ($/MT Product?*
Freight out ($/MT Product)
Selling Price ($/MDMT)
*
Return on Fixed Capital, pre-tax (%)
* Including pulping
** Not included in total delivered cost
LX-H-3
Folding Boxboard
18-point SBS Board, Uncoated
clay coated
N.A. 293
100% Secondary 100% Virgin
360 450
North Central Southeast
Non-Integrated Integrated
48 108
133 240
202.6 248.8
78.0 148.5
66.7 37.6
31.0 19.8
11.9 13.0
13.1 17.0
15.0 30.0
240 330
9.3 11.3
A _*t r> i mi_
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TABLE IX-H-2
DESIGN BASIS
Functional Group Folding Boxboard
Grade 18-pt clay coated
(50% sheet, 50%
roll)
Basis Weight n.a.
Production 360 MDMT/day;
1 19,000 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 43,800
Other Fixed Capital 4,400
Total Fixed Capital 48,000
Working Capital 6,000
Total Capital Required 54,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
M/kWh)
Pulping - 220
Board Making 4,500 220
Effluent Treatment - 30
Misc. & Auxiliaries 1,000 180
Total 5,500 650
Process S/F pulping
Fiber Furnish 100% S/F (Top liner:
ledger; filler liner: 90%
news, 20% OCC)
Pulp Yield n.a.
Mill Location North Central
Boundary Limits Preparation of secondary
fiber to board making
OPERATING COST*
($/MDMT)
Fiber Furnish 66.5
Other Raw Materials 1 1 .5
Total Raw Materials Cost 78.0
Labor + Fringe @ 32%
of Hourly Rate 20.1
Supplies 12.3
Energy 22.4
Factory Overhead 1 1 .9
Total Conversion Costs 66.7
Capital-Related Costs 31.0
• Total Factory Operating
Cost 175.7
(159.4/MDST)
GS&A 11 9
Freight Out 15.0
Total Cost of Sales 26.9
• Total Delivered Cost 202.6
($183.8/MDST)
*Totals may not add due to rounding.
IX-H-4
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FIG. IX-H-1
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT 18-ptclay coated)
Top Liner
(230 kg ledger)"
Filler Liner
(676 kg news
+ 169kgOCC)
1076kg
Waste
@10%
Moisture
Clay (50)
Binders (13)
Rosin, Alum (2)
(968)
Pulping
(880L
Paperboard
Making
(940)
1.0 MDMT @
7% Moisture
10% Fiber Losses
and discards
(88)
1/2% Fiber Loss
(5)
) Indicates BD kg
Fossil Fuel
2.77MMkcal
[11 MM Btu]
Power
Boiler
5500 kq Steam
Power
Extracted
500 kWh
To Process
[7.5 MW]
Purchased Power 150 kWh
650 kWh
IX-H-5
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TABLE IX-H-3
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF 18-POINT
CLAY-COATED BOXBOARD
Item
RAW MATERIALS
Secondary Fiber
Top Liner: Ledger
Filler Liner: 80% News
20% OCC
Clay-Coating
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
M.Ton
M.Ton
M.Ton
Kg
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
130
40
55
0.05
6.8
6.8
7.9
1.8
-
0.017
Units per
MDMT
0.23
0.68
0.17
50
1.5
0.6
0.8
11
500
150
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. 9 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
29.9
27.2
9.4
2.5
7.0
2.0
78.0
10.0
4.0
6.1
4.4
5.0
2.9
19.8
-
2.6
11.9
66.7
21.8
9.2
31.0
175.7
5.6
6.3
15.0
26.9
202.6
$000/Yr
3,500
3,240
1,110
300
830
240
9,280
1,190
480
720
520
600
350
2,360
-
300
1,420
7,940
2,590
1,100
3,690
20.910
670
740
1,790
3,200
24,110
for fixed and working capital)
^~ ' A A.L P\ 1 •*.*.! 1
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Delivered Cost $/MDMT
Base:
$202.6
Possible Increase
in Variable
60%
Possible Decrease
in Variable
40%
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
A
2. g Delivered Cost of Fiber, $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MM Btu
Percent
Variation
+ 0, -50
+20, -20
+50, -50
+25, -10
+30, -30
Best
Guess
360
130
43
48
1.8
Possible
High
360
156
64
60
2.3
Possible
Low
180
104
22
43
1.3
*2A-Ledger, 2B-News and OCC (Composite Variation +35%, -35%)
FIGURE IX-H-2 SENSITIVITY OF THE MANUFACTURING COST OF
FOLDING BOXBOARD (18 POINT CLAY COATED,
SECONDARY) TO KEY VARIABLES
IX-H-8
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60%
o
Return (percent)
20 -
18 _
______©
Possible Increase
in Variable
60%
KEY VARIABLES
1. Scale of Operations, MTPD
A
2. Q Delivered Cost of Fiber,* $/ADMT
D
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+ 0, -50
+20, -20
+50, -50
+25, -10
+15, -15
Best
Guess
360
130
43
48
240
Possible
High
360
156
64
60
276
Possible
Low
180
104
22
43
204
*2A-Ledger, 2B-News and OCC (Composite Variation +35%, -35%)
FIGURE IX-H-3 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF FOLDING BOXBOARD (18 POINT CLAY
COATED, SECONDARY) TO KEY VARIABLES
IX-H-9
Arthur D Little I
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TABLE IX-H-4
DESIGN BASIS
Functional Group Folding Boxboard
Grade SBS Board
(bleached foodboard)
Basis Weight 293 g/m2
(180lb/3000sqft)
Production 450 M DMT/day;
1 50,000 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 35,100
Other Fixed Capital 3,500
Total Fixed Capital 39,000
Working Capital 9,000
Total Capital Required 48,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Stock Preparation - 150
Board Making 3,000 150
Effluent Treatment 1
I-IIIUCIIL IcaUMGMl . ^QQ ^g
Misc. & Auxiliaries (
Total 3,400 340
Process Integrated to 730 ADMT
bl kraft
Fiber Furnish Kraft slush pulp (60% bl
SW, 40% bl HW)
Pulp Yield n.a.
Mill Location Southeast
Boundary Limits Transfer of slush pulp to
board making
OPERATING COST*
($/MDMT)
Fiber Furnish 135.7
Other Raw Materials 13.0
Total Raw Materials Cost 148.5
Labor & Fringe @ 32% of
Hourly Rate 13.0
Supplies 11.0
Energy 8.5
Factory Overhead 5.0
Total Conversion Costs 37.6
Capital-Related Costs 19.8
• Total Factory Operating Cost 205.9
($186.8/MDST)
GS&A 13.0
Freight Out 30.0
Total Cost of Sales 43.0
• Total Delivered Cost 248.8
($225.7/MDST)
"Totals may not add due to rounding.
IX-H-10
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FIGURE IX-H-4
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT board, rolls)
Additives*
(25)
Bl SW Kraft 1
OG2ADMT 1.02ADMT T
Bl. HW Kraft
f\ A 1 A rMV/IT" — — — i^ta
Slush Pulp
(919)
Paperboard (930)
Making
)
J
Fiber
)OSS@1/4%
(2)
Additive
Loss @ 50%
(12)
! ) Indicates BD kg
*Rosin 10 kg, alum 15 kg
Fossil Fuel
1.0 MDMT @
7% Moisture
2.14 MM kcal
[8.5 MM Btu]
Power
Boiler
/
\
3,400 kg
Steam
1
To Process
Power
Extracted
340 kWh
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IX-H-11
Arthur D Little Inc
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TABLE IX-H-5
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF SBS BOARD
Item
RAW MATERIALS
Slush Pulp
Bleached Hardwood Kraft (40%)
Bleached Softwood Kraft (60%)
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead @ 57% D.&I.L.
Unit
ADMT
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
118.5
136.0
7.3
7.3
8.4
1.0
-
0.012
Units per
MDMT
0.420
0.63
0.6
0.6
0.5
8.5
340
-
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
50.0
85.7
11.0
2.0
148.5
4.4
4.4
4.2
4.5
1.5
5.0
8.5
-
-
5.0
37.6
14.0
5.8
19.8
205.9
6.5
6.5
30.0
43.0
248.8
g Cost
$000/Yr
7,470
12,850
1,650
300
22,270
660
660
630
680
230
750
1,280
-
-
750
5,640
2,100
870
2,970
30.880
970
970
4,500
6.440
37.320
for fixed and working capital)
IX-H-12 . . „.
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Base: $248.8
60%
Possible Decrease
in Variable
Delivered Cost $/MDMT
Possible Increase
in Variable
40%
- 220
* Average Slush Pulp Cost
FIGURE IX-H-5 SENSITIVITY OF THE MANUFACTURING COST OF
SBS BOARD (UNCOATED BLEACHED FOODBOARD,
VIRGIN) TO KEY VARIABLES
IX-H-13
H
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+ 0, -40
+20, - 20
+25, -10
+50, -10
Best
Guess
450
129
39
1.0
Possible
High
450
103
49
1.5
Possible
Low
270
155
35
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Arthur D Little h
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Return (percent)
Base: 11.3%
Possible Increase
in Variable
60% 4,0%
I
Possible Decrease
i
in Variable I
40%
60%
KEY VARIABLES
1. Scale of Operations,** MTPD
2. Delivered Cost of Fiber,* S/ADMT
3. Fixed Capital,** $ Million
4. Selling Price, $/MDMT
Percent
Variation
+ 0, -40
+20, -20
+25, -10
+15, -15
Best
Guess
450
129
39
330
Possible
High
450
155
49
380
Possible
Low
270
103
35
280
* Average Slush Pulp Cost
'Variation applies to papermaking operation only; allocated fixed capital for pulp
manufacture is assumed constant at $69 million.
FIGURE IX-H-6 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF SBS BOARD (UNCOATED BLEACHED
FOODBOARD, VIRGIN) TO KEY VARIABLES
IX-H-14
Arthur D Little In<
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I. PRINTING AND WRITING PAPERS
1. Bond Paper
a. Basis of Models
Three economic models have been prepared for the production of bond paper:
from virgin fiber, secondary fiber, and a blend of both. This product is
made in a range of grades to suit a variety of markets. The virgin and
secondary products tend to be complementary rather than competitive;
thus, we have selected a furnish for each model which does not necessarily
give equal quality, and we have reflected quality differences in our
selling price estimates.
For the virgin fiber model, we have used a furnish containing equal
amounts of bleached hardwood and softwood kraft pulps. For the secondary
fiber model, we have used a pulp substitute deinking mixture of 40% IBM
cards, 40% white ledger, and 20% No. 1 news. The blended model uses the
pulp substitute deinking mixture for 33% of the furnish and the bleached
kraft pulp mixture for the remaining 67%. (In practice, the proportion
of secondary fiber would be varied to meet the quality requirements of
a range of grades run to meet specific orders and customer requirements.)
We have estimated a selling price for the secondary fiber product of
$450/MDMT, discounted 10% from the virgin fiber selling price of $500/MDMT.
We have estimated that the inclusion of No. 1 news in the blended product
would not cause a noticeable deterioration of quality and that the
blended product would be sold as an essentially virgin fiber product at
no discount. The effect on return on capital of variations in these
selling prices can be determined from the sensitivity charts for each model.
Virgin and secondary bond paper products are made in all regions of the
country; the secondary fiber mills are located in metropolitan areas, with
some concentration in the Northeast and North Central regions. We
have chosen a Northeast location for all models as representative of
existing industry patterns and offering a common basis for comparison.
Regional variations can be evaluated through use of the regional data
previously presented (Table IX-C-1), in combination with the relevant
sensitivity charts.
The virgin and blended models are sized at 272 MDMT/day to reflect a
competitive scale of operations for a new bond paper machine installation.
This machine would be integrated to a larger (730 ADMT/day) new pulping
facility, with the excess pulp used elsewhere on site. (See Slush
Pulp Cost, Section A.6.)
Since the blended model represents the bond paper portion of a larger
total new mill installation, it is not directly indicative of the eco-
nomics or the possible advantages of adding secondary fiber capacity
in a situation where existing machine capacity might be expanded.
IX-I-1
Arthur D Little, Inc
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(See Containerboard, Section E.I.a.) We have not attempted to determine
how many machines have the potential for capacity expansion, nor have we
idled pulp mill capacity to compensate for replacement with secondary
fiber in the blended model. The blended model provides a framework
from which the potential costs and profitability of adding incremental
capacity may be determined, given the specific conditions.
For secondary bond paper, we have selected capacity at 136 MDMT/day.
This is quite large relative to the existing industry, and it is unlikely
that a new mill of this size could find sufficient fiber supply at
competitive cost. However, this capacity represents a compromise between
existing conditions of capacity and fiber availability, and a scale of
operations large enough to be competitive with a virgin fiber machine.
New sources of fiber would presumably have to be developed to supply a
mill of this size.
b. Comparative Economics
Table IX-I-1 summarizes the total capital, delivered cost, and return
on capital for the three bond paper models. Total fixed capital for
the virgin and blended models of $74 million and $69 million respectively
includes papermaking, deinking for the blended model, and an allocation
of the capital costs for bleached kraft slush pulp production. On-site
power generation is included for both, by virtue of their integration
to the larger pulping facility.
Total fixed capital for the secondary fiber model of $30 million is
based on a single machine and includes pulp substitute deinking. It does
not include on-site power generation, as the total steam requirements are
below the minimum we have established for on-site power. (See Section
C.2.d.) The total capital requirements and investment per daily ton for
secondary bond paper are lower than for either the virgin or blended
models. The implications of these differences will be discussed in
the profitability analysis which follows.
The delivered cost for secondary bond paper at $422.2/MDMT is higher than
either the virgin product at $315.4 or the blended product at $343.1.
It has the highest raw material cost of the three models, because of
the high cost of pulp substitute deinking grades relative to virgin
fiber pulp. (The effect of fiber raw material cost on total delivered
cost is indicated in Figure IX-I-5.) In addition, the high conversion
and capital-related costs associated with a small scale of operations,
and the higher costs of a nonintegrated operation highlighted by a relative
sensitivity to energy cost, increase the delivered cost of the secondary
fiber model relative to the other two. The high cost of pulp substitute
deinking grades of secondary fiber relative to virgin fiber hold the
operating costs for both the blended and secondary models above the
virgin fiber model even at the low end of the secondary fiber cost
range.
IX-I-2
Arthur D Little, Inc.
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The 22.5% pre-tax return on fixed capital for the virgin fiber model is
the most attractive. However, by virtue of its lower fixed capital, the
blended model is almost as attractive at 20.5%, despite its higher
delivered cost. As indicated on the sensitivity chart for return on
capital (Figure IX-I-9), if secondary fiber were at the low end of
its cost range, the ROI for the blended model would be about equal to
that of the virgin fiber model.
For the secondary fiber model, low cost fiber, increased scale of operations,
and elimination of the selling price differential would all be required
before it could have a return on capital as attractive as that of the virgin
or blended fiber model, even though its capital requirement is the smallest
of the three. The key to making the S/F model more attractive and increasing
the ROI for the blended model is the availability of sufficient quantity
of secondary fiber at a relatively low and stable cost.
We have included an operating cost estimate only for one additional model,
a nonintegrated virgin fiber mill using market pulp as the fiber raw
material. Table IX-I-8 compares this model with the 100% secondary fiber
model. The costs have been developed by using the same capacity as the
secondary fiber model and substituting market pulp for secondary fiber,
with corresponding reductions in conversion and capital costs.
Thus, the nonintegrated virgin fiber model represents a new single-
machine installation. Since this is a hypothetical case not directly
representative of either the existing industry or probable capacity
expansions, we consider it unrealistic to calculate its sensitivity
and profitability. Our intent is to provide a comparison on an equiva-
lent basis of high-grade pulp substitute deinking waste papers and market
pulp as alternative fiber sources for nonintegrated papermaking.
The nonintegrated virgin fiber model provides a framework for estimating
actual mill costs, but one must keep in mind that the nonintegrated paper
industry has no new or recent installations, and that its production is
not accurately characterized by a single-machine operation.
The total delivered cost of $504.5/MDMT and the raw material cost of
$319.1/MDMT for the nonintegrated virgin fiber model compare with a
delivered cost of $422.2 and raw material cost of $212.4 for secondary
fiber. These differences are due to fiber source alone, and would also
exist at other levels of actual operating cost if the costs of
conversion, capital, and sales differed from those of our models. The
fiber cost differences readily explain the high cost and extensive use
of high-grade pulp substitute deinking secondary fiber sources.
Accordingly, the existing nonintegrated paper mills could provide a
ready market, even at reduced product selling prices, if new sources of
these secondary fiber grades could be developed. Utilization would
remain high at much greater secondary fiber tonnages than presently gen-
erated, so long as market pulp prices were at a level where our
comparison is valid.
IX-I-3
Arthur D Little, Inc.
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1
1
1
1
•
1
1
1
1
1
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TABLE IX-I-1
Economic Comparison of Bond Paper (Rolls) Manufacture
Functional Group Printing and Writing Papers
Grade Bond
Basis Weight (g/m2) 70 (47 lbs/3300 sq ft )
fd°t \7-ir-n-ir.
Fiber Furnish 100% Virgin
Plant Size (MT/DAY) 272
Plant Location Northeast
Plant Specifics Integrated
*
Total Fixed Capital ($ Million) 74
($000/Daily Ton) 272
Total Delivered Cost ($/MDMT) 315.4
Raw Materials ($/MT, delivered) 170.6
Conversion ($/MT) 49.2
Capital-Related ($/MT) 31.6
Sales Cost (less freight) ($/MT) 34.0
Freight in ($/MT Product)** 18.0
Freight out ($/MT Product) 30.0
Selling Price ($/MDMT) 500
Return on Fixed Capital, *pre-tax (%) 22.5
100% Secondary :;:; I 6 "
33% Secondary
136 272
Northeast Northeast
Non-Integrated Integrated
30 69
220 253
422.2 343.1
212.4 184.1
102.7 59.2
51.1 35.8
34.0 34.0
20.0 18.8
22.0 30.0
450 500
4.2 20.5
* Including pulping
** Not included in total delivered cost
IX-I- 5
Arthur I") I
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TABLE IX-I-2
DESIGN BASIS
Functional Group Printing & Writing
Papers
Grade Bond paper
Basis Weight 70 g/m2
(47 lb/3300 sq ft)
Production 272 MDMT/day;
90,000 MDMT/yr
(rolls)
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 33,700
Other Fixed Capital 3,000
Total Fixed Capital 37,000
Working Capital 7,000
Total Capital Required 44,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Stock Preparation - 160
Paper Making 2,700 160
Effluent Treatment - 20
Misc. & Auxiliaries 500 20
Total 3,200 360
Process Integrated to bl. kraft
Fiber Furnish 100% virgin bl. kraft slush
pulp (50% SW, 50% HW)
Pulp Yield n.a.
Mill Location Northeast
Boundary Limits Transfer of slush pulp
through paper making
OPE RATING COST*
(S/MDMT)
Fiber Furnish 146.6
Other Raw Materials 24.0
Total Raw Materials Cost 170.6
Labor + Fringe® 32%
of Hourly Rate 13.7
Supplies 15.0
Energy 14.8
Factory Overhead 5.7
Total Conversion Costs 49.2
Capital-Related Costs 31.6
Cost 25 1.4 ($228.17
MOST)
GS&A 34.0
Freight Out 30.0
Total Cost of Sales 64.0
• Total Delivered Cost 315.4 ($286.1/
MOST)
*Totals may not add due to rounding.
IX-I-6
Arthur DLitthlnc
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FIGURE IX-I-1
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT bond paper, rolls)
Additives*
(25)
Bl. SW Kraft
0.466 ADMT
Bl. HW Kraft
0.466 ADMT
Slush Pulp
(839)
; ) Indicates BD kg
'Rosin 10 kg, alum 15 kg
Fossil Fuel
J
Filler (PCC)
(100)
Paper
Making
T
(930)
1.0 MDMT
@ 7% moisture
1/4% Fiber loss (2)
20% Filler loss (20)
50% Additive loss (12)
1.76MMkcal
[7.0 MM Btu]
Power
Boiler
\
3,200 kg
Steam
A
Power
Extracted
320
Purchased Power 40 kWh
To Process
360
kWh
IX-I-7
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TABLE
IX-I-3
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BOND PAPER
FROM 100% VIRGIN FIBER
Item
RAW MATERIALS
Slush Pulp
Bleached Hardwood Kraft (50%)
Bleached Softwood Kraft (50%)
Filler, PCC
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
ADMT
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
136.7
173.2
100.0
6.3
6.3
7.3
2.0
_
0.021
Units per
MDMT
0.473
0.473
0.10
0.8
0.8
0.5
7.0
320
40
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation (§5.4% Fixed Capital
Local taxes & ins. 9 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
64.7
81.9
10.0
12.0
2.0
170.6
5.0
5.0
3.7
5.0
4.0
6.0
14.0
_
0.8
c; 7
49.2
22.2
9.4
31.6
251.4
14.0
20.0
30.0
64.0
315.4
g Cost
$000/Yr
5,820
7,370
900
1,080
180
15,350
450
450
330
450
360
540
1,260
_
80
^in
4.430
2,000
850
2.850
22.630
1,260
1,800
2.700
5.760
28.390
for fixed and working capital)
IX-I-9
Arthur D Little Inc
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Delivered Cost $/MDMT
340
Base:
$315.4
Possible Increase
in Variable
60% 40%
Possible Decrease
in Variable
20%
40%
- 310
-300
- 290
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+ 0, - 50
+20, - 20
+25, -10
+30, - 30
Best
Guess
Til
155
37
2.0
Possible
High
272
186
46
2.6
Possible
Low
136
124
33
1.4
'Average Slush Pulp Cost
FIGURE IX-l-2 SENSITIVITY OF THE MANUFACTURING COST OF
BOND PAPER (VIRGIN) TO KEY VARIABLES
IX-I-10
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Base: 22.5%
60%
40%
Possible Decrease
in Variable
©
Return (percent)
Possible Increase
in Variable
40%
60%
KEY VARIABLES
1. Scale of Operations,** MTPD
2. Delivered Cost of Fiber,* S/ADMT
3. Fixed Capital,** $ Million
4. Selling Price, $/MDMT
Percent
Variation
+ 0, -50
+20, -20
+25, -10
+15, -10
Best
Guess
272
155
37
500
Possible
High
272
186
46
575
Possible
Low
136
124
33
450
Average Slush Pulp Cost
"'Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $37 million.
FIGURE IX-l-3 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BOND PAPER (VIRGIN) TO KEY VARIABLES
IX-I-11
Arthur D Little In
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TABLE IX-I-4
DESIGN BASIS
Functional Group Printing & Writing
Papers
Grade Bond paper
Basis Weight 70 g/m2
(47 lb/3300 sq ft)
Production 136 M DMT/day;
45,000 MDMT/yr
(rolls)
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 27,300
Other Fixed Capital 2,700
Total Fixed Capital 30,000
Working Capital 5,000
Total Capital Required 35,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
De-inking 500 300
Stock Preparation — 160
Paper Making 2 700 160
Effluent Treatment - 20
Misc. & Auxiliaries 600 60
Total 3,800 700
Process S/F pulping and
de-inking
Fiber Furnish 100% S/F
Pulp Yield 82% of AD secondary fiber
to MD paper
Mill Location Northeast
Boundary Limits S/F preparation through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 192.3
Other Raw Materials 20.3
Total Raw Materials Cost 212.4
Labor + Fringe @ 32% of
Hourly Rate 31.8
Supplies 19.7
Factory Overhead 19.6
Total Conversion Costs 102.7
Capital-Related Costs 51.1
• Total Factory Operating Cost 366.2
($332.2/MDST)
GS&A 34.0
Freight Out 22.0
Total Cost of Sales 56.0
• Total Delivered Cost 422.2
($383.0/MDST)
*Totals may not add due to rounding.
IX-I- 12
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FIGURE IX-I-4
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT bond paper, rolls)
Additives*
(25)
1096 kg Waste Paper
@ 10% Moisture
(439 kg IBM Card
+ 438 kg Ledger +
219 kg No. 1 News)
(987)
Pulping
&
De-inking
(839)
Filler (PCC)
(100)
Paper
Making
T
(930)
1.0 MDMT
@ 7% Moisture
15% Fiber Losses
and Other Rejects
(148)
1/4% Fiber Loss (2)
20% Filler Loss (20)
50% Additive Loss (12)
( ) Indicates BD kg
Rosin 10 kg, alum 15 kg
Fossil Fuel
2.12 MM kcal
[8.4 MM Btu]
Steam
Generation
3800 ko_
Steam
To Process
Purchased Power 700 kWh
IX-I-13
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• TABLE IX-I-5
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BOND PAPER
•FROM 100% SECONDARY FIBER
.
1
Item
RAW MATERIALS
•Secondary Fiber:
IBM Card (40%)
Ledger (40%)
_ . No. 1 News (20%)
™ Filler, PCC
| Chemicals
De-inking
IFapermaking
Other
•TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
1 Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
• Supplies
• Operating
Packaging
•Maintenance
Fuel
Steam/Power Generation
•Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
I Power
• Extracted
Purchased
•Factory Overhead
TOTAL CONVERSION COST (less capita]
Unit
M.Ton
M.Ton
M.Ton
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
L-related
Unit Cost
($)
230.0
157.0
45.0
100
6.3
6.3
7.3
2.0
0.021
)
Units per
MDMT
0.445
0.445
0.223
0.1
2.2
1.7
1.0
8.4
700
CAPITAL-RELATED
• Depreciation (§5.4% Fixed Capital
• Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
1 TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
•Sales Expense
Freight Out
TOTAL COST OF SALES
1 TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
102.4
69.9
10.0
10.0
5.8
12.0
2.5
212.4
13.8
10.7
7.3
5.7
4.0
10.0
16.8
14.7
iq.fi
102.7
36.0
15.1
51.1
"\«f, 9
14.0
20.0
22.0
56.0
422.2
g Cost
$000/Yr
4,610
3,140
450
450
260
540
110
9,560
620
480
330
260
180
450
760
660
880
4,620
1,620
680
2.300
16 A«n
630
900
990
2,520
19.000
for fixed and working capital)
-------
458.7
Delivered Cost
$/MDMT
Base: $422.2
Possible Increase
in Variable
60% 40%
Possible Decrease
in Variable
40%
to
1-390
385.7
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* S/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MM Btu
Percent
Variation
+30, -30
+20, -20
+25, -10
+30, -30
Best
Guess
136
164
30
2.0
Possible
High
177
197
38
2.6
Possible
Low
95
131
27
1.4
*Composite Average Secondary Fiber Cost
FIGURE IX-l-5 SENSITIVITY OF THE MANUFACTURING COST OF
BOND PAPER (SECONDARY) TO KEY VARIABLES
IX-I-16
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Return (percent)
16 H
u_ ©
Base: 4.2%
Possible Increase
in Variable
60%
Possible Decrease
in Variable
"Composite Average Secondary Fiber Cost
FIGURE IX-l-6 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BOND PAPER (SECONDARY) TO KEY
VARIABLES
IX-I-17
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+30, -30
+20, -20
+25, -10
+15, -10
Best
Guess
136
164
30
450
Possible
High
177
197
38
518
Possible
Low
95
131
27
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TABLE IX-I-6
DESIGN BASIS
Functional Group Printing & Writing
Papers
Grade Bond paper
Basis Weight 70 g/m2
(47 lb/3300 sq ft)
Production 272 MDMT/day;
90,000 MDMT/yr
(rolls)
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 37,800
Other Fixed Capital 3,800
Total Fixed Capital 42,000
Working Capital 8,000
Total Capital Required 50,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
De-inking 175 100
Stock Preparation - 160
Effluent Treatment - 20
Misc. & Auxiliaries 525 60
Total 3,400 500
Process Pulp substitute de-inking,
integrated to bleached
kraft
Fiber Furnish 67% virgin bl. kraft slush
pulp, 33% S/F
Pulp Yield 82% AD S/F to MD paper
Mill Location Northeast
Boundary Limits Transfer of slush pulp and
S/F preparation through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 158.3
Other Raw Materials 25.9
Total Raw Materials Cost 184.1
Labor + Fringe @ 32% of
Hourly Rate 17.0
Supplies 16.3
Energy 18.4
Factory Overhead 7.2
Total Conversion Costs 59.2
Capital-Related Costs 35.8
• Total Factory Operating Cost 279.1
($253.2/MDST)
GS&A 34.0
Freight Out 30.0
Total Cost of Sales 64.0
($311.3/MDST)
'Totals may not add due to rounding.
IX-I-18
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FIGURE IX-I-7
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT book paper, rolls)
Bl. SW Kraft
0.31 ADMT
Bl. HW Kraft
0.31 ADMT
366 kg Waste
Paper @ 10%
Moisture (146 kg
IBM card + 146
kg ledger + 74 kg
No.1 news)
t
(329) _
0.62 ADMT _
Slush Pulp
Pulping
&
De-inking
I
(2
(559)
80) __
Addi
(2
\
tives*
5)
I Filler (PCC)
1(100)
T
Paper
Making
I
(930) _
1.0 MDMT
@ 7% Moisture
15% Fiber Losses
and other rejects
(49)
V*% Fiber Loss (2)
20% Filler Loss (20)
50% Additive Loss (12)
( ) Indicates BD kg
*Rosin 10 kg, alum 15 kg
Fossil Fuel
1.89MMkcal
[7.5 MM Btu]
Power
Boiler
3400 kg
Steam
/\
Power
Extracted
340 kWh
To Process
Purchased Power 160 kWh
500 kWh
IX-I- 1-9
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TABLE IX-I-7
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BOND PAPER
FROM VIRGIN AND SECONDARY FIBERS
Item
R.AW MATERIALS
Slush Pulp: (67%)
Bleached Hardwood Kraft
Bleached Softwood Kraft
Secondary Fiber (33%)
IBM Card
Ledger
No . 1 News
Filler, PCC
Chemicals :
De-Inking
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related) :
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
ADMT
M.Ton
M.Ton
M.Ton
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
136.7
173.2
230.0
157.0
45.0
100.0
6.3
6.3
7.3
2.0
-
0.021
Units per
MDMT
0.315
0.315
0.148
0.148
0.075
0.1
1.2
0.8
0.6
7.5
340
160
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPG
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
43.1
54.6
34.0
23.2
3.4
10.0
1.9
12.0
2.0
184.1
7.6
5.0
4.4
5.3
4.0
7.0
15.0
-
3.4
7.2
59.2
25.2
10.6
35.8
279.1
14.0
20.0
w.n
64.0
343.1
g Cost
$000/Yr
3,880
4,910
3,060
2,090
300
900
170
1,080
180
16.570
680
450
400
480
360
630
1,350
-
300
650
5,330
2,270
950
3,220
25.120
1,260
1,800
2,700
5.760
30,880
for fixed and working capital)
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Delivered Cost $/MDMT
Base:
$343.1
Possible Increase
in Variable
60% 40%
Possible Decrease
in Variable
40%
*2A-Virgin (Average Slush Pulp Cost), 2B-Secondary Fiber (Average)
FIGURE IX-l-8 SENSITIVITY OF THE MANUFACTURING COST OF
BOND PAPER (BLENDED) TO KEY VARIABLES
IX-I-21
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
A
2. B Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+ 0, -50
+20, -20
+25, -10
+30, -30
Best
Guess
272
155
164
42
2.0
Possible
High
272
186
196
53
2.6
Possible
Low
136
124
131
38
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Return (percent)
Base: 20.5%
60%
____©
Possible Increase
in Variable
60%
KEY VARIABLES
1. Scale of Operations,** MTPD
fa
2. B Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital,** $ Million
4. Selling Price, S/MDMT
Percent
Variation
+ 0.-50
+20, -20
+25, -10
+15, -10
Best
Guess
272
155
164
42
500
Possible
High
272
186
197
53
575
Possible
Low
136
124
131
38
450
*1 A—Virgin (Average Slush Pulp Cost), 2B-Secondary Fiber (Average)
"Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $27 million.
FIGURE IX-l-9 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BOND PAPER (BLENDED) TO KEY
VARIABLES
IX-I-22
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TABLE IX-I-8
ECONOMIC COMPARISON OF BOND PAPER (ROLLS) MANUFACTURED FROM
VIRGIN VS. SECONDARY FIBER (NONINTEGRATED MILL)
Functional Group Printing & Writing Paper
Grade Bond
Basis Weight (g/m2) 70 (47 lb/3300 sq ft)
Fiber Furnish 100% Virgin
Plant Size (MT/day) 136
Plant Location Northeast
Plant Specifics Nonintegrated
Total Fixed Capital ($/Million) 24
Total Delivered Cost ($/MDMT) 504.5
Raw Materials ($/MT delivered) 319.1
Conversion ($/MT) 88.3
Capital-Related ($/MT) 41.1
Sales Cost (less freight) ($/MT) 34.0
Freight in ($/MT) * 20.6
Freight out ($/MT) 22.0
Selling Price ($/MT) 500
Return on Fixed Capital, pre-tax (%) -8.4
100% Secondary
136
Northeast
Nonintegrated
30
422.2
212.4
102.7
51.1
34.0
20.0
22.0
450
4.2
*Not included in total delivered cost
IX-I- 23
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TABLE IX-l-9
DESIGN BASIS
Functional Group Printing & Writing
Grade Bond paper
Basis Weight 70 g/m2
(47lb/3300sqft)
Production 1 36 M DMT/day;
45,000 MDMT/yr
(rolls)
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 22,200
Other Fixed Capital 2,200
Total Fixed Capital 24,000
Working Capital 5,000
Total Capital Required 29,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
3,300 550
Process Market Pulp
Fiber Furnish 100% Virgin (market
pulp)
Pulp Yield n.a.
Mill Location Northeast
Boundary Limits Nonintegrated; pur-
chased market pulp
through papermaking
OPERATING COST
($/MDMT)
Fiber Furnish 305.1
Other Raw Materials 14.0
Total Raw Materials Cost 319.1
Labor + Fringe @ 32%
of Hourly Rate 27.2
Supplies 17.8
Energy 26.2
Factory Overhead 17.1
Total Conversion Costs 88.3
Capital-Related Costs 41.1
• Total Factory Operating
Cost 448.5 ($406.87
MOST)
GS&A 34.0
Freight Out 22.0
Total Cost of Sales 56.0
• Total Delivered Cost 504.5 ($457 .6/
MOST)
"Totals may not add due to rounding.
IX-I-24
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TABLE IX-I-10
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BOND PAPER
(ROLLS) FROM 100% VIRGIN FIBER (MARKET PULP)
Item
RAW MATERIALS
Market Pulp
Bleached HW Kraft (50%)
Bleached SW Kraft (50%)
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead @ 80% D.&I.L.
Unit
ADMT
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
320
325
6.3
6.3
7.3
2.0
.021
Units per
MDMT
0.473
0.473
1.7
1.7
0.8
7.3
550
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes 6. ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
151.4
153.7
12.0
2.0
319.1
10.7
10.7
5.8
5.7
4.0
8.1
14.6
11.6
17.1
88.3
28.8
12.3
41.1
448.5
14.0
2.0.0
22.0
56.0
504.5
g Cost
$000/Yr
20.180
22,700
for fixed and working capital)
IX-I-25
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I. PRINTING AND WRITING PAPERS (cont'd)
2. Book Paper (Uncoated)
a. Basis of Models
Three economic models have been prepared for the production of book
paper: from virgin fiber, secondary fiber, and a blend of both.
This product is made in a range of grades to suit a variety of markets.
The virgin and secondary products tend to be complementary rather than
competitive; thus, we have selected a furnish for each model which does
not necessarily give equal quality, and we have reflected quality dif-
ferences in our selling price estimates.
For the virgin fiber model, we have used a furnish of 80% bleached
hardwood and 20% bleached softwood kraft pulp. For the secondary fiber
model, we have used a pulp substitute deinking mixture of 40%
IBM cards, 40% white ledger, and 20% No. 1 news. In the blended model,
we used a fiber furnish of 50% S/F and 50% hardwood; this assumes that
the 50% replacement with S/F has the equivalent strength of the 20% soft-
wood pulp normally used in this grade. In practice, the proportion of
secondary fiber is varied to meet the quality requirements of a range
of grades run to meet specific orders and customer requirements.
We have estimated the selling price of the secondary fiber product
at $450/MDMT, discounted 10% from the virgin fiber price of $500/MDMT.
We judge that the inclusion of No. 1 news in the blended product would
not cause a noticeable deterioration of product quality and that the
blended product would be sold as an essentially virgin fiber product
at no discount. The sensitivity charts for these models show how
changes in their selling prices affect the return on capital.
Virgin and secondary book paper products are produced in all regions
of the country; the secondary fiber mills are located in metropolitan
areas, with some concentration in the Northeast and North Central regions.
We have chosen a Northeast location for all models as representative of
existing industry patterns and offering a common basis for comparison.
Regional variations can be evaluated through use of the regional data
previously presented (Table IX-C-1), in combination with the sensi-
tivity charts for each model.
The virgin and blended models are sized at 272 MDMT/day to reflect
a competitive scale of operations for a new book paper machine instal-
lation. This machine would be integrated to a larger (730 ADMT/day) new
pulping facility, with the excess pulp used elsewhere on site. (See Slush
Pulp Cost, Section A.6.)
Since the blended model represents the book paper portion of a larger
total new mill installation, it is not directly indicative of the
economics or the possible advantages of adding secondary fiber capacity
in a situation where existing machine capacity might be expanded.
IX-l-26
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(See Container-board, Section E.I.a.) We have not attempted to determine
how many machines have the potential for capacity expansion, nor have we
idled pulp mill capacity to compensate for replacement with S/F in the
blended model. The blended model provides a framework from which the
potential costs and profitability of adding incremental capacity may be
determined, given the specific conditions.
For secondary book paper, we have selected capacity at 136 MDMT/day, which
is quite large relative to the existing industry. It is unlikely that a
mill of this size could find sufficient fiber supply at competitive cost;
however, this capacity was selected as a compromise between existing
conditions of capacity and fiber availability, and a scale of operations
large enough to be competitive with a virgin fiber machine. Presumably,
new sources of fiber would have to be developed to supply a mill of this
scale.
b. Comparative Economics
Table IX-I-11 summarizes the total capital, delivered cost, and return on
capital for the three book paper models. Total fixed capital for the
virgin and blended models of $73 million and $63 million respectively
includes papermaking, deinking for the blended model, and an allocation
of the capital costs for bleached kraft slush pulp production. On-site
power generation is included for both by virtue of their integration
to a larger pulping facility.
Total fixed capital for the secondary fiber model of $32 million is based
on a single machine and includes pulp substitute deinking. It does not
include on-site power generation, as the total steam requirements are
below the minimum we have established for on-site power. (See Section C.2.d.)
The total capital requirements for secondary book paper are lower than for
either the virgin or blended models; however, the blended model has the
lowest investment per daily ton, because its economical scale of deinking
and total operations offset the allocated pulp mill capital costs.
Since the secondary fiber requirements for the blended model are the same
as for the secondary fiber model, they are unlikely to be met for a new
mill under existing industry conditions. Its capital advantages due
to scale of deinking operations can be realized only if new sources of
pulp substitute deinking fiber are developed. The implications of the
differences in capital requirements will be discussed in the profitability
analysis which follows.
The delivered cost of secondary book paper at $438.9/MDMT is higher than
either the virgin product at $322.6 or the blended product at $366.9. It
has the highest raw material cost of the three models because of the
high cost of pulp substitute deinking grades relative to virgin fiber
pulp. (The effect of fiber raw material cost on total delivered cost
is clearly indicated in Figure IX-1-14.) in addition, the high
conversion and capital-related costs associated with its small scale
of operation, and the higher costs of a nonintegrated operation highlighted
by a relative sensitivity to energy cost, increase the delivered cost
IX-I-27
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of the secondary fiber model relative to the other two. The high cost of
pulp substitute deinking grades of secondary fiber relative to virgin fiber
hold the operating costs for both the blended and secondary models
above those of the virgin fiber model, even at the low end of the
secondary fiber cost range.
The most attractive pre-tax return on fixed capital is for the virgin
fiber model (21.8%). However, the lower fixed capital required by the
blended model makes it almost as attractive at 19.0%, despite its higher
delivered cost. Figure IX-I-15 shows that secondary fiber at the low
end of its cost range would make the return on the blended model about
equal to that of the virgin model; however, as stated earlier, sufficient
secondary fiber to support the blended model is probably not available.
For the secondary fiber model, low-cost fiber, increased scale of
operations, and elimination of the selling price differential would all
be required before it could have a return on capital as attractive as
the virgin or blended fiber models, even though the magnitude of its
capital requirement is the lowest of the three. The key to making the
secondary fiber model more attractive and increasing the ROI for the
blended model is the availability of a sufficient quantity of secondary
pulp substitute fiber at a relatively low and stable cost.
We have included an operating cost estimate only for one additional model,
a nonintegrated virgin fiber mill using market pulp as the fiber raw
material. Table IX-I-18 compares this model with the 100% secondary fiber
model. The costs for the virgin fiber model are based on the same
capacity as the secondary fiber model, with market pulp substituted
for secondary fiber and corresponding reductions in conversion and capital
costs.
Thus, the nonintegrated virgin fiber model represents a new single-machine
installation. Since this is a hypothetical case not directly representative of
either the existing industry or probable capacity expansions, we consider
it unrealistic to calculate its sensitivity and profitability. Our intent
in including it is to provide a comparison on an equivalent basis of high-
grade pulp substitute deinking waste papers and market pulp as alternative
fiber sources for nonintegrated papermaking.
The nonintegrated virgin fiber model provides a framework for estimating
actual mill costs, but one must keep in mind that the nonintegrated paper
industry has no new or recent installations, and that its production is
not accurately characterized by a single-machine operation.
The total delivered cost of $518.1/MDMT and the raw material cost
of $322.8/MDMT for the nonintegrated virgin fiber model compare with
a delivered cost of $438.9 and a raw material cost of $216.7 for secondary
fiber. These differences are due to fiber source alone and would also
exist at other levels of actual operating cost if the costs of conversion,
capital, and sales differed from those of our models. The fiber cost
differences readily explain the high cost and extensive utilization of
IX-I-28
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high-grade pulp substitute deinking secondary fiber sources.
Accordingly, the existing nonintegrated paper mills could provide a ready
market, even at reduced product selling prices, if new sources of these
secondary fiber grades could be developed. Utilization would remain high
at much greater secondary fiber tonnages than presently generated, so
long as market pulp prices were at a level where our comparison is valid.
TABLE IX-I-11
ECONOMIC COMPARISON OF UNCOATED BOOK PAPER MANUFACTURE (ROLLS)
Functional Group
Grade
2
Basis Weight (g/m )
Fiber Furnish
Plant Size (MT/Day)
Plant Location
Plant Specifics
Total Fixed Capital*($ Million)
($000/Daily Ton)
Total Delivered Cost ($/MDMT)
Raw Materials ($/MT, delivered) 168.6
Conversion ($/MT)
Capital-Related ($/MT)
Sales Cost (less freight) ($/MT) 34.0
Freight in ($/MT Product)**
Freight out ($/MT Product)
Selling Price ($/MDMT)
Return on Fixed Capital,* pre-tax (%) 21.8
Printing and Writing Papers
Book, Uncoated
70 (47 lbs/3300 sq ft)
100% Virgin
272
Northeast
Integrated
73
268
322.6
) 168.6
55.8
34.2
T) 34.0
15.4
30.0
500
%) 21.8
100% Secondary
136
Northeast
Nonintegrated
32
236
438.9
216.7
111.8
54.4
34.0
18.4
22.0
450
1.6
507o Virgin
50% Seconda
272
Northeast
Integrated
63
231
366.9
196.4
66.4
40.1
34.0
16.6
30.0
500
19.0
* Including pulping
** Not included in total delivered cost
IX-I- 29
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TABLE IX-I-12
DESIGN BASIS
Functional Group Printing, Writing, &
Related
Grade Book paper, uncoated
Basis Weight 70 g/m2
(47 lb/3300 sq ft)
Production 272 MDMT/day;
90,000 MDMT/yr
(rolls)
Net O pe rat i ng Day s 330/y r
CAPITAL REQUIREMENTS*
($000)
Physical Plant 36,700
Other Fixed Capital 3,700
Total Fixed Capital 40,000
Working Capital 7,000
Total Capital Required 47,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Stock Preparation — 150
Paper Making 3,600 200
Effluent Treatment - 20
Misc & Auxiliaries 600 20
Total 4,200 390
Process Integrated to bleached
kraft
Fiber Furnish 100% virgin bleached kraft
slush pulp ( 20% SW, 80%
HW)
Pulp Yield n.a.
Mill Location Northeast
Boundary Limits Transfer of slush pulp
through paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 125.1
Other Raw Materials 43.5
Total Raw Materials Cost 168.6
Labor + Fringe @ 32% of
Hourly Rate 14.3
Supplies 16.5
Energy 18.4
Factory Overhead 6.5
Total Conversion Costs 55.8
Capital-Related Costs 34.2
• Total Factory Operating 258.6 ($234.6/
Cost MOST)
GS&A 34.0
Freight Out 30.0
Total Cost of Sales 64.0
• Total Delivered Cost 322.6 ($292.7/
MOST)
*Totals may not add due to rounding.
IX-I-30
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FIGURE IX-I-10
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT book paper, rolls)
Additives*
(8)
Bl. SW Kraft
0.18ADMT ^
Bl. HW Kraft
./U AUIvl 1 ^^
Slush Pulp
(793)
i
Starch
(150)
I
•
Paper
Making
(930) ^
1.0 MDMT @ 7% Moisture
%% Fiber Loss (2)
50% Additive Loss (4)
10% Starch Loss (15)
( ) Indicates BD kg
*Rosin 3 kg, alum 5 kg
Fossil Fuel
4,200
Stea
2.32 MM kcal Power r
[9.2 MM Btu] Boiler j
\ '
\
kg
Tl
X
1
^*
•>
\
To Process
Extracted T
Power |
420 kWh
IX-I- 31
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TABLE IX-I-13
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BOOK PAPER
FROM 100% VIRGIN FIBER
Item
RAW MATERIALS
Slush Pulp:
Bleached Hardwood Kraft (80%!
Bleached Softwood Kraft (20%!
Starch
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
ADMT
Kg
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
136.7
173.2
0.23
6.3
6.3
7.3
2.0
-
0.021
Units per
MDMT
0.70
0.17
150
0.9
0.8
0.5
9.2
420
-
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins.
-------
Delivered Cost $/MDMT
Base:
$322.6
Possible Increase
in Variable
60% 40%
Possible Decrease
in Variable
40%
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+ 0, -50
+20, -20
+25, -10
+30, -30
Best
Guess
272
144
40
2.0
Possible
High
Til
173
50
2.6
Possible
Low
136
115
36
1.4
"Average Slush Pulp Cost
FIGURE IX-l-11 SENSITIVITY OF THE MANUFACTURING COST OF
UNCOATED BOOK PAPER (VIRGIN) TO KEY
VARIABLES
IX-I-34
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Base: 21.
60%
40%
Possible Decrease
in Variable
©
Return (percent)
Possible Increase
in Variable
40%
U 10
"Average Slush Pulp Cost
'Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $33 million.
FIGURE IX-l-12 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF UNCOATED BOOK PAPER (VIRGIN)
TO KEY VARIABLES
IX-I-35
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60%
KEY VARIABLES
1. Scale of Operations,** MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital,** $ Million
4. Selling Price, $/MDMT
Percent
Variation
+ 0, -50
+20, -20
+25, -10
+15, -10
Best
Guess
272
144
40
500
Possible
High
272
173
50
575
Possible
Low
136
115
36
450
Arthur DI ittlp Frv
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TABLE IX-I-14
DESIGN BASIS
Functional Group Printing, Writing, &
Related
Grade Book paper, uncoated
Basis Weight 70 g/m2
(47 lb/3300 sq ft)
Production 1 36 M DMT/day;
45,000 MDMT/yr
(Rolls)
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 29,300
Other Fixed Capital 2,900
Total Fixed Capital 32,000
Working Capital 5,000
Total Capital Required 37,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
De-inking 500 300
Stock Preparation - 150
Paper Making 3,600 200
Effluent Treatment - 20
Misc. & Auxiliaries 700 60
Total 4 800 730
Process S/F pulping and
de-inking
Fiber Finish 100% S/F
Pulp Yield 82% of AD secondary fi-
ber to MD paper
Mill Location Northeast
Boundary Limits S/F preparation through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 167.5
Other Raw Materials 49.3
Total Raw Materials 216.7
Labor + Fringe @ 32%
of Hourly Rate 33.1
Supplies 21.5
Energy 36.5
Factory Overhead 20.7
Total Conversion Costs 1 1 1 .8
Capital-Related Costs 54.4
• Total Factory Operating
Cost 382.9 ($347.4/
MOST)
GS&A 34.0
Freight Out 22.0
Total Cost of Sales 56.0
• Total Delivered Cost 438.9 ($398.2/
MOST)
'Totals may not add due to rounding
IX-I-36
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FIGURE IX-I-13
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT book paper, rolls)
Additives*
1 037 kg Waste
Pa per @ 10%
Moisture (415
kg IBM card +
415kg ledger +
207 kg No. 1 news)
(8
1
Starch
(150)
l_
,(933^ Pulping (793) ^ Paper (930) ^ 1.0 MDMT
*"~ & Making @ 7% Moisture
De-Inking
J J
15% Losses 1/4% Fiber Loss (2)
(140) 50% Additive Loss (4)
10% Starch Loss (15)
( ) Indicates BD kg
* Rosin 3 kg, alum 5 kg
Fossil Fuel
2.67 MM kcal
[10.6 MM Btu]
Steam
Generation
4800 kg
Steam
\
To Process
Purchased Power 730 kWh
1
IX-I- 37
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TABLE IX-I-15
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BOOK PAPER
FROM 100% SECONDARY FIBER
Item
RATJ MATERIALS
Secondary Fiber:
IBM Card (40%)
Ledger (40%)
No. 1 News (20%)
Starch
Chemicals:
De-inking
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related) :
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
M.Ton
M.Ton
M.Ton
Kg
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
230.0
157.0
45.0
0.23
6.3
6.3
7.3
2.0
0.021
Units per
MDMT
0.409
0.409
0.204
150
2.4
1.7
1.0
10.6
730
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation (3 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
94.1
64.2
9.2
34.5
5.3
7.0
2.5
216.7
15.1
10.7
7.3
6.2
4.0
11.3
21.2
15.3
20.7
111.8
38.4
16.0
54.4
382.9
14.0
20.0
22.0
56.0
438.9
g Cost
$000/Yr
4,230
2,890
410
1,550
240
320
110
9,750
680
480
330
280
180
510
950
690
930
5,030
1,730
720
2.450
17.230
630
900
990
2,520
19,750
for fixed and working capital)
IX-I-39 . . _.
Arthur D Little, Inc
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472.4
Delivered Cost $/MDMT
Base: $438.9
Possible Increase
in Variable
60% 40%
Possible Decrease
in Variable
[-410
40%
60%
405.4
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+30, -30
+20, -20
+25, -10
+30, -30
Best
Guess
136
164
32
2.0
Possible
High
177
197
40
2.6
Possible
Low
95
. 131
29
1.4
*Compositei Average Secondary Fiber Cost
FIGURE IX-l-14 SENSITIVITY OF THE MANUFACTURING COST OF
UNCOATED BOOK PAPER (SECONDARY) TO KEY
VARIABLES
IX-I-40
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Return (percent)
©
Base: 1.
Possible Increase
in Variable
60%
60%
Possible Decrease
in Variable
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+30, -30
+20, -20
+25, -10
+15, -10
Best
Guess
136
164
32
450
Possible
High
177
197
40
518
Possible
Low
95
131
29
405
* Composite Average Secondary Fiber Cost
FIGURE IX-l-15 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF UNCOATED BOOK PAPER (SECONDARY)
TO KEY VARIABLES
IX-I-41
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T
DESK
Functional Group Printing, Writing, &
Related
Grade Book paper, un-
coated
Basis Weight 70 g/m2
(47 lb/3300 sq ft)
Production 272MDMT/day;
90,000 MDMT/yr
(rolls)
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 42,900
Other Fixed Capital 4,300
Total Fixed Capital 47,000
Working Capital 8,000
Total Capital Required 55,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
De-inking 250 150
Stock Preparation - 150
Paper Making 3,600 200
Effluent Treatment - 20
Misc. & Auxiliaries 650 40
Total 4,500 560
ABLE IX-I-16
;N BASIS
Process Pulp substitute de-inking,
integrated to bleached kraft
Fiber Furnish 50% virgin bl kraft slush
pulp, 50% S/F
Pulp Yield 82% MD paper to AD
S/F
Mill Location Northeast
Boundary Limits Transfer of slush pulp and
S/F preparation through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 149.6
Other Raw Materials 47.0
Total Raw Materials Cost
Labor + Fringe @ 32% of
Hourly Rate 17.6
Supplies 18.3
Energy 22.5
Factory Overhead 7.9
Total Conversion Costs
Capital-Related Costs
196.4
66.4
40.1
• Total Factory Operating Cost 302.9
($274.8/MDST)
GS&A 34.0
Freight Out 30.0
Total Cost of Sales
• Total Delivered Cost
64.0
366.9
($332.9/MDST)
"Totals may not add due to rounding.
IX-I-42
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FIGURE IX-16
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT book paper, rolls)
0.44 ADMT Slush Pulp (Bl. HW Kraft)
520 kg Waste
Paper @ 10%
Moisture (208 kg
IBM card+ 208 kg
ledger + 104 kg
No. 1 news)
(467)
Pulping
&
De-inking
Additives*
(158)
(396)
(397)
Makin9
15% Losses
(70)
\
(930>
1.0
@ 7% Moisture
( ) Indicates BD kg
"Starch 150 kg, rosin 3 kg, alum 5 kg
%% Fiber
Loss
(2)
Additive
Losses
(19)
4500 kg Steam
Fossil Fuel
2.57 MM kcal ^_
[10.2 MM Btu]
Power
Boiler
/
i
Power
Extracted
To Process
460 kWh
Purchased Power 100 kWh
560 kWh
IX-i-43
Arthur D Little Inc
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TABLE IX-I-17
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BOOK PAPER
FROM VIRGIN AND SECONDARY FIBERS
Item
RAW MATERIALS
Slush Pulp:
Bleached Hardwood Kraft (50;
Secondary Fiber:
IBM Card (20%)
Ledger (20%)
No. 1 News (10%)
Starch
Chemicals :
Deinking
Papennaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
) ADMT
M. Ton
M. Ton
M. Ton
Kg
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
136.7
230
157
45
0.23
6.3
6.3
7.3
2.0
-
0.021
Units per
MDMT
0.438
0.205
0.205
0.102
150
1.3
0.8
0.6
10.2
460
100
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. <§ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST .
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
65.6
47.2
32.2
4.6
34.5
3.5
7.0
2.0
196.4
8.2
5.0
4.4
6.0
4.0
8.3
20.4
-
2.1
7.9
66.4
28.2
11.9
40.1
jnj a
14.0
20.0
30.0
64.0
366.9
g Cost
$000/Yr
5,910
4,240
2,900
410
3,100
310
630
180
17,680
740
450
400
540
360
750
1,840
-
190
710
5,980
2,540
1.070
3,610
77 77n
1,260
1,800
2,700
_5 ,760
33,030
for fixed and working capital)
IX-I-44 A_»U.._r»l :«!„ 1.
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TABLE IX-I-20
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF UNCOATED BOOK
PAPER (ROLLS) FROM 100% VIRGIN FIBER (MARKET PULP)
Item
RAW MATERIALS
Market Pulp
Bleached HW Kraft (80%)
Bleached SW Kraft (20%)
Starch
Chemicals
Paper-making
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related) :
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead @ 80% D.&I.L.
Unit
ADMT
ADMT
kg
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
320
325
0.23
6.3
6.3
7.3
2.0
.021
Units per
MDMT
0.70
0.17
150
1.8
1.7
0.8
9.5
550
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
224.0
55.3
34.5
7.0
2.0
322.8
11.3
10.7
5.8
6.2
4.0
9.2
19.0
11.6
17.1
94.9
31.2
13.2
44.4
462.1
14.0
20.0
22.0
56.0
518.1
for fixed and working capital)
$000/Yr
20,790
23,310
IX-I-45 . . „
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Delivered Cost $/MDMT
Possible Increase
in Variable
60%
Possible Decrease |
in Variable .
©
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
A
2. B Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+ 0, -50
+20, -20
+25, -10
+30, -30
Best
Guess
272
137
163
47
2.0
Possible
High
272
164
197
59
2.6
Possible
Low
136
109
131
42
1.4
*2A—Virgin (Average Slush Pulp Cost), 2B-Secondary Fiber (Average)
FIGURE IX-l-17 SENSITIVITY OF THE MANUFACTURING COST OF
UNCOATED BOOK PAPER (BLENDED) TO KEY
VARIABLES
IX-I-46
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Base: 19.0%
60%
40%
Possible Decrease
in Variable
o!
Return (percent)
30 -
28-
.©
Possible Increase
in Variable
40%
*2A-Virgin (Average Slush Pulp Cost), 2B-Secondary Fiber (Average)
:*Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $16 million.
FIGURE IX-l-18 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF UNCOATED BOOK PAPER (BLENDED)
TO KEY VARIABLES
IX-I-47
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60%
KEY VARIABLES
1. Scale of Operations,** MTPD
2. B Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital,** $ Million
4. Selling Price, $/MDMT
Percent
Variation
+ 0, -50
+20, -20
+25, -10
+15, -10
Best
Guess
272
137
163
47
500
Possible
High
272
164
197
59
575
Possible
Low
136
109
131
42
450
Arthur DI irrlp I.
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TABLE IX-I-18
ECONOMIC COMPARISON OF BOOK PAPER, UNCOATED (ROLLS) MANUFACTURED
FROM VIRGIN VS. SECONDARY FIBER (NONINTEGRATED MILL)
Functional Group
Grade
Basis Weight (g/m2)
Fiber Furnish
Plant Size (MT/day)
Plant Location
Plant Specifics
Total Fixed Capital ($/Million)
Total Delivered Cost ($/MDMT)
Raw Materials ($/MT delivered)
Conversion ($/MT)
Capital-Related ($/MT)
Sales Cost (less freight)($/MT)
Freight In ($/ MT) *
Freight Out ($/MT)
Selling Price ($/MT)
Return on Fixed Capital, pre-tax (%) - 3.0
Printing & Writing Paper
Book, Uncoated
70 (47 lb/3300 sq ft)
100% Virgin
136
Northeast
Nonintegrated
26
518.1
322.8
94.9
44.4
34.0
19.1
22.0
500
(%) - 3.0
100% Secondary
136
Northeast
Nonintegrated
32
438.9
216.7
111.8
54.4
34.0
18.4
22.0
450
1.6
*Not included in total delivered cost
IX-I- 48
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TABLE IX-l-19
DESIGN BASIS
Functional Group Printing & Writing
Grade Uncoated book paper
Basis Weight 70 g/m2
(47 lb/3300 sq ft)
Production 136MDMT/day;
45,000 MDMT/yr
(rolls)
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 23,800
Other Fixed Capital 2,400
Total Fixed Capital 26,000
Working Capital 5,000
Total Capital Required 31,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
4,300 580
Process Market Pulp
Fiber Furnish 100% virgin (market pulp)
Pulp Yield n.a.
Mill Location Northeast
Boundary Limits Nonintegrated; purchased
market pulp through paper-
making
OPERATING COST*
($/MDMT)
Fiber Furnish 279.3
Other Raw Materials 43.5
Total Raw Materials Cost 322.8
Labor + Fringe @ 32%
of Hourly Rate 27.8
Supplies 19.4
Energy 30.6
Factory Overhead 17.1
Total Conversion Costs 94.9
Capital-Related Costs 44.4
• Total Factory Operating
Cost 462.1 ($419.17
MOST)
GS&A 34.0
Freight Out 22.0
Total Cost of Sales 56.0
• Total Delivered Cost 518.1 ($469.9/
MOST)
*Totals may not add due to rounding.
IX-I- 49
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J. INDUSTRIAL PACKAGING, CONVERTING & MISCELLANEOUS PAPERS
1. Unbleached Kraft Bag and Tube Papers
a. Basis of Models
Three economic models have been prepared for unbleached kraft bag paper and
three for unbleached kraft tube paper—production from virgin fiber,
secondary fiber, and a blend of both. The categories of bag papers and
tube papers include a wide variety of product grades and qualities designed
to meet specific end-use requirements. In setting the fiber furnish and
manufacturing conditions for both the bag and tube paper categories, we
have selected an intermediate quality grade. At this intermediate
quality level, or for lower product grades, secondary bag and tube papers
would compete with the virgin products on an equivalent quality and
selling price basis. We have reflected this in our estimates by using
a uniform selling price for the virgin, secondary, and blended fiber
models of bag paper, and the same is true of the tube paper models.
The above does not apply to higher quality products; 100% secondary fiber
would not be suitable for the better grades of either bag or tube paper.
Owr the quality range possible with 100% secondary fiber, however, it is a
competitive product that sells without price discounting. For the grades
selected, we have estimated a price of $225/MDMT for bag paper and
$210 for tube paper.
A sensitivity chart for each model shows how variations in these selling
prices affect the return on capital.
For the virgin fiber models of both products, we have used a 100% unbleached
softwood kraft slush pulp furnish. For the secondary fiber models, we
have used a furnish of 20% double kraft lined corrugated cuttings and
80% unbleached kraft pulp substitute. The percentage of corrugated
cuttings is the maximum that can be tolerated without deterioration of
product quality. The blended model for bag paper uses the same secondary
fiber mix for 30% of the fiber furnish and unbleached softwood kraft slush
pulp for the other 70%; in the blended model for tube paper, the per-
centages are reversed.
The higher proportion of secondary fiber in the tube paper furnish reflects
the fact that the higher basis weights typical of tube paper grades could
accommodate a higher proportion of secondary fiber with no deterioration
of product quality. (Of course, the required quantity of secondary fiber
might not be available at competitive cost under existing industry
conditions.) In practice, the relative proportions in the secondary
fiber mix and the total fraction of secondary fiber in the furnish are varied
to meet the secondary fiber availability and the quality requirements of
a range of grades of both bag and tube papers.
IX-J-1
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Virgin bag and tube papers are produced primarily in the South and Pacific
Northwest regions. We have chosen a Southeast location as representative
of existing industry patterns. Regional variations can be evaluated through
use of the regional data previously presented (Table IX-C-1), in combina-
tion with the sensitivity charts for each model.
Since the major fiber source for the secondary models is converter waste,
they are not limited to any particular regions. However, a metropolitan
area is required that has sufficient unbleached kraft converting activity
to provide the amount of fiber needed. We have chosen a Northeast location
for both secondary bag and tube papers as representative of existing
industry patterns. Regional variations can be determined through use of
the regional data (Table IX-C-1) and sensitivity charts.
The virgin and blended fiber models for bag paper are sized at 210 MDMT/day
and for tube paper at 240 MDMT/day to reflect present industry character-
istics and the economics of producing these grades on new machines.
The machines for all of these models are assumed to be integrated to a
larger (730 ADMT/day) new pulping facility, with the excess slush pulp
used elsewhere on-site. (See Slush Pulp Cost, Section A.6.)
Since the blended models represent the bag or tube paper portion of a
larger total new mill installation, they are not directly indicative of
the economics or the possible advantages of adding secondary fiber
capacity in a situation where existing machine capacity might be expanded.
(See Containerboard, Section E.I.a.) We have not attempted to determine
how many machines have the potential for capacity expansion, nor have we
idled pulp mill capacity to compensate for replacement with secondary
fiber in the blended models. These models provide a framework from which
the potential costs and profitability of adding incremental capacity
may be determined, given the specific conditions.
For secondary bag and tube paper, we have selected capacity at 120 and
136 MDMT/day respectively. We believe these capacities to be represen-
tative of existing industry characteristics of machine capacity and fiber
availability. However, machine capacities are not limited to these levels
by technical considerations.
b. Comparative Economics
Tables IX-J-1 and IX-J-11 summarize the total capital, delivered cost,
and return on capital for the bag paper and tube paper models. Total
fixed capital of $52 million and $46 million respectively for the virgin
and blended bag paper models, and of $55 million and $37 million res-
pectively for the virgin and blended tube paper models, includes
papermaking, secondary fiber pulping for the blended models, and an allo-
cation of the capital costs for unbleached kraft slush pulp production.
On-site power generation is included for all, by virtue of their
integration to a larger pulping facility.
IX-J-2
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Total fixed capital for the secondary bag paper and tube paper models
of $21 million is based on a single-machine operation in each case and
includes secondary fiber pulping. It does not include on-site power
generation, as the total steam requirements are below the minimum we
have established for on-site power. (See Section C.2.d.) The total
capital requirements and investment per daily ton for secondary bag
paper are lower than for either the virgin or blended models. The total
capital requirements for secondary tube paper are lower than for either
the virgin or blended models, but the investment per daily ton for the
blended model is equal to that for the secondary model. Comparison of
the capital requirements for the bag and tube paper models clearly
indicates the low investment for secondary fiber pulping relative to virgin
fiber pulping, as well as the advantages of increased scale of operations
in investment per daily ton. The implications of these differences are
discussed in the profitability analysis which follows.
The delivered cost of secondary bag paper at $263.4/MDMT is higher than
either the virgin product at $199.3 or the blended product at $203.8.
Similarly, the delivered cost of secondary tube paper at $250.6/MDMT
is higher than either the virgin product at $189.8 or the blended
product at $199.6. Both secondary fiber models have a disadvantage
because of the relatively high cost of pulp substitute fiber compared
with virgin fiber. The effect of fiber raw material cost on total
delivered cost is clearly indicated in the sensitivity charts. In addi-
tion, the high conversion and capital-related costs associated with a
small scale of operations, and the higher costs of a nonintegrated
operation highlighted by a relative sensitivity to energy cost, increase
the delivered costs of the secondary fiber models relative to those of
the virgin or blended fiber models.
The combination of these negative effects holds the operating costs for
both the secondary bag and tube paper models above the virgin or blended
fiber models, even at the low end of the S/F cost range. However, the
base-level blended models have only slightly higher delivered cost than
the virgin fiber models, and at the low end of the secondary fiber cost
range, the blended models have the lowest operating costs.
The pre-tax return on fixed capital for all these models is quite low;
virgin fiber bag paper at 3.4% and virgin fiber tube paper at 2.9% are
the highest. The blended fiber models at 3.2% and 2.2% respectively
are almost as good. As indicated on the sensitivity charts for return
on capital, if secondary fiber were at the low end of its cost range,
the blended models would be slightly more attractive than the virgin
fiber models.
For the secondary fiber models of bag paper and tube paper, we have
omitted the sensitivity of return on capital to variations in capital
and scale of operations because of the mathematical ambiguities of
negative returns. Since the base-level return for both models is
negative, the relationship to any single factor which has capital as
a component (i.e., scale of operations or base-level fixed capital)
is inverse. Return becomes a larger negative number with a decrease
IX-J-3
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in fixed capital. However, the combined effect of increased scale of
operations and decreased fiber cost can be inferred from the sensitivity
of delivered cost (Tables IX-J -5 and IX-J-14): costs would be only a
few dollars below selling price for both secondary bag and tube papers.
Despite the lower magnitude of their capital requirements, the return
for these secondary models would be less than for the virgin or blended
models over the ranges we have considered reasonable for the various
cost components.
We have included an operating cost estimate only for one additional
model, a nonintegrated virgin fiber bag paper mill using market pulp
as the fiber raw material. Table IX-J-18 compares this model with
the 100% secondary fiber model. The costs for the virgin fiber model
are based on the same capacity as the secondary fiber model and the
substitution of market pulp for secondary fiber, with corresponding
reductions in conversion and capital costs.
Thus, the nonintegrated virgin fiber model represents a new single-
machine installation. Since this is a hypothetical case not directly
representative of either the existing industry or probable capacity
expansions, we consider it unrealistic to calculate sensitivity and
profitability. It is included to provide a comparison on an equiva-
lent basis of high-grade pulp waste papers and market pulp as alter-
native fiber sources for nonintegrated papermaking.
The nonintegrated virgin fiber model provides a framework for estimating
actual mill costs, but one must keep in mind that the nonintegrated paper
industry has no new or recent installations, and it is not accurately
characterized by a single-machine operation.
The total delivered cost of $461.5/MDMT and the raw material cost
of $317.3/MDMT for the nonintegrated virgin fiber model compare with a
delivered cost of $263.4 and raw material cost of $111.4 for secondary
fiber. These differences are due to fiber source alone and would also
exist at other levels of actual operating cost if the costs of conver-
sion, capital, and sales differed from those of our models. The fiber
cost differences readily explain the high cost and extensive utili-
zation of high-grade OCC converter waste.
Accordingly, the existing nonintegrated paper mills could provide a
ready market if new sources of these secondary fiber grades could be
developed. Utilization would remain high at much greater secondary
fiber tonnages than presently generated, so long as market pulp prices
were at a level where our comparison is valid.
IX-J-4
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TABLE IX-J-1
ECONOMIC COMPARISON OF UNBLEACHED KRAFT BAG PAPER MANUFACTURE
Functional Group Industrial packaging, converting, & Misc.
Grade Unbleached Kraft Bag Paper
Basis Weight (g/m2) 93 (57 lb/3000 sq ft)
Fiber Furnish 100% Virgin
Plant Size (MT/Day) 210
Plant Location Southeast
Plant Specifics Integrated
*
Total Fixed Capital ($Million) 52
($000/Daily Ton) 248
Total Delivered Cost ($/MDMT) 199.3
Raw Materials ($/MT, delivered) 101.2
Conversion ($/MT) 42.3
Capital-Related ($/MT) 30.9
Sales Cost (less freight) ($/MT) 7.9
Freight in ($/MT Product)** 14,3
Freight out ($/MT Product) ig.O
Selling Price ($/MDMT) 225
*
Return on Fixed Capital, pre-tax (%) 3.4
100% S/F 70% Virgin
30% S/F
120 210
Northeast Southeast
Nonintegrated Integrated
21 46
175 219
263.4 203.8
111.4 103.6
89.1 43.1
40.9 32.0
7.0 7.0
10.6 13.1
15.0 18.0
225 225
- 7.2 3.2
* Including nulning
** Not included in total delivered cost
IX-J-5
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Tabl<
DESI
Functional Group Industrial Packaging,
Converting & Misc.
Grade Unbl. kraft bag paper
Basis Weight 93 g/m2
(56 lb/3000 sq ft)
Production 210 MDMT/day;
69,300 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 25,000
Other Fixed Capital 2,500
Total Fixed Capital 28,000
Working Capital 3,000
Total Capital Required 31,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Stock Preparation — 220
Paper Making 4,000 100
Effluent Treatment — 50
Misc. & Auxiliaries 600 _ 170
Total 4,600 540
2 IX-J-2
GN BASIS
Process Integrated to unbl. kraft
pulp mill
Fiber Furnish 100% unbl. SW kraft slush
pulp
Pulp Yield n.a.
Mill Location Southeast
Boundary Limits Transfer of slush pulp
through paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 90.2
Other Raw Materials 1 1 .0
Total Raw Materials Cost 101.
Labor + Fringe @ 32% of
Hourly Rate 17.6
Supplies 8.3
Energy 10.5
Factory Overhead 5.9
2
Total Conversion Costs 42.3
Capital- Related Costs 30.9
• Total Factory Operating
Cost 174.3
GS&A 7.0 <*1i*.1/MDST>
Freight Out 18.0
Total Cost of Sales 25
• Total Delivered Cost 199.
0
3
($180.8/MDST)
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Figure IX-J-1
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT unbleached kraft bag paper)
7 kg rosin
10 kg alum
19 kg starch
7 kg wet strength
1
988kgunbl.SW (889)
Slush Pulp @ ^
10% Moisture
Chemic
10
Paper
Making
al Loss
kg
(920) 1.0 MDMT @
** 8% Moisture
%% Fiber Loss
4,600 kg Steam
Fossil Fuel
2.4 MM
kcal _
[9.5 MM Btu]
Steam
Generation
t
( ) indicates BD kg
Power
Extracted
460 kWh
Purchased Power 80 kWh
To Process
540 kWh
IX-J-7
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Table IX-J-3
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF UNBLEACHED
KRAFT BAG PAPER FROM 100% VIRGIN FIBER
Item
RAW MATERIALS
Slush Pulp
100% Unbleached Softwood Kraft
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead 0 60% D.&I.L.
Unit
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
91.3
7.3
7.3
8.4
1.0
-
0.012
Units per
MDMT
0.988
1.0
0.4
0.9
9.5
460
80
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
90.2
9.0
2.0
101.2
7.2
3.2
7.2
2.8
2.0
3.5
9.5
-
1.0
5.9
42.3
21.8
9.1
30.9
174.3
4.0
3.0
18
25.0
199.3
for fixed and working capital;
g Cost
$000/Yr
6,250
620
140
7,010
500
220
500
190
140
240
660
_
70
4in
2,930
1,510
630
2.140
12.080
280
210
l 9in
Ir710
13.810
IX-J- 9
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Delivered Cost $/MDMT
Possible (Increase
in Variable
I
Possible Decrease
in Variable
60%
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -40
+20, -20
+25, -10
+50, -10
Best
Guess
210
91
28
1.0
Possible
High
315
110
35
1.5
Possible
Low
125
73
25
0.9
*Slush Pulp Cost
FIGURE IX-J-2 SENSITIVITY OF THE MANUFACTURING COST OF
UNBLEACHED KRAFT BAG PAPER (VIRGIN) TO
KEY VARIABLES
IX-J-10
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Return (percent)
Base: 3.4%
60%
Possible Decrease
in Variable ^-^
o
* Average Slush Pulp Cost
"Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $24 million,
FIGURE IX-J-3 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF UNBLEACHED KRAFT BAG PAPER
(VIRGIN) TO KEY VARIABLES
IX-J-11
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber,* S/ADMT
3. Fixed Capital,** $ Million
4. Selling Price, $/MDMT
Percent
Variation
+50, -40
+20, -20
+25, -10
+15, -15
Best
Guess
210
91
28
225
Possible
High
315
110
35
259
Possible
Low
125
73
25
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Table IX-J-4
DESIGN BASIS
Functional Group Industrial Packaging,
converting and Misc.
Grade Unbl. kraft bag paper
Basis Weight 93 g/m2
(57lb/3000sqft)
Production 120 MDMT/day;
39,600 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 18,800
Other Fixed Capital 1,900
Total Fixed Capital 21,000
Working Capital 3,000
Total Capital Required 24,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Pulping, Cleaning &
Stock Prep. - 300
Paper Making 4,000 100
Water & Effluent
Treatment - 60
Misc. & Auxiliaries 600 170
Total 4,600 630
Process S/F pulping
Fiber Furnish 100% S/F (20% dbl. kraft
lined corr. cuts, 80% P/S
unbl. kraft grades)
Pulp Yield 93%
Mill Location Northeast
Boundary Limits S/F preparation through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 99.8
Other Raw Materials 11.5
Total Raw Materials Cost 111.4
Labor + Fringe @ 32% of
Hourly Rate 31.7
Supplies 8.8
Energy 32.2
Factory Overhead 16.4
Total Conversion Costs 89.1
Capital- Related Costs 40.9
• Total Factory Operating
Cost 241'4
($218.9/MDST)
GS&A 7.0
Freight Out 15.0
Total Cost of Sales 22.0
• Total Delivered Cost 263.4
($238.9/MDST)
"Totals may not add due to rounding.
IX-J- 12
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Figure IX-J-4
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT bag paper)
21 2 kg Dbl. Kraft 849 kg P/S Unbl. 2 kg Rosin »-,
Lined Corr. Cuts as Kraft Grades as
Received @ 10% Received @ 10% 10 kg Alum >>
Moisture Moisture
I I 30 kg Starch ^>
1 (191) 1 (764)
i
2% Di
(1
b kg wet btrengtn w
(955) I
(936) ^_ (889) _ Paper (920) 1.0 MDMT @
^ Pulping ^ Making 8% Moisture
scards 5% Fiber Losses %% Chemical
9) & Solubles Fiber Loss
(47) Loss (15)
(2)
( ) indicates,BD kg
Fossil Fuel
2.4 MM kcal
[9.5 MM Btu]
Steam
Generation
4,600 kg Steam
To Process
Purchased Power 630 kWh
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Table IX-J-5
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF UNBLEACHED
KRAFT BAG PAPER FROM 100% SECONDARY FIBER
Item
RAW MATERIALS
Secondary Fiber
20% Dbl. Kraft Lined Corr.Cu
80% P/S Unbl. Kraft Grades
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
:s M.Ton
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
70
100
6.3
6.3
7.3
2.0
0.021
Units per
MDMT
0.212
0.85
1.9
1.4
1.3
9.5
630
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. 9 2.5% PPG
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST-
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
14.8
85.0
9.0
2.5
111.4
12.1
9.8
9.8
2.8
2.0
4.0
19.0
13.2
1 fi L
89.1
28.5
12.4
AO.Q
241 ,4
4.0
3.0
i •; n
22.0
263.4
for fixed and working capital)
g Cost
$000/Yr
590
3,360
360
100
4,410
480
390
390
110
80
160
750
520
A^n
3.530
1,130
490
i fi?n
q r5fin
160
120
870
10,430
IX-J- 15
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Delivered Cost $/MDMT
Base: $263.4
Possible Increase
in Variable
60% 40%
Possible Decrease
in Variable
I
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -30
+20, -20
+25, -10
+30, -30
Best
Guess
120
94
21
2.0
Possible
High
180
113
26
2.6
Possible
Low
84
75
19
1.4
"Average Cost of Secondary Fiber
FIGURE IX-J-5 SENSITIVITY OF THE MANUFACTURING COST OF
UNBLEACHED KRAFT BAG PAPER (SECONDARY)
TO KEY VARIABLES
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1
1
1
Return (percent)
0-
-2 -
i\ 4
Base: -7.2% - | >C6 -
1 1 1 i i
60% 40% 20% 1 /
I /
i /
Possible Decrease | /
in Variable i /
1 /
' /
1 /
/
© ""
— __©
7
/
/ Possible Increase
/ in Variable
' II 1
N Q 20% 40% 60%
~~ — o
\
^^
- -10 X^
^0
12
— —14
r 1J and C3j not plotted because of negative return.
Percent Best Possible Possible
KEY VARIABLES Variation Guess High Low
1. Scale of Operations, MTPD +50, -30 120 180 84
2. Delivered Cost of Fiber, ' $/ADMT +20, -20 94 113 75
3. Fixed Capital, $ Million +25, -10 21 26 19
4. Selling Price, $/MDMT +15, -15 225 259 191
'Average Cost of Secondary Fiber.
FIGURE IX-J-6 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF UNBLEACHED KRAFT BAG PAPER
(SECONDARY) TO KEY VARIABLES
IX-J-17
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Table IX-J-6
DESIGN BASIS
Functional Group Industrial Packaging,
converting & Misc.
Grade Unbl. kraft bag paper
Basis Weight 93 g/m2
(57 lb/3000 sq ft)
Production 210 MDMT/day;
69,300 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 26,000
Other Fixed Capital 2,600
Total Fixed Capital 29,000
Working Capital 3,000
Total Capital Required 32,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Pulping & Stock Prep - 240
Paper Making 4,000 100
Water & Effluent
Misc. & Auxiliaries 600 160
Total 4,600 560
Process Integrated to unbl. kraft
pulp mill
Fiber Furnish 70% unbl. SW kraft, 30%
S/F (24% P/S unbl. kraft
grades, 6% dbl. kraft lined
corr. cuts)
Pulp Yield 93% for S/F
Mill Location Southeast
Boundary Limits Transfer of slush pulp and
S/F production through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 92.7
Other Raw Materials 11.0
Total Raw Materials Cost 103.6
Labor + Fringe @ 32% of
Hourly Rate 18.1
Supplies 8.3
Energy 10.7
Factory Overhead 6.2
Total Conversion Costs 43.1
Capital-Related Costs 32.0
• Total Factory Operating
Cost 178.8
($162.2/MDST)
GS&A 7.0
Freight Out 18.0
Tntal Pnct nf 9alp<: 0^ fl
• Total Delivered Cost 203.8
($184.8/MDST)
IX-J-18
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Figure IX-J-7
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT bag paper)
64 kg Dbl. Kraft 256 kg P/S Unbl.
Lined Corr. Cuts Kraft Grades as
as Received @ Received @ 10%
10% Moisture Moisture
1 (57) 1(230)
\
(281) _
^ Pulpir
1
)iscards 1
(6)
ig
5% Fiber Loss
(14)
2kg
0.691 ADMT
Unbl. Softwood 10 kg
Kraft Slush Pulp
@10%
(267) ]
Moisture 30 ^g
6 kg We
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Table IX-J-7
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF UNBLEACHED
KRAFT BAG PAPER FROM VIRGIN AND SECONDARY FIBERS
Item
RAW MATERIALS
Slush Pulp
Unbleached Softwood Kraft
Secondary Fiber
Double Kraft Lined Corr. Cuts
P/S Unbleached Kraft Grades
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe 9 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
M.Ton
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
91.3
70
100
7.3
7.3
8.4
1.0
-
0.012
Units per
MDMT
0.691
0.057
0.256
1.1
0.4
0.9
9.5
460
100
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
63.1
4.0
25.6
9.0
2.0
103.6
7.7
3.2
7.2
2.8
2.0
3.5
9.5
-
1.2
6.2
43.1
22.6
9.4
32.0
178.8
4.0
3.0
18.0
25.0
203.8
g Cost
$000/Yr
4,370
280
1,770
620
140
7,180
530
220
500
190
140
240
660
-
80
430
2,990
1,570
650
2,220
12,390
280
210
1,240
1,730
14,120
for fixed and working capital)
IX-J-20
Arthur D Little, Inc
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Base: $203.8
60%
Possible Decrease
in Variable
Delivered Cost $/MDMT
•© (4)
— — ~~"5s*c~^
_^--Possible Inci
Increase
in Variable
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
A
2. B Delivered Cost of Fiber/ $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -40
+20, -20
+25, -10
+50, -10
Best
Guess
210
91
94
29
1.0
Possible
High
315
110
113
36
1.5
Possible
Low
125
73
75
26
0.9
*2A-Slush Pulp Cost, 2B-Average Secondary Fiber Cost
FIGURE IX-J-8 SENSITIVITY OF THE MANUFACTURING COST OF
UNBLEACHED KRAFT BAG PAPER (BLENDED) TO
KEY VARIABLES
IX-J-21
ArtKurHF
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Return (percent)
Base: 3.2%
40%
I
I
Possible Decrease
in Variable !^m J. /
Possible Increase
in Variable
\
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
A
2. B Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital,** $ Million
4. Selling Price, $/MDMT
Percent
Variation
+50, -40
+20, -20
+25, -10
+15, -15
Best
Guess
210
91
94
29
225
Possible
High
315
110
113
36
259
Possible
Low
125
73
75
26
191
*2A—Slush Pulp Cost, 2B—Average Secondary Fiber Cost
**Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $17 million.
FIGURE IX-J-9 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF UNBLEACHED KRAFT BAG PAPER
(BLENDED) TO KEY VARIABLES
IX-J-22
Arthur D Little Inc
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TABLE IX-J-8
ECONOMIC COMPARISON OF UNBLEACHED KRAFT BAG PAPER MANUFACTURE
FROM VIRGIN VS. SECONDARY FIBER (NONINTEGRATED MILL)
Functional Group
Grade
2
Basis Weight (g/m )
Fiber Furnish
Plant Size (MT/day)
Plant Location
Plant Specifics
Total Fixed Capital ($Million)
Total delivered Cost ($/MDMT)
Raw Materials ($/MT delivered)
Conversion ($/MT)
Capital-Related ($/MT)
Sales Cost (less freight)($/MT)
Freight In ($/MT)*
Freight Out ($/MT)
Selling Price ($/MT)
Return on Fixed Capital, pre-tax(%)
*Not included in total delivered cost
Industrial, Packaging, Converting,
& Misc.
Unbleached Kraft Bag Paper
93 (57 lb/3000 sq ft)
100% Virgin
120
Northeast
Nonintegrated
19
461.5
317.3
85.6
36.6
7.0
21.8
15.0
225
-49.0
100% Sec
120
Northeas
Noninteg
21
263.4
111.4
89.1
40.9
7.0
10.6
15.0
225
- 7.2
IX-J-23
Arthur DI ittlp Fnr
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TABLE IX-J-9
DESIGN BASIS
Functional Group Packaging Papers
Grade Unbleached kraft bag
Basis Weight 93 g/m2
(57 lb/3000 sq ft)
Production 1 20 M DMT/day;
39,600/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 16,900
Other Fixed Capital 1,700
Total Fixed Capital 19,000
Working Capital 5,000
Total Capital Required 24,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
4,100 630
Process Market pulp
Fiber Furnish 100% virgin (market pulp)
Pulp Yield n.a.
Mill Location Northeast
Boundary Limits N on integrated; purchased
market pulp through pa-
permaking
OPERATING COST
($/MDMT)
Fiber Furnish 306.3
Other Raw Materials 11.0
Total Raw Materials Cost 31 7.3
Labor + Fringe @ 32%
of Hourly Rate 29.5
Supplies 8.4
Energy 32.2
Factory Overhead 15.5
Total Conversion Costs 85.6
Capital-Related Costs 36.6
• Total Factory Operating
Cost 439.5 ($398.67
MOST)
GS&A 7.0
Freight Out 15.0
Total Cost of Sales 22.0
• Total Delivered Cost 461.5 ($41 8.6/
MOST)
"Totals may not add due to rounding.
IX-J- 24
Arthur D Little; Inc
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TABLE IX-J-10
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF UNBLEACHED
KRAFT BAG PAPER FROM 100% VIRGIN FIBER (NONINTEGRATED MILL
Item
RAW MATERIALS
Market Pulp
Unbleached SW Kraft
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related) :
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead @ 75% D.&I.L.
Unit
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
310
6.3
6.3
7.3
2.0
0.021
Units per
MDMT
0.988
1.7
1.6
1.2
9.5
630
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST '
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
306.3
9.0
2.0
317.3
10.7
10.0
8.8
2.8
2.0
3.6
19.0
13.2
15.5
85.6
25.9
10.7
36.6
439.5
4.0
3.0
15.0
22.0
461.5
$000/Yr
17.400
18,280
for fixed and working capital)
IX-J-25
Arthur D Little, Inc
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TABLE IX-J-11
ECONOMIC COMPARISON OF UNBLEACHED KRAFT TUBE PAPER MANUFACTURE
Functional Group
Grade
o
Basis Weight (g/m )
Fiber Furnish
Plant Size (MT/Day)
Plant Location
Plant Specifics
*
Total Fixed Capital ($Million)
($000/Daily Ton)
Total Delivered Cost ($/MDMT)
Raw Materials ($/MT, delivered)
Conversion ($/MT)
Capital-Related ($/MT)
Sales Cost (less freight) ($/MT)
Freight in ($/MT Product) **
Freight out ($/MT Product)
Selling Price ($/MDMT)
Return on Fixed Capital, pre-tax (%)
* Including pulping
Industrial packaging, converting & Misc.
Unbleached Kraft Tube Paper
146 (90 lb/3000 sq ft)
100% Virgin
240
Southeast
Integrated
55
229
189.8
101.1
39.6
27.0
7.0
14.3
15.0
210
2.9
100% S/F
136
Northeast
Nonintegrated
21
154
250.6
111.3
84.2
36.0
7.0
10.6
12.0
210
- 8.7%
30% Virgin
70% S/F
240
Southeast
Integrated
37
154
199.6
107.8
41.7
28.2
7.0
11.7
15.0
210
2.2%
** Not included in total delivered cost
1
IX-J-27
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Table IX-J-12
DESIGN BASIS
Functional Group Industrial Packaging,
converting and Misc.
Grade Tube Paper
Basis Weight 146g/m2
(90lb/3000sqft)
Production 240 MDMT/day;
79,200 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 25,000
Other Fixed Capital 2,500
Total Fixed Capital 28,000
Working Capital 4,000
Total Capital Required 32,000
ENERGY REQUIREMENTS
(perMDMT)
Steam Power
(kg) (kWh)
Stock Preparation - 230
Paper Making 4,000 105
Water & Effluent
Treatment - 50
Misc. & Auxiliaries 600 180
Total 4,600 565
Process Integrated to unbl. kraft
pulp mill
Fiber Furnish 100% unbl. SW kraft slush
pulp
Pulp Yield n.a.
Mill Location Southeast
Boundary Limits Transfer of slush pulp
through paper making
OPERATING COST*
(S/MDMT)
Fiber Furnish 90.2
Other Raw Materials 1 1.0
Total Raw Materials Cost 101.1
Labor + Fringe @ 32% of
Hourly Rate 15.4
Supplies 8.3
Energy 10.8
Factory Overhead 5.2
Total Conversion Costs 39.6
Capital-Related Costs 27.0
• Total Factory Operating
Cost 167'8
(S152.2/MDST)
GS&A 7.0
Freight Out 15.0
Total Cost of Sales 22.0
• Total Delivered Cost 189.8
($172.1 /MOST)
'Totals may not add due to rounding.
IX-J- 28
Arthur D Little Inc
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Figure IX-J-10
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT tube paper)
2 kg Rosin
10 kg Alum
30 kg Starch •
6 kg Wet Strength
988 kg Unbl.
Softwood Slush 1^5) — ^
Pulp @ 10%
Moisture
Paper
Making
(920) _ 1.0 MDMT @
^* 8% Moisture
Chemical
Loss
(15)
indicates BD kg
4,600 kg
Steam
Fossil Fuel
2.4 MM kcal
[9.5MMBtu]
Steam
Generation
Power
Extracted
460 kWh
To Process
Purchased Power 105 kWh
565 kWh
IX-J- 29
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TABLE IX-J-13
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF TUBE PAPER
FROM 100% VIRGIN FIBER
Item
RAW MATERIALS
Slush Pulp
Unbleached Softwood Kraft
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
91.3
7.3
7.3
8.4
1.0
-
0.012
Units per
MDMT
0.988
0.9
0.4
0.8
9.5
460
105
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
90.2
9.0
2.0
101.1
6.3
2.8
6.3
2.8
2.0
3.5
9.5
-
1.3
5. 7
39.6
19.1
8.0
27.0
167.8
4.0
3.0
15.0
22.0
189.8
$000/Yr
7,140
710
160
8,010
500
220
500
220
160
280
750
-
100
AT n
3,140
1,510
630
2,140
13.290
310
240
1,190
1,740
15,030
for fixed and working capital)
IX-J-31
Arthur D Little Inc
-------
Delivered Cost $/MDMT
Base: $189.8
60%
Possible Decrease
in Variable
.©
Possible Increase
in Variable
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -40
+20, -20
+25, -10
+50, -10
Best
Guess
240
91
28
1.0
Possible
High
360
110
35
1.5
Possible
Low
144
73
25
0.9
"Slush Pulp Cost
FIGURE IX-J-11 SENSITIVITY OF THE MANUFACTURING COST OF
TUBE PAPER (VIRGIN) TO KEY VARIABLES
IX-J-32
Arthur D Little In
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Base: 2.
60%
Possible Decrease
in Variable
Return (percent)
8 -
__ ©
__/_ _©
—2
"Slush Pulp Cost
"Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $27 million.
i Possible Increase
[ in Variable
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital,** $ Million
4. Selling Price, $/MDMT
Percent
Variation
+50, -40
+20, -20
+25, -10
+14, -15
Best
Guess
240
91
28
210
Possible
High
360
110
35
242
Possible
Low
144
73
25
178
FIGURE IX-J-12
SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF TUBE PAPER (VIRGIN) TO KEY VARIABLES
IX-J-33
Arthur DI \tt\e> Irv-
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Table IX-J-14
DESIGN BASIS
Functional Group Industrial Packaging,
Converting & Misc.
Grade Tube paper
Basis Weight 146g/m2
(90 lb/3000 sq ft)
Production 136 M DMT/day;
45,000 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 18,800
Other Fixed Capital 1,900
Total Fixed Capital 21,000
Working Capital 3,000
Total Capital Required 24,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Pulping - 315
Paper Making 4,000 105
Water & Effluent
Trpatmpnt fiO
Misc. & Auxiliaries 600 180
Total 4,600 660
Process S/F pulping
Fiber Furnish 100% S/F (20% dbl. kraft
lined corr. cuts, 80% P/S
unbl. kraft grades)
Pulp Yield 93%
Mill Location Northeast
Boundary Limits S/F preparation through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 99.8
Other Raw Materials 11.5
Total Raw Materials Cost 111.3
Labor + Fringe @ 32% of
Hourly Rate 28.1
Supplies 8.8
Energy 32.9
Factory Overhead 14.4
Total Conversion Costs 84.2
Capital-Related Costs 36.0
• Total Factory Operating
Cost 231-6
($21 0.1 /MOST)
GS&A 7.0
Freight Out 12.0
Tntal PnQt nf ^alpc 1Q O
• Total Delivered Cost 250.6
($227.3/MDST)
IX-J- 34
Arthur D Little Inc
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Figure IX-J-13
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT tube paper)
21 2 kg Dbl. Kraft 849 kg P/S Unbl. 2 kg Rosin to
Lined Corr. Cuts Kraft Grades as
as Received @ 10% Received @ 10% 10 kg Alum to
Moisture Moirture
I I 30 kg Starch ^
(191)4 f (764)
f 1 1
1
2%D
(
6 kg Wet strength M
(936) __ (889) _ Paper (920) ^_ 1-0MDMT@
to Pufpiny to Making to go/^^
1 1 V
scards 5% Fiber Losses %% Chemical
19) & Solubles Fiber Loss
(47) Loss (15)
(2)
) indicates BD kg
Fossil Fuel
2.4 MM kcal
[9.5 MM Btu]
Steam
Generation
4,600 kg
Steam
I
To Process
Purchased Power 660 kWh
IX-J-35
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TABLE IX-J-15
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF TUBE PAPER
FROM 100% SECONDARY FIBER
Item
RAW MATERIALS
Secondary Fiber
Dbl. Kraft Lined Corr. Cuts
(20%)
P/S Unbl. Kraft Grades (80%)
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
M.Ton
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
70
100
6.3
6.3
7.3
2.0
0.021
Units per
MDMT
0.212
0.85
1.7
1.4
1.2
9.5
660
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/MDMT
14.8
85.0
9.0
2.5
111.3
10.7
8.7
8.7
2.8
2.0
4.0
19.0
13.9
1 L. L
84.2
25.1
10.9
36.0
231.6
4.0
3.0
12.0
iq.n
250.6
for fixed and working capital;
$000/Yr
670
3,820
410
110
5,010
480
390
390
130
90
180
860
620
fi^n
3,790
1,130
490
1,620
10,420
180
140
540
§60
11,280
IX-J-37
Arthur D Little Inc
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Delivered Cost $/MDMT
280 _l
Possible Increase
in Variable
Possible Decrease
in Variable
60%
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -30
+20, -20
+25, -10
+30, -30
Best
Guess
136
94
21
2.0
Possible
High
204
113
26
2.6
Possible
Low
95
75
19
1.4
'Average Secondary Fiber Cost
FIGURE IX-J-14 SENSITIVITY OF THE MANUFACTURING COST OF
TUBE PAPER (SECONDARY) TO KEY VARIABLES
IX-J-38
Arthur D Little In
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1
1
1
1
1
1
1
1
1
1
1
1
I
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Return (percent)
0 -
-2 _
© _1:
>v -6 -
©
/
/
/
Base: -8.7% \ / P°SSi*'e lnhC,reaSe
_g I / in Variable
1 1 X
60% 40% 20% /
/
Possible Decrease /
in Variable /
/
0
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber,* $/ADMT
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
\ 20% 40% 60%
- -10 i
--12 \!
::,r" '©
16 MJ and u3j not plotted because of negative return.
Percent Best Possible Possible
Variation Guess High Low
+50, -30 136 204 95
+20, -20 94 113 75
+25, -10 21 26 19
+15, -15 210 242 178
"Average Secondary Fiber Cost
FIGURE IX-J-15 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF TUBE PAPER (SECONDARY) TO KEY
VARIABLES
IX-J-39
Arthur D Little;
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Table IX-J-16
DESIGN BASIS
Functional Group Industrial Packaging,
Converting & Misc.
Grade Tube paper
Basis Weight 146g/m2
(90lb/3000sqft)
Production 240 MDMT/day;
79,200 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 26,500
Other Fixed Capital 2,700
Total Fixed Capital 29,000
Working Capital 4,000
Total Capital Required 33,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Pulping - 200
Stock Preparation - 90
Paper Making 4,000 105
Water & Effluent
Treatment - 60
Misc. & Auxiliaries 600 180
Total 4,600 635
Process Integrated to unbl. kraft
pulp mill
Fiber Furnish 30% unbl. SW kraft, 70%
S/F (14% dbl. kraft lined
corr. cuts, 56% P/S unbl.
kraft grades)
Pulp Yield 93% for S/F
Mill Location Southeast
Boundary Limits Transfer of slush pulp and
S/F preparation through
paper making
OPERATING COST*
($/MDMT)
Fiber Furnish 96.8
Other Raw Materials 1 1.0
Total Raw Materials Cost 107.8
Labor + Fringe @ 32% of
Hourly Rate 16.2
Supplies 8.3
Energy 11.6
Factory Overhead 5.6
Total Conversion Costs 41.7
Capital- Related Costs 28.2
• Total Factory Operating
Cost 177.7
GS&A 7.0 <$195-8/MDST)
Freight Out 15.0
Total Cost of Sales 22.0
• Total Delivered Cost 199.6
($220.0/MDST)
*Totals may not add due to rounding.
IX-J- 40
Arthur D Little Inc.
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149kgDbl. Kraft
Figure IX-J-16
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 MDMT tube paper)
593 kg P/S unbl.
Corr. Cuts Kraft Grades as 0297ADMT
ceived@10% Received© 10% unbl. Softwood 10 kq Alum — *•
ure Moisture Slush Pulp @
1(134) 1(534) lO%Moisture 30 kg Starch ->•
,
2c
Disc
(1
(2g7\ o Ky vvei sireiigin •—
(ijou) r
(655) _ (622) V(889J_ Paper (920)
*" Pul^'"y *" Making **
1
/o v V ' '
:ards •
3, 5% %% Chemical
Fiber Losses Fiber Loss
& Solubles Loss (15)
(33) (2)
1.0 MDMT
@ 8% Moisture
) indicates BD kg
Fossil Fuel
2 A MM kcal ^
[9.5 MM Btu] "^
Power
Boiler
1
^
4,600 kg
Steam
I
Power
Extracted
460 kWh
To Process
Purchased Power 175 kWh
635 kWh
IX-J-41
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TABLE IX-J-17
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF TUBE PAPER
FROM VIRGIN AND SECONDARY FIBERS
Item
RAW MATERIALS
Slush Pulp
Unbleached Softwood Kraft
(30%)
Secondary Fiber
Dbl. Kraft Lined Corr. Cuts
(14%)
P/S Unbleached Kraft Grades
(56%)
Chemicals
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
ADMT
M.Toi
M.Tor
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
91.3
70
100
7.3
7.3
8.4
1.0
-
0.012
Operating Cost
Units per
MDMT
0.297
0.149
0.593
1.0
0.4
0.8
9.5
460
175
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST-
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
$/MDMT
27.1
10.4
59.3
9.0
2.0
107.8
7.1
2.8
6.3
2.8
2.0
3.5
9.5
—
2.1
<; A
41.7
19.8
8.4
28.2
177.7
4.0
3.0
15.0
22.0
199.6
$000/Yr
2,150
820
4,700
710
160
8,540
560
220
500
220
160
280
750
-
170
440
3,300
1,570
660
2.230
J4r070
310
240
1.190
1.740
15,810
for fixed and working capital)
IX-J-42 A.*i,....r\i :»*!„ i.
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Delivered Cost $/MDMT
ossible Increase
in Variable
Possible Decrease
in Variable
60%
O
KEY VARIABLES
1 . Scale of Operations, MTPD
A
2. a Delivered Cost of Fiber,* $/ADMT
D
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -40
+20, -20
+25, -10
+50, -10
Best
Guess
240
91
94
29
1.0
Possible
High
360
110
113
36
1.5
Possible
Low
144
73
75
26
0.9
*2A-Slush Pulp Cost, 2B-Average Secondary Fiber Cost
FIGURE IX-J-17 SENSITIVITY OF THE MANUFACTURING COST OF
TUBE PAPER (BLENDED) TO KEY VARIABLES
IX-J-43
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Return (percent)
Base: 2.2%
60%
Possible Decrease
in Variable
0
©
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
A
2. 0 Delivered Cost of Fiber,* $/ADMT
u
3. Fixed Capital,** $ Million
4. Selling Price, $/MDMT
Percent
Variation
+50, -40
+20, -20
+25, -10
+15, -15
Best
Guess
240
91
94
29
210
Possible
High
360
110
113
36
242
Possible
Low
144
73
75
26
178
*2A-Slush Pulp Cost, 2B-Average Secondary Fiber Cost
**Variation applies to papermaking operation only; allocated fixed capital
for pulp manufacture is assumed constant at $8 million.
FIGURE IX-J-18 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF TUBE PAPER (BLENDED) TO KEY
VARIABLES
IX-J-44
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K. CONSTRUCTION PAPERS
1. Roofing Felt
We have prepared a single model for roofing felt based on 45% virgin
fiber and 55% secondary fiber. Roofing felt can be made in a range
of grades using a variety of proportions and grades of secondary fiber,
but there are no comparable 100% virgin or 100% secondary fiber products.
After surveying industry data, we selected a plant capacity of
136 MDMT/day and a representative furnish of 45% refined softwood chips,
44% mixed waste paper, and 11% OCC.
Since no comparisons of costs or return on capital are applicable for
this model, we have provided a sample cost calculation and a sensitiv-
ity chart for manufacturing cost to indicate the relative importance
of secondary fiber cost in roofing felt production. Thus, changes in
the conditions and assumptions we have made for this model can be tested
readily. We have selected a North Central location as representative
of roofing felt manufacture. Regional variations can be evaluated
through use of the regional data previously presented (Table IX-C-1),
in combination with the sensitivity chart.
IX-K-1
Arthur D Little, Inc
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Table IX-K-1
DESIGN BASIS
Functional Group Const. Paper & Paper-
board
Grade Roofing felt
Basis Weight 510g/m3
<50 lb/480 sq ft)
Production 1 36 M DMT/day;
45,000 MDMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 1 1 ,500
Other Fixed Capital 1 ,200
Total Fixed Capital 13,000
Working Capital 1 ,000
Total Capital Required 14,000
ENERGY REQUIREMENTS
(per MDMT)
Steam Power
(kg) (kWh)
Pulping
Mechanical 200 140
S/F 200 90
Paper Making 2,600 140
Effluent Treatment
and Misc. 500 40
Total 3,500 440
Process Integrated to converting
operation
Fiber Furnish 55% waste paper, 45%
mechanical SW fiber
Pulp Yield 99.5% mech. pulping,
94% S/F pulping
Mill Location North Central
Boundary Limits Wood and S/F prepara-
tion through felt making
OPE RATING COST*
($/MDMT)
Fiber Furnish 33.7
Other Raw Materials 1 .8
Total Raw Materials Cost 35.5
Labor + Fringe @ 32%
of Hourly Rate 18.2
Supplies 5.2
Energy 21 .9
Factory Overhead 1 1 .3
Total Conversion Costs 56.7
Capita I -Related Costs 22.0
• Total Factory Operating Cost 114.2 (S103.6/
MOST)
GS&A 2.5
Freight Out n.a.
Total Cost of Sales 2.5
• Total Delivered Cost 116.7 ($105.9/
MHQT\
'Totals may not add due to rounding.
IX-K-2
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Figure IX-K-1
MATERIAL AND ENERGY BALANCE
(Basis: LOMDMTfelt)
Softwood Chips (435) ^
0.37 cunit *""
Super Mixed Waste (450)
500 kg as Rec'd
(563)
OCC (113)
126 kg as Rec'd
Pulping
(Mechanical)
I
1/2% Fiber Loss
(2)
Pulping
(S/F)
I
(433)
(529)
Additives*
I (4)
(962) Felt
**" Making
I
Fiber and Additive
Losses @ 1 .4%
(13)
(953) 1-0 MDM"1
Moisture
6% Fiber Loss and Rejects
(34)
( ) indicates BD kg
*Alum 2 kg, slimicides/detergents/defoaming agent 2 kg
Fossil Fuel
2.0 MM kcal
[8MM Btu]
Steam
Generation
3,500 kg Steam
To Process
Purchased Power 440 kWh
IX-K-3
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TABLE IX-K-2
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF ROOFING FELT
Item
RAW MATERIALS
Pulpwood
Softwood (45%)
Secondary Fiber
Mixed Waste (44%)
OCC (11%)
Chemicals
Pulping
Papermaking
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
Cunit
M.Ton
M.Ton
raan-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
32
30
55
6.9
6.9
7.9
1.8
0.017
Units per
MDMT
0.37
0.5
0.126
1.5
0.5
0.5
8.0
440
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration \ Allocated from an integrated
Sales Expense ' operation to converting plant
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/MDMT
11.8
15.0
6.9
0.5
1.0
0.3
35.5
10.4
3.8
4.0
3.0
0.2
2.0
14.4
7.5
11.3
56.7
15.6
fi.A
22.0
114.2
1.5
1.0
n.a.
2.5
116.7
g Cost
$000/Yr
530
680
310
20
50
10
1,600
470
170
180
130
10
90
650
340
"510
2,550
700
•>on
990
5,140
70
40
n.a.
110
5,250
for fixed and working capital)
IX-K-4
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Delivered Cost $/MDMT
Base: $116.7
609
Possible Decrease
in Variable
*2A-Virgin, 2B-Average Secondary Fiber Cost
FIGURE IX-K-2 SENSITIVITY OF THE MANUFACTURING COST OF
ROOFING FELT TO KEY VARIABLES
IX-K-5
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. B Delivered Cost of Fiber,* S/JjJJjJy
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -30
+20, -20
+30, -30
+25, -10
+30, -30
Best
Guess
136
32
35
13
2.0
Possible
High
204
38
46
16
2.6
Possible
Low
95
26
24
12
1.4
Arthur D Little to
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L. MARKET PULP
Investment, operating cost, and profitability estimates have been pre-
pared for market pulp from virgin and from secondary fiber. Because
(a) the properties of the two are dissimilar and (b) there is little
commercial experience to validate the cost/performance characteristics
of market pulp from waste paper, we did not make a direct cost comparison
of these two products.
1. Virgin Fiber (Bleached Kraft)
Four economic models were prepared for bleached kraft market pulp—two
for softwood and hardwood in a Southeast location and another two for
these wood species in a Northeast location. The key cost variables—pulp-
wood costs (as affected by the delivered cost of wood and weight per
unit), and utility costs—were judged to be sufficiently different in
these two regions to warrant direct economic comparison. The sample
calculations provide a convenient reference point to assess the eco-
nomic merit of substituting secondary fiber and also provide a means
of calculating the cost of slush pulp used in the previously reported
economic models. The investment and operating costs for pulp drying
were deleted from the market pulp cost calculations to derive the
cost of slush pulp (see Section VIII-M). The presentation of these
models includes sensitivity analysis of key process variables, the
effect of scale of operation upon investment and operating cost, and
estimated return on investment (ROI) calculations.
We have used the same figure for plant investment regardless of its
location. In practice, there would be a difference of about 2-3%,
principally in lower cost for structures in the Southeast; on the other hand,
a southern mill would have the additional investment of about $0.5 million
for turpentine and tall oil recovery. Since the possible difference in
cost between locations is well within the precision of cost investment
estimates presented in the analysis, it is not shown.
Table IX-L-1 compares the costs of the softwood models. The supporting
cost calculation reveals that the principal saving in the southern mill
is its lower pulpwood cost; utility costs, while significantly higher on a
unit energy basis for the Northeast mill, are significantly less important
than pulpwood costs.
Table IX-L-6 compares the costs of the hardwood pulp mills. In this case,
the delivered cost of wood is about the same; hence, the total delivered
cost and ROI for the two locations are about the same. In practice, the
competition for hardwood in some of the southern locations has driven
the price higher than in some of the Northeast locations; hence, the ROI
is in some instances more favorable in the Northeast.
IX-L-1
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TABLE IX-L-1
Economic Comparison of Bleached Kraft Softwood Pulp Manufacture
Functional Group
Grade
Basis Weight
Fiber Furnish
Plant Size (MT/DAY)
Plant Location
Plant Specifics
Total Fixed Capital ($ Million)
($000/Daily Ton)
Total Delivered Cost ($/ADMT)
Raw Materials ($/MT, delivered)
Conversion ($/MT)
Capital-Related ($/MT)
Sales Cost (less freight) ($/MT)
Freight in ($/MT Product)*
Freight out ($/MT Product)
Selling Price ($/ADMT)
Return on Fixed Capital, pre-tax (%)
*Not included in total delivered cost
Market Pulp
Bleached Kraft Softwood
88-92 GE Brightness
N.A.
100% Virgin
730
Southeast
Integrated
140
192
203.0
73.1
44.2
42.7
13.0
16.9
30.0
325
22.0
Northeast
Integrated
140
192
237.1
107.9
51.6
42.7
13.0
21.2
22.0
325
15.8
IX-L-3
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TABLE IX-L-2
DESIGN BASIS
Functional Group Market Pulp
Grade Bleached SW kraft
Basis Weight n.a.
Production 730 ADMT/day;
252,000 ADMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 127,700
Other Fixed Capital 12,800
Total Fixed Capital 140,000
Working Capital 13,000
Total Capital Required 153,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWh)
Wood Preparation - 120
Pulping 1,970 130
Bleaching 3,620 100
Drvino T 000 no
Power & Steam Gen.
(incl. recovery
& liquor prep.) 1,970 200
Effluent Treatment - 20
Misc. & Auxiliaries 1,480 30
Total 1 2,040 730
Process Continuous kraft pulping,
C-E-D-E-D bleaching
Fiber Furnish 100% virgin fiber (soft-
wood from 50/50 round-
wood/chips)
Pulp Yield 42%
Mill Location Southeast
Boundary Limits Wood preparation through
market pulp production
OPERATING COST*
($/ADMT)
Fiber Furnish 54.1
Other Raw Materials 19.0
Total Raw Materials Cost 73.1
Labor + Fringe @ 32% of
Hourly Rate 18.8
Supplies 12.0
Energy 8.6
Factory Overhead 4.9
Total Conversion Costs 44.2
Capital- Related Costs 42.7
• Total Factory Operating
Cost 160.0
GS&A 13.0 ($145.1/ADST)
Freight Out 30.0
Total Cost of Sales 43.0
• Total Delivered Cost 203.0
($184.1/ADST)
"Totals may not add due to rounding.
IX-L-4
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FIGURE IX-L-1
MATERIAL AND ENERGY BALANCE
(Bifis 1 ADMT market pulp)
0.34 Cunit (1072)
Sfl Chips
Wood
0.35Cun,t »»«>
SW RoundX
wxx* / Bark
(156)
Wood
Preparation
4%
Wood
Lone."
(46)
1
Bwfc
(156)
11073)1
(200)
2.87 MM kcal
[11.4MMBtu]
0.47 MM kcal
[1.85MMBtu]
'(2145)_
Pulping
52%
Dissolved
Solids
(1110)
1
%
22.5 kg CIO3
•nkn HI- — !>•
35 kg NaOH — »»
'
(1030) (902) (900) 1.0 ADMT
Moisture
r TT ~r
* 12% Loss 'A* 1/5% Loss
R e)ects** Dissolved Refects** (2)
(5) Soltds (6>
(123)
Power Boiter
6400kg
Steam
960kg
StMm 12,040 kg Steam
4680kg ^ /^
Steam ^ i 1*- To Process
Reburmng
' *-
U Power
Extracted 760
1150 kwh lcwn
[35 MW] 390
^J ,
Credited
( ) Indicates BD kg
*2% loss on barking (suitable for fuel recovery) + 2% loss on chipping
(suitable for fuel or fiber recovery)
""Fiber toss suitable for recovery in lower-grade products
IX-L-5
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TABLE IX-L-3
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BLEACHED
SOFTWOOD KRAFT MARKET PULP IN THE SOUTHEAST
Item
RAW MATERIALS
Pulpwood :
Softwood
Chemicals
Pulping (credit)
Bleaching
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburnlng
Fossil Fuel
Power
Extracted
Purchased (credit)
Factory Overhead
Unit
cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
32.0
7.3
7.3
8.4
-
1.0
1.0
-
0.012
Units per
ADMT
1.69
0.9
0.4
1.1
17.8
11.4
1.85
1150
390
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. 9 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl . interest on borrowed funds
Operatin
$/ADMT
54.1
(1.2)
18.2
2.0
73.1
6.7
3.1
9.0
3.1
1.0
7.9
-
11.4
1.9
-
(4.7)
L Q
44.2
30.0
12.7
42.7
160.0
6.5
6.5
30.0
43.0
203.0
g Cost
$000/Yr
13,630
(300)
4,590
500
18,420
1,700
790
2,270
780
250
1,980
2,870
470
_
(1190)
i ?-*n
11,150
7,560
3,190
10,760
40,330
1,640
1,640
7.560
10,840
51,170
for fixed and working capital)
IX-L- 7
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Return (percent)
Base: 22.
60%
0
©
Possible Increase
in Variable
i
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Million
4. Selling Price, $/ADMT
Percent
Variation
+50, -50
+20, -20
+25, -10
+15, -15
Best
Guess
730
32
140
325
Possible
High
1100
38
175
276
Possible
Low
365
26
126
374
FIGURE IX-L-2 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BLEACHED SOFTWOOD KRAFT MARKET
PULP (SOUTHEAST) TO KEY VARIABLES
IX-L-8
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60%
Possible Decrease
in Variable
Delivered Cost S/ADMT
230 -
40% I 60%
Possible Increase
in Variable
I
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3- Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -50
+20, -20
+25, -10
+50, -10
Best
Guess
730
32
140
1.0
Possible
High
1100
38
175
1.5
Possible
Low
365
26
126
0.9
FIGURE IX-L-3 SENSITIVITY OF THE MANUFACTURING COST OF
BLEACHED SOFTWOOD KRAFT MARKET PULP
(SOUTHEAST) TO KEY VARIABLES
IX-L-9
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TABLE IX-L-4
DESIGN BASIS
Functional Group Market Pulp
Grade Bleached SW kraft
Basis Weight n.a.
Production 730 ADMT/day;
252,000 ADMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 127,700
Other Fixed Capital 12,800
Total Fixed Capital 140,000
Working Capital 15,000
Total Capital Required 155,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWh)
Wood Preparation — 120
Pulping 1,970 130
Bleaching 3,620 100
Drying 3000 130
Power & Steam Gen.
(incl. recovery
& liquor prep.) 1,970 200
Effluent Treatment - 20
Misc. & Auxiliaries 1,480 30
Total 12,040 730
Process Continuous kraft pulping,
C-E-D-E-D bleaching
Fiber Furnish 100% virgin fiber (softwood
from 50/50 roundwood/
chips
Pulp Yield 42%
Mill Location Northeast
Boundary Limits Wood preparation through
market pulp production
OPERATING COST*
($/ADMT)
Fiber Furnish 86.9
Other Raw Materials 21.0
Total Raw Materials Cost 107.9
Labor + Fringe @ 32% of
Hourly Rate 16.5
Supplies 12.0
Energy 18.3
Factory Overhead 4.9
Total Conversion Costs 51.6
Capital- Related Costs 42.7
• Total Factory Operating
Cost 202.1
GS&A 13.0 <$183.3/ADST)
Freight Out 22.0
Total Cost of Sales 35.0
• Total Delivered Cost 237.1
($215.0/ADST)
*Totals may not add due to rounding.
IX-L-10
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FIGURE IX-L-4
MATERIAL AND ENERGY BALANCE
(Bans 1 ADMT market pulp)
1.03Cumt (1072)
SW Chips
1 09 Cunit
SW Round-
wood
(1118)
Bark
(156)
Wood
Preparation
4%
Wood
Losses"
(45)
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Bark
(156)
(1073)1
(200)
2 87 MM kcal
Fossil Fuel fe-
[11.4 MM Btu!
0.47 MM kcal
ll .85 MM Btu]
22 5 kg CIO2
30kgCU — •>•
35 kg NaOM -*•
1
'(2145)
Pulping
52%
Dissolved
Solids
11110)
(1030) (902) (900) t.OADMT
Moisture
111 1
III 1
54% 12% Loss '/,% 1/5% Loss
Rejects" Dissolved Re ects" (2)
(5) Solids (5)
(123)
Power Boiler
6400kg
Steam
960kg
Steam "
12.040kg
4680 kg ^ x-^Steam
Steam ^ *-ToProc«s
• ^J^l ' '
Lime
Reburning
L Power 760
Extracted kWh
1150kWh
[35 MW] 390
"•
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TABLE IX-L-5
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BLEACHED
SOFTWOOD KRAFT MARKET PULP IN THE NORTHEAST
Item
RAW MATERIALS
Pulpwood :
Softwood
Chemicals
Pulping
Bleaching
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
Cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
41.0
6.3
6.3
7.3
_
2.0
2.0
-
0.021
Units per
ADMT
2.12
0.9
0.4
1.1
17.8
11.4
1.85
1150
390
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins.
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Delivered Cost $/ADMT
Possible Increase
in Variable
Possible Decrease
in Variable
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, S/Cunit
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -50
+20, -20
+25, -10
+30, -30
Best
Guess
730
41
140
2.0
Possible
High
1100
49
175
2.6
Possible
Low
365
33
126
1.4
FIGURE IX-L-5 SENSITIVITY OF THE MANUFACTURING COST OF
BLEACHED SOFTWOOD KRAFT MARKET PULP
(NORTHEAST) TO KEY VARIABLES
IX-L-13
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Return (percent)
Base: 15.8%
26 -
24 -
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Possible Increase
in Variable
I ,
60%
40%
Possible Decrease
in Variable
40%
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Million
4. Selling Price, $/ADMT
Percent
Variation
+50, -50
+20, -20
+25, -10
+15, -15
Best
Guess
730
41
140
325
Possible
High
1100
49
175
374
Possible
Low
365
33
126
276
FIGURE IX-L-6 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BLEACHED SOFTWOOD KRAFT MARKET
PULP (NORTHEAST) TO KEY VARIABLES
IX-L-14
Arthur D Little In
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TABLE IX-L-6
Economic Comparison of Bleached Kraft Hardwood Pulp Manufacture
Functional Group Market
Grade
Pulp
Bleached Kraft Hardwood
88-90 GE Brightness
Basis Weight
Fiber Furnish
N.
A.
100% Virgin
Plant Size (MT/DAY) 730
Plant Location
Plant Specifics
Southeast
Integrated
Total Fixed Capital ($ Million) 132
($000/Daily Ton) 181
Total Delivered
Cost ($/ADMT) 186.2
Raw Materials ($/MT, delivered) 58.3
Conversion
($/MT) 43.6
Capital-Related ($/MT) 41.4
Sales Cost
Freight in
Freight out
(less freight) ($/MT) 13.0
($/MT Product)* 14.9
($/MT Product) 30.0
Selling Price ($/ADMT) 320
Return on Fixed
*Not included
Capital, pre-tax (%) 25.5
in total delivered cost
IX-L-15
Northeast
Integrated
132
181
201.6
73.2
52.5
41.4
12.6
14.9
22.0
320
22.6
Arthu
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TABLE IX-L-7
DESIGN BASIS
Functional Group Market Pulp
Grade Bleached HW kraft
Basis Weight n.a.
Production 730 ADMT/day;
252,000 ADMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS
($000)
Physical Plant 120,000
Other Fixed Capital 12,000
Total Fixed Capital 132,000
Working Capital 12,000
Total Capital Required 144,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
tkg_) (kwh)
Wood Preparation — 110
Pulping 1,810 120
Bleaching 3,290 90
Drying 3000 130
Power & Steam Gen.
(incl. recovery &
liquor prep.) 1,810 180
Effluent Treatment - 20
Misc. & Auxiliaries 1,350 60
Total 11,260 710
Process Continuous kraft pulping,
C-E-D-E-D bleaching
Fiber Furnish 100% virgin fiber (hard-
wood from 50/50 round-
wood/chips)
Pulp Yield 46%
Mill Location Southeast
Boundary Limits Wood preparation through
market pulp production
OPERATING COST*
($/ADMT)
Fiber Furnish 40.2
Other Raw Materials 18.0
Total Raw Materials Cost 58.3
Labor + Fringe @ 32% of
Hourly Rate 17.4
Supplies 12.0
Energy 9.5
Factory Overhead 4.8
Total Conversion Costs 43.6
Capital- Related Costs 41.4
• Total Factory Operating
Cost 143.2
GS&A 13.0 <$129.9/ADST)
Freight Out 30.0
Total Cost of Sales 43.0
• Total Delivered Cost 186.2
($168.9/ADST)
'Totals may not add due to rounding.
IX-L-16
Arthur D Little; Inc
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FIGURE IX-L-7
MATERIAL AND ENERGY BALANCE
(Balis 1 ADMT market pulp)
0.76 Cunit
HW RoundX
wood /
0.73 Cunit (983)
HW Chips
Wood
Bark
(126)
Wood
Preparation
4%
Wood
Losses"
(41)
Bark
(126)
3.3 MM kca
(983)1
(167)
[13.2 MM Btul
0.4 MM kcal
[1 6MMBtu]
19 kg CI02
26 ko Cl~ — •*•
30 kg NaOH — »>
\
0966)
Pulpmg
(1019) (902) (900) '•
Me
T TT ~T
48% '/.% 11% Loss %% 1/5% Loss
Dissolved Reiects" Dissolved Rejects" (2)
Solids (5) Solids (5)
(942) (112)
\
Power Boiler
5400kg
Steam
650kg
Steam 11,500kg
5450 kg yv Steam
Steam jf j •»» To Process
Reburnmg
L Power 710
Extracted kWh
1150kWh
[35 MW] 440
1.0 ADMT
10%
Moisture
Credited
I ) Indicates 8D kg
*2% loss on barking (suitable for fuel recovery) + 2% loss on chipping
(suitable for fuel or fiber recovery)
" Fiber loss suitable for recovery in lower-grade products
IX-L-17
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TABLE IX-L-8
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BLEACHED
HARDWOOD KRAFT MARKET PULP IN THE SOUTHEAST
Item
RAW MATERIALS
Pulpwood :
Hardwood
Chemicals
Pulping
Bleaching
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related) :
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased (Credited)
Factory Overhead
Unit
Cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
27.0
7.3
7.3
8.4
-
1.0
1.0
-
0.012
Units per
ADMT
1.49
0.9
0.4
0.9
14.6
13.2
1.6
1150
440
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/ADMT
40.2
0.6
15.4
2.0
58.3
6.5
3.0
7.9
3.1
1.0
7.9
-
13.2
1.6
-
(5.3)
4.8
43.6
28.3
13.1
41.4
143.2
6.5
6.5
30.0
43.0
186.2
for fixed and working capital)
$000/Yr
10,140
160
3,880
500
14,680
1,630
760
1,980
780
250
1,980
-
3,330
400
-
(1,330)
1.200
10,980
7,130
3.300
10r430
36,090
1,640
1,640
7.560
10.840
46,930
IX-L-19
Arthur D Littk Inc
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Delivered Cost S/ADMT
Possible Increase
in Variable
60%
Possible Decrease
in Variable
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -50
+20, -20
+25, -10
+50, -10
Best
Guess
730
27
132
1.0
Possible
High
1100
32
165
1.5
Possible
Low
365
22
119
0.9
FIGURE IX-L-8 SENSITIVITY OF THE MANUFACTURING COST OF
BLEACHED HARDWOOD KRAFT MARKET PULP
(SOUTHEAST) TO KEY VARIABLES
IX-L-20
Arthur D Little Inc
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Return (percent)
Possible Increase
in Variable
Possible Decrease
in Variable
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Mil lion
4. Selling Price, $/ADMT
Percent
Variation
+50, -50
+20, -20
+25, -10
+15, -15
Best
Guess
730
27
132
320
Possible
High
1100
32
165
368
Possible
Low
365
22
119
272
FIGURE IX-L-9 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BLEACHED HARDWOOD KRAFT MARKET
PULP ( SOUTHEAST) TO KEY VARIABLES
IX-L-21
t~ I—
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TABLE IX-L-9
DESIGN BASIS
Functional Group Market Pulp
Grade Bleached HW kraft
Basis Weight n.a.
Production 730 ADMT/day;
252,000 ADMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS
($000)
Physical Plant 120,000
Other Fixed Capital 1 2,000
Total Fixed Capital 132,000
Working Capital 12,000
Total Capital Required 144,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWh)
Wood Preparation — 110
Pulping 1,810 120
Bleaching 3,290 90
Drying 3,000 130
Power & Steam Gen.
(incl. recovery &
liquor prep.) 1,810 180
Effluent Treatment - 20
Misc. & Auxiliaries 1,350 60
Total 11,260 710
Process Continuous kraft pulping,
C-E-D-E-D bleaching
Fiber Furnish 100% virgin fiber (hard-
wood from 50/50 round-
wood/chips)
Pulp Yield 46%
Mill Location Northeast
Boundary Limits Wood preparation through
market pulp production
OPERATING COST*
($/ADMT)
Fiber Furnish 55.1
Other Raw Materials 18.0
Total Raw Materials Cost 73.2
Labor + Fringe® 32% of
Hourly Rate 16.1
Supplies 12.0
Energy 20.3
Factory Overhead 4.2
Total Conversion Costs 52.5
Capital- Related Costs 41.4
• Total Factory Operating
Cost 167.0
GS&A 12.6 <*151.5/ADST)
Freight Out 2ZO
Total Cost of Sales 34.6
• Total Delivered Cost 201.6
($182.9/ADST)
"Totals may not add due to rounding.
IX-L-.22
Arthur D Little Inc
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FIGURE IX-L-10
MATERIAL AND ENERGY BALANCE
(B«m 1 A.DMT market pulp)
0.73 Cunit 1983)
HW Chip.
Wood
0.76 Cunit i11024*
HWRouivK
wood | Bark
(126)
Wood
Preparation
4%
Wood
Loaaan*
(41)
i
Bark
(128)
(983)'
1167)
3.3 MM kcal
Fouil Fuel
».
113.2 MM Btul
19 kg ClOj
26 ka Cl, •>
30 kg NaOH — a>
daee^
Pulping
48%
Dioohrad
Soli*
(942)
1
1
Rtj«c
(10191
t
b
(5)
Power Bottor
0.4 MM kcal
I1.6MMBtu)
Lime
1
(902) „ (9001 i0*0"
Moilture
1 I
11% Lon %% 1/5% Lon
Oissolwd RtjKU" (2)
Solidt (S)
(112)
5400kg _
Steam
660kg
Slaam
54SOkg _
Stum
Reburning
11,500kg
y» Staam
f( . a*» To Prootu
\^\ i
f*^ Pow«r 710
1 Extracted kWh
1 1150kWh
l^^ C36 MW] 440
^"^J , kWh
Credited
( ) Indicates BD kg
*2% tou on barking (suitable for fuel recovery) + 2% loss on chipping
(suitable for fuel or fiber recovery I
** Fiber loss suitable for recovery in tower-grade products
IX-L-23
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TABLE IX-L-10
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF BLEACHED
HARDWOOD KRAFT MARKET PULP IN THE NORTHEAST
Item
RAT7 MATERIALS
Pulpwood :
Hardwood
Chemicals
Pulping
Bleaching
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
Cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
37.0
6.3
6.3
7.3
-
2.0
2.0
-
0.021
Units per
ADMT
1.49
0.9
0.4
1.1
14.6
13.2
1.6
1150
445
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operating Cost
$/ADMT
55.1
0.6
15.4
2.0
73.2
5.6
2.6
7.9
3.1
1.0
7.9
-
26.4
3.2
-
(9.3)
4.2
52.5
28.3
13.1
£1 _A
167.0
6.3
6.3
22.0
34.6
201.6
$000/Yr
13,890
160
3,880
500
18,430
1,410
660
1,980
780
250
1,980
-
6,650
810
-
(2,350)
1,050
13,220
7,130
3,300
10,430
42.080
1,590
1,590
5,540
8,720
50,800
for fixed and working capital)
IX-L-25
Arthur D Little Inc
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Delivered Cost $/ADMT
230 -
Possible Increase
in Variable
60%
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -50
+20, -20
+25, -10
+30, -30
Best
Guess
730
37
132
2.0
Possible
High
1100
44
165
2.6
Possible
Low
365
30
119
1.4
FIGURE IX-L-11 SENSITIVITY OF THE MANUFACTURING COST OF
BLEACHED HARDWOOD KRAFT MARKET PULP
(NORTHEAST) TO KEY VARIABLES
IX-L-26
Arthur D Little I
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Base: 22.6%
60%
Return (percent)
32 _
30 -
.0
,O
Possible Decrease
in Variable
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+50, -50
+20, -20
+25, -10
+15, -15
Best
Guess
730
37
132
320
Possible
High
1100
44
165
368
Possible
Low
365
30
119
272
FIGURE IX-L-12 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF BLEACHED HARDWOOD KRAFT
MARKET PULP (NORTHEAST) TO KEY VARIABLES
IX-L-27
ArthurDI !«•!*» Fr
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L. MARKET PULP (confc'd) .
2. Secondary Fiber (Unbleached Kraft from OCC) *
A direct cost comparison of virgin unbleached softwood kraft pulp with I
unbleached kraft recovered from OCC is not applicable, because: I
(a) Unbleached kraft market pulp from OCC would contain one-
third NSSC pulp, which has been demonstrated to lower
the strength characteristics of the kraft pulp.
(b) The kraft fiber recovered from OCC is a board-grade
pulp (52% yield), for which there is no established
price. The closest competitive material is unbleached
softwood market pulp.
(c) Unbleached market pulp would be in direct competition
with—and have essentially the same quality as—double
kraft lined corrugated cuttings, which are currently
priced at $70 to $80/ADMT. (Processing of this paper
stock would not require an AD system such as has been
included in this cost calculation.)
Nevertheless, as there has been considerable discussion recently regard-
ing the economic feasibility of making market pulp from OCC, we have
developed preliminary investment, operating cost, and profitability
estimates for this material.
The investment estimate presented here is based upon well-known tech-
nology. Therefore, we believe it is within the budget estimating
accuracy of + 25% and -10% (i.e., the estimate could be low by 25%
or high by 10%). The variation could be due to imprecision of the
cost estimate or differences in the design concept. Similarly,
the operating cost can be calculated with reasonable accuracy because
the manufacture of pulp from OCC is based upon established technology.
Clearly, the single most important variable is the delivered cost
of OCC to the plant and not a process variable, as shown in the
sensitivity analysis.
On the other hand, calculation of ROI is not as readily defined, because
there is no established price for this product in the market. In the
absence of a published list or market price, we calculated one based
upon the estimated value of the constituent materials. We assumed
a value of $204/ADMT for linerboard-grade kraft pulp (kraft linerboard
has a market price of $200/MDMT) and $140/ADMT for NSSC pulp (semi-
chemical corrugating medium has a price of $190/MDMT). We also assumed
a 10% discount for recycled fiber.
IX-L-28
Arthur D Little, Inc
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Using a 2:1 ratio of kraft pulp to NSSC, we derived the value of OCC
as follows:
Weighted Average
Component Composition (%) Value ($/ADMT) Value ($/ADMT)
Unbleached kraft 67 204 137
pulp
NSSC 33 140 46
Total 183
Less 10% because it has been recycled 18
Net 165
On the basis of this derived value, the ROI is about 6%; the price
would have to be about $200 per ton to realize 20% ROI (Figure IX-L-15).
Obviously, the availability of alternative raw material will influence
the actual market value, and thus the ROI, of this product.
To further analyze this product opportunity, we calculated what the
plant payout of an on-site slush pulp system would be against the alter-
native of buying market pulp from OCC. The analysis thus attempts
to answer the question "make or buy?" Assuming that a plant payout of
three years or less is an acceptable criterion for investment, Figure
IX-L-16 shows that the consumption of slush pulp would have to be less
than 50 tpd to make it attractive to buy market pulp at $170/ton, or
about 100 tons per day to buy pulp at $130/ton. If the need for
slush pulp exceeded the 100-tpd level, the corresponding price for market
pulp would have to be lower than $130 per ton to make its purchase
attractive.
IX-L-29
Arthur D Little, Inc
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TABLE IX-L-11
DESIGN BASIS
Functional Group Market Pulp
Grade Unbl. kraft from
OCC
Basis Weight n.a.
Production 300 ADMT/day;
1 00,000 ADMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 21,600
Other Fixed Capital 2,200
Total Fixed Capital 24,000
Working Capital 4,000
Total Capital Required 28,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWh)
Asphalt Dispersion 1,000 100
Drying 4,000 130
Other Process - 80
lUlicr Xi Ai iviliaripQ 1 000 1 fif)
Total 6,000 470
'Totals may not add due to rounding.
Process Asphalt dispersion of OCC,
non-integrated
Fiber Furnish 100% S/F (OCC)
Pulp Yield 86% AD pulp to AD S/F
as rec'd.
Mill Location North Central
Boundary Limits S/F preparation through
market pulp production
OPERATING COST
($/ADMT)
Fiber Furnish 63.8
Other Raw Materials 3.0
Total Raw Materials Cost 66.8
Labor+ Fringe@32%of
Hourly Rate 11.2
Supplies 5.6
Energy 23.4
Factory Overhead 5.7
Total Conversion Costs 45.9
Capital-Related Costs 18.4
• Total Factory Operating
Cost 131-1
($118.9/ADST)
GS&A 5.6
Freight Out 12.0
Total Cost of Sales 17.6
• Total Delivered Cost 148.7
($134.9/ADST)
IX-L- 30
Arthur D Little; Inc
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FIGURE IX-L-13
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 ADMT market pulp)
NaOH
H2S04
1,157 kg OCC (1042) (1Q16)
as Rec'd
@ 10% Moisture
'(26)
2V2%
Discards
A.D. System
(905)
(111)
4% Soluble Loss
7% Trash and Fiber
Fossil Fuel
13 MM Btu
Steam
Generation
( ) Indicates BD kg
Dryer
(5)
V2% Loss
(900)
1.0 ADMT
@ 10% Moisture
6,000 kg Steam
Power Extracted
600 kWh
(7500 kW)
To Process
t
IX-L- 31
Arthur D Little, Inc
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TABLE IX-L-12
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF
UNBLEACHED KRAFT MARKET PULP
Item
RAW MATERIALS
Secondary Fiber:
OCC
Chemicals
Pulping
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead @ 70S. D.S.I.L.
Unit
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
55
6.9
6.9
7.9
1.8
-
0.17
Units per
ADMT
1.16
0.5
0.7
0.4
13
470
_
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPG
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST-
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/ADMT
63.8
1.0
2.0
66.8
3.5
4.6
3.1
1.5
1.0
3.1
23.4
-
-
5.7
45.9
13.0
5.4
18.4
1^1 1
2.8
2.8
190
17.6
148.7
g Cost
$000/Yr
6,380
100
200
6,680
350
460
310
150
100
310
2,340
-
-
570
4,590
1,300
540
1,840
13 lln
280
280
i ,?nn
1.760
14.870
for fixed and working capital)
IX-L-32
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Delivered Cost $/ADMT
180.6
60%
60%
r-120
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Del ivered Cost of Fiber, $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+30, -30
+50, -50
+25, -10
+30, -30
Best
Guess
300
55
24
1.8
Possible
High
390
83
30
2.3
Possible
Low
210
28
22
1.3
FIGURE IX-L-14 SENSITIVITY OF THE MANUFACTURING COST OF
UNBLEACHED KRAFT MARKET PULP (SECONDARY)
TO KEY VARIABLES
IX-L-33
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L. MARKET PULP (cont'd)
3. Secondary Fiber (Groundwood from Old News)
Newsprint is composed of about 75% groundwood and 25% semi-bleached
softwood kraft, or high-yield bisulfite pulp. The technology for the
reclamation and deinking of these fibers is well established; hence,
there is a sound basis for developing the investment and operating cost
for this model. However, as in the case of the previous example, the
biggest uncertainty is the profitability of the market pulp mill, since
the value of the recovered fiber to a consumer has not been established.
We have attempted to respond to that question by determining the cost of
an alternative raw material to a mill that might purchase the recovered
fiber.
Fixed capital for the selected 300-ADMT/day plant has been estimated
at $28 million, corresponding to some $95,000 per daily ton of capacity.
The investment excludes on-site power generation facilities, because the
potential for obtaining extraction power from the process steam require-
ments is less than 7500 kW, which we judged to be the minimum size
that would be economically attractive.
The total delivered cost is estimated at $164 per ton, and the sensi-
tivity analysis once again demonstrates that the cost of fibrous raw
material is the single most important variable. Energy cost, the second
key variable, might be reduced by installing on-site power generation
facilities, but the plant payout for the incremental investment would
have to be determined.
Lacking an established market price for this material—hence the ability
to calculate the ROI of the project—we derived a price (see below)
based upon the value of the constituent materials less a $5/ton discount
because it is a recovered product.
Weighted Average
Component Composition Value ($/ADMT) Value ($/ADMT)
Groundwood
Semi-Bleached
Softwood
75
25
206
320
Total
Less Discount
Net Selling Price
155
80
235
2
230
The pre-tax ROI based upon this derived price is about 23%. Obviously,
the cost and availability of alternative fibrous raw material will
influence the market value, and thus the ROI, of this project.
IX-L- 36
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To further analyze this product opportunity, we calculated what the
plant payout of an on-site slush pulp operation would be against the
alternative of buying market pulp recovered from old news. Assuming
that three years or less is an acceptable criterion for investment,
Figure IX-L-21 shows that slush pulp consumption would have to be
less than 40 tpd to make it attractive to buy market pulp at $230
per ton. Similarly, consumption would have to be less than 60 tpd to
make it attractive to buy market pulp at $200/ton.
IX-L-37
Arthur D Little, Inc.
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TABLE IX-L-13
DESIGN BASIS
Functional Group Market Pulp
Grade Groundwood (second-
ary newsprint)
Basis Weight n.a.
Production 300 ADMT/day;
100,000 ADMT/yr
Net Operating Days 330/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 25,100
Other Fixed Capital 2,500
Total Fixed Capital 28,000
Working Capital 4,000
Total Capital Required 32,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWh)
De-inking 500 300
Drying 3,000 130
Misc. & Auxiliaries 600 80
Total 4,100 510
'Totals may not add due to rounding.
Process Newsprint de-inking, non-
integrated
Fiber Furnish 100% S/F (No. 1 news)
Pulp Yield 83% AD pulp to AD S/F
as rec'd.
Mill Location Northeast
Boundary Limits S/F preparation through
market pulp production
OPERATING COST
($/ADMT)
Fiber Furnish 54.5
Other Raw Materials 8.6
Total Raw Materials Cost 63.1
Labor + Fringe @ 32% of
Hourly Rate 11.8
Supplies 8.0
Energy 28.7
Factory Overhead 7.0
Total Conversion Costs 55.5
Capital-Related Costs 21.4
• Total Factory Operating
Cost HO.O
GS&A 11.6 <*127.0/ADST)
Freight Out 12.0
Total Cost of Sales 23.6
• Total Delivered Cost 163.6
($148.4/ADST)
IX-L-38
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FIGURE IX-L-17
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 ADMT market pulp)
1,208kg (1087)
No. 1 News
as Rec'd
De-inking
(oi10% Moisture
17%
(902) _
Drying
(185)
r •
Loss 1/4% I
(900) _
(2)
-OSS
Incl. Discards
1.0 ADMT
@ 10% Moisture
Fossil Fuel
[9.0 MM Btu]
Steam
Generation
4,100 kg Steam
To Process
Purchased Power* 510 kWh
"Extraction turbine not used here, as size would be uneconomic « 7500 kW)
[ ) Indicates BD kg
IX-L-39
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TABLE IX-L-14
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF
GROUNDWOOD MARKET PULP
Item
RAW MATERIALS
Secondary Fiber:
No. 1 News
Chemicals
Pulping (De-inking)
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related) :
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
M.Ton
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
45.0
6.3
6.3
7.3
2.0
0.021
Units per
ADMT
1.21
0.7
0.7
0.4
9.0
510
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/ADMT
54.5
5.6
3.0
63.1
4.4
4.4
3.0
2.0
1.0
5.0
18.0
10.7
7.0
55.5
15.1
6.3
21.4
140.0
5.8
5.8
12.0
23.6
163.6
g Cost
$000/Yr
5,450
560
300
6,310
440
440
300
200
100
500
1,800
1,070
700
5,550
1,510
630
2,140
fl.4,000
580
580
1,200
2.360
16.360
for fixed and working capital)
IX-L- 40
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Delivered Cost $/ADMT
Base: $163.6
I
Possible Increase
in Variable
60%
40%
40%
Possible Decrease
in Variable
Q
FIGURE IX-L-18 SENSITIVITY OF THE MANUFACTURING COST OF
GROUNDWOOD MARKET PULP (SECONDARY
NEWSPRINT) TO KEY VARIABLES
IX-L-41
30%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/ADMT
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+30, -30
+50, -50
+25, -10
+30, -30
Best
Guess
300
45
28
2.0
Possible
High
390
68
35
2.6
Possible
Low
210
23
25
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Base:
23.7%
Return (percent)
36.2
Possible Increase
in Variable
H
60%
60%
40%
Possible Decrease
in Variable
o
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/ADMT
3. Fixed Capital, $ Million
4. Selling Price, $/MDMT
Percent
Variation
+30, -30
+50, -50
+25, -10
+15, -15
Best
Guess
300
45
28
230
Possible
High
390
68
35
265
Possible
Low
210
23
25
195
FIGURE IX-L-19 SENSITIVITY OF THE PRE-TAX RETURN ON FIXED
CAPITAL OF GROUNDWOOD MARKET PULP
(SECONDARY NEWSPRINT) TO KEY VARIABLES
IX-L-42
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24
22
20
18
16
14
s
c
I 12
tr
10
180
190 200
Selling Price ($/ADMT)
210
220
230
FIGURE IX-L-20 PRE-TAX RETURN ON FIXED CAPITAL VERSUS SELLING
PRICE FOR GROUNDWOOD MARKET PULP (Secondary Newsprint)
IX-L-43
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Q.
X
H
0)
(X
25
50 75
Slush Pulp Capacity (MT/day)
100
FIGURE IX-L-21
SLUSH PULP FROM SECONDARY NEWSPRINT DE-INKING - PLANT PAYOUT VERSUS
CAPACITY AT VARIOUS SELLING PRICES FOR COMPETITIVE MARKET PULP
IX-L-44
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M. SLUSH PULP (VIRGIN)
We have presented six cost models for slush pulp: bleached softwood and
hardwood kraft In the Northeast and Southeast, unbleached softwood kraft
in the Southeast, and groundwood in the Northeast. These slush pulp
models form the basis of the fiber raw material costs for all paper and
board models integrated to these grades. The definition of slush pulp
and the allocation of costs between slush pulp production and on-site
pulp drying, papermaking, or board production are detailed in Section
A.6.
Since slush pulp is a raw material cost in paper or board production, the
effect of any variable such as wood cost, scale of pulping operations,
or pulp mill location must first be evaluated in terms of the net change
in slush pulp manufacturing cost; this is done by using the sensitivity
charts for each slush pulp model. The change in slush pulp cost,
expressed as a percentage increase or decrease from the base-level cost,
can then be entered in the sensitivity charts for the various inte-
grated paper and board grades as a percentage change in delivered cost
of fiber to determine the net effect on delivered cost or return on
capital.
Variations in energy cost will affect both slush pulp and papermaking
costs. In this instance, the combined effect must be measured. This
is done by first calculating the change in the cost of slush pulp and
then calculating the combined effect on papermaking cost of the change
in slush pulp cost plus the direct effect of the change in energy cost.
This is particularly significant in newsprint and groundwood paper pro-
duction, since groundwood slush pulp is highly dependent on purchased
power.
IX-M-1
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TABLE IX-M-1
ECONOMIC SUMMARY OF BLEACHED KRAFT SLUSH PULP MANUFACTURE
Softwood
Functional Group
Grade
Basis Weight
Fiber Furnish
Plant Size, ADMT/day
Plant Location
Plant Specifics
Total Fixed Capital ($Million)
" " " per daily ton
($000)
Total Factory Cost
Raw Materials (delivered)($/MT) 72.5
Conversion ($/MT)
Capital-Related ($/MT)
Sales Cost (less freight)($/MT)
Freight in ($MT/product)*
Freight out ($/MT product)
Selling Price
Return on Fixed Capital, pre-tax
N.A.
Hardwood
N.A.
100% Virgin
730
Southeast Northeast Southeast Northeast
Integrated
113
154.8
136.0
72.5
29.1
34.4
113
154.8
173.2
107.3
31.5
34.4
105
143.8
118.5
57.7
27.7
33.1
105
143.8
136.7
72.5
31.1
33.1
N.A.
16.9
21.2
14.9
14.9
N.A.
N.A.
N.A.
*Not included in total delivered cost
IX-M-3
Arthur D Little, Inc.
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TABLE IX-M-2
DESIGN BASIS
Functional Group General
Grade Bl. kraft softwood
slush pulp
Basis Weight n.a.
Production 730 ADMT/day;
252,000 ADMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 103,100
Other Fixed Capital 10,300
Total Fixed Capital 1 1 3,000
Working Capital 9,000
Total Capital Required 122,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWhj
Wood Preparation - 1 20
Pulping 1,970 130
Bleaching 3,620 100
Power & Steam Gen. 1,970 200
(incl. recovery
& liquor prep.)
Effluent Treatment — 40
Misc. & Auxiliaries 1,480 30
Total 9,040 620
Process Continuous kraft pulping,
C-E-D-E-D bleaching
Fiber Furnish 100% virgin fiber; soft-
wood from 50% roundwood
& 50% chips
Pulp Yield 42%
Mill Location Southeast
Boundary Limits Wood preparation through
bleached pulp Production
OPERATING COST*
($/ADMT)
Fiber Furnish 54.1
Other Raw Materials 18.4
Total Raw Materials Cost 72.5
Labor + Fringe @ 32%
of Hourly Rate 14.1
Supplies 7.9
Energy 3.6
Factory Overhead 3.6
Total Conversion Costs 29.1
Capital-Related Costs 34.4
• Total Factory Operating
Cost 136.0 ($123.47
ADST)
GS&A
Freight Out
Total Cost of Sales n.a.
• Total Delivered Cost n.a.
*Totals may not add due to rounding.
IX-M-4
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0 84 Cumt SW Chips
085
Cunit
SW R
Wood
Round-
DOd 1 8ark
(156)
FIGURE IX-M-1
MATERIAL AND ENERGY BALANCE
(Basic 1 A DMT slush pulp)
R-2 Procta
22.5kgCI02
(1071)
Wood
Preparation
0072)1 (2143)
4%
Wood Losses"
(45)
30 kg CI2
35 kg NaOH
Pulping
Bark
(156)
52%
Dissolved
Solids
(1110)
(1028)
Bleaching
(900)
10 AQMT
@ 10%
Moisture
14%
Rejects"
(5)
12% 14% Rejects*
Loss (5)
Dissolved Solids
(123)
Recovery
6400kg
(200)
1.03MMkcal
Fossil Fuel.
[4.1 MM Btu]
Power
Boiler
Steam
960kg
Steam
1685kg
Steam
0.47 MM kcal ^
[1.85 MM Btuf
Lime
Reburning
9045 kg Steam
To Process
Power
Extracted '
822 kWh
[25 MW]
622 kWh
( ) indicates BO kg
"2% loss on barking (suitable for fuel recovery) + 2% loss
on chipping suitable for 1uel or fiber recover)
"Fiber loss (suitable for recovery in lower-grade products)
200 kWh
Credited
IX-M-5
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TABLE
IX-M-3
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF
BLEACHED SOFTWOOD KRAFT SLUSH PULP IN THE SOUTHEAST
Item
RV7 MATERIALS
Pulpwood
Softwood
Chemicals
Pulping (credit)
Bleaching
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased (credit)
Factory Overhead
Unit
Cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
32.0
7.3
7.3
8.4
-
1.0
1.0
-
0.012
Units per
ADMT
1.69
0.7
0.3
0.8
17.8
4.1
1.85
822
200
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPG
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense Not applicable
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/ADMT
54.1
(1.2)
18.2
1.4
72.5
5.0
2.3
6.8
1.9
6.0
-
4.1
1.9
_
(2.4)
1 fi
29.1
24.2
in.?
34.4
136.0
g Cost
$000/Yr
13,630
(300)
4,590
350
18,270
1,270
580
1,720
470
1,500
_
1,030
470
_
(610)
onn
7.330
6,100
9,^0
8.680
34,280
for fixed and working capital)
IX-M-6
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60%
Possible Decrease
in Variable
Delivered Cost $/ADMT
Possible Increase
in Variable
- 120
FIGURE IX-M-2 SENSITIVITY OF THE MANUFACTURING COST OF
BLEACHED SOFTWOOD KRAFT SLUSH PULP
(SOUTHEAST) TO KEY VARIABLES
IX-M-7
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -50
+20, -20
+25, -10
+50, -10
Best
Guess
730
32
113
1.0
Possible
High
1100
38
102
1.5
Possible
Low
365
26
141
0.9
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TABLE IX-M-4
DESIGN BASIS
Functional Group General
Grade Bl. kraft softwood
slush pulp
Basis Weight n.a.
Production 730 ADMT/day;
252,000 ADMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 103,100
Other Fixed Capital 10,300
Total Fixed Capital 113,000
Working Capital 11,000
Total Capital Required 124,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWh)
Wood Preparation — 120
Pulping 1,970 130
Bleaching 3,620 100
Power & Steam Gen. 1 ,970 200
(incl. recovery
& liquor prep.)
Effluent Treatment — 40
Misc. & Auxiliaries 1,480 30
Total 9,040 620
Process Continuous kraft pulping,
C-E-D-E-D bleaching
Fiber Furnish 100% virgin fiber; soft-
wood from 50% roundwood
& 50% chips
Pulp Yield 42%
Mill Location Northeast
Boundary Limits Wood preparation through
bleached pulp Production
OPERATING COST*
($/ADMT)
Fiber Furnish 86.9
Other Raw Materials 20.4
Total Raw Materials Cost 107.3
Labor + Fringe @ 32%
of Hourly Rate 12.4
Supplies 7.9
Energy 7.7
Factory Overhead 3.6
Total Conversion Costs 31.5
Capital-Related Costs 34.4
• Total Factory Operating
Cost 173.2 ($157. 1/
ADST)
GS&A
Freight Out
Total Cost of Sales n.a.
• Total Delivered Cost n.a.
'Totals may not add due to rounding.
IX-M-8
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1.03CunitSW Chips •
1.09
Cunit
SW Round-
wood
Wood
(1117)
(156)
FIGURE IX-M-3
MATERIAL AND ENERGY BALANCE
(Basis: 1 ADMT slush pulp)
R-2 Process
22.5kgCI02
Wood
Preparation
4%
Wood Losses"
(45)
30 kg CI2
35 kg NaOH
n072f(214^
Bark
(156)
52%
D ssolved
Solids
(110)
(1028)
Bleaching
(900)
Moisture
%%
Reiects
(5)
12% V3% Rejects'
Loss (5)
Dissolved Solids
(123)
Recoverv
6400 kg
1200)
1.03MMkcal
Fossil Fuel.
[4.1 MM Btu]
Power Boiler
Steam
960kg
Steam
1685kg
Steam
0.47 MM kcal
[1.85MMBtur
Lime
Reburning
9045 kg Steam
X\
*
Power To Process
Extracted
622 kWh
822 kWh
[25 MW]
200 kWh
Credited
( ) Indicates BD kg
* 2% loss on barking (suitable for fuel recovery) + 2% loss on chipping
(suitable for fuel or fiber recovery)
** Fiber loss (suitable for recovery in lower-grade products)
IX-M-9
Arthur DI if tip Fnr
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TABLE IX-M-6
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF
BLEACHED SOFTWOOD KRAFT SLUSH PULP IN THE NORTHEAST
Item
RVT MATERIALS
Pulpwood
Softwood
Chemicals
Pulping
Bleaching
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
Cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
41.0
6.3
6.3
7.3
-
2.0
2.0
-
0.021
Units per
ADMT
2.12
0.7
0.3
0.8
17.8
4.1
1.85
822
200
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration Not A licable
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/ADMT
86.9
0.8
18.2
1.4
107.3
4.4
2.0
6.0
1.9
6.0
-
8.2
3.7
-
(4.2)
3.6
31.5
24.2
10.2
34.4
173.2
g Cost
$000/Yr
21,900
190
4,590
350
27,030
1,110
510
1,500
470
1,500
-
2,060
930
-
(1,050)
900
7,930
6,100
2,580
8,680
43,640
for fixed and working capital)
IX-M- 10
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Delivered Cost $/ADMT
Possible Increase
in Variable
Possible Decrease
in Variable
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Million
4. Cost of Energy, $/MM8tu
Percent
Variation
+50, -50
+20, -20
+25, -10
+30, -30
Best
Guess
730
41
113
2.0
Possible
High
1100
49
141
2.6
Possible
Low
365
33
102
1.4
FIGURE IX-M-4 SENSITIVITY OF THE MANUFACTURING COST OF
BLEACHED SOFTWOOD KRAFT SLUSH PULP
(NORTHEAST) TO KEY VARIABLES
IX-M-11
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TABLE IX-M-6
DESIGN BASIS
Functional Group General
Grade Bl. hardwood kraft
slush pulp
Basis Weight n.a.
Production 730 ADMT/day;
252,000 ADMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 95,700
Other Fixed Capital 9,600
Total Fixed Capital 105,000
Working Capital 8,000
Total Capital Required 113,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWh)
Wood Preparation - 110
Pulping 1,810 115
Bleaching 3,290 95
Power & Steam Gen.
(incl. recovery &
liquor prep.) 1,810 180
Effluent Treatment - 20
Misc. & Auxiliaries 1,350 45
Total 8,260 565
Process Continuous kraft pulping;
C-E-D-E-D bleaching
Fiber Furnish 100% virgin fiber; hard-
wood from 50/50 round-
wood/chips
Pulp Yield Bleached - 44%
Mill Location Southeast
Boundary Limits Wood preparation through
bleached pulp
OPERATING COST*
($/ADMT)
Fiber Furnish 40.2
Other Raw Materials 17.4
Total Raw Materials Cost 57.7
Labor + Fringe @ 32%
of Hourly Rate 12.7
Supplies 7.9
Energy 3.8
Factory Overhead 3.5
Total Conversion Costs 27.7
Capital-Related Costs 33.1
• Total Factory Operating
Cost 118.5 ($107.57
ADST)
GS&A
Freight Out
Total Cost of Sales n.a.
• Total Delivered Cost n.a.
*Totals may not add due to rounding.
IX-M-12
Arthur D Little In<
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FIGURE IX-M-5
MATERIAL AND ENERGY BALANCE
(Basis: 1 ADMT slush pulp).
R-2 Process
T 9 kg CIO;
0.73 Cunit
HW Chips
Wood
(982)
Wood
Preparation
4%
Wood Losses*
(41)
(982)
26 kg CI2 -
30 kg NaOH •
Pulping
Bark
(126)
48%
Dissolved
Solids
(942)
(1017)
Bleaching
(900)
1.0 ADMT
@ 10%
Moisture
Rejects*
(5)
11% V,% Rejects*
Loss (5)
Dissolved Solids
(112)
Recovery
5400 kg
(167)
1.3 MM kcal
Fossil Fuel
[5.2 MM Btu]
0.4 MM kcal
Power Boiler
Steam
650kg
Steam
2205 kg
Steam
[1.6 MM Btu]
Lime
Reburning
*• 8255 kg Steam
.To Process
Power
Extracted
822 kWh
[25 MW]
565
kWh
257
kWh
( ) Indicates BD kg
* 2% loss on barking (suitable for fuel recovery) + 2% loss on chipping
(suitable for fuel or fiber recovery)
** Fiber loss suitable for recovery in lower-grade products
IX-M-13
Credited
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TABLE IX-M-7
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF
BLEACHED HARDWOOD KRAFT SLUSH PULP IN THE SOUTHEAST
Item
RA17 MATERIALS
Pulpwood
Hardwood
Chemicals
Pulping
Bleaching
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased (Credit)
Factory Overhead
Unit
Cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Operating Cost
Unit Cost
($)
27.0
7.3
7.3
8.4
-
1.0
1.0
_
0.012
Units per
ADMT
1.49
0.7
0.3
0.7
14.6
5.2
1.6
822
250
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. 9 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration Nofc Applicable
Sales Expense
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
$/ADMT
40.2
0.6
15.4
1.4
57.7
4.8
2.2
5.7
1.9
6.0
-
5.2
1.6
—
(3.0)
T.S
27.7
22.5
10.6
33.1
118.5
$000/Yr
10,140
160
3,880
350
14,530
1,200
550
1,430
470
1,500
-
1,310
400
_
(760)
870
6,970
5,670
2,680
8,350
29,850
for fixed and working capital)
IX-M-14
Arthur D Little, Inc
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60%
Possible Decrease
in Variable
Delivered Cost $/ADMT
140-
Possible Increase
in Variable
,©
60%
MOO
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -50
+20, -20
+25, -10
+50, -10
Best
Guess
730
27
105
1.0
Possible
High
1100
32
131
1.5
Possible
Low
365
22
95
0.9
FIGURE IX-M-6 SENSITIVITY OF THE MANUFACTURING COST OF
BLEACHED HARDWOOD KRAFT SLUSH PULP
(SOUTHEAST) TO KEY VARIABLES
IX-M-15
Art h
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TABLE IX-M-8
DESIGN BASIS
Functional Group General
Grade Bl kraft hardwood
slush pulp
Basis Weight n.a.
Production 730 ADMT/day;
252,000 ADMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 95,700
Other Fixed Capital 9,600
Total Fixed Capital 105,000
Working Capital 9,000
Total Capital Required 114,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWh)
Wood Preparation — 110
Pulping 1,810 115
Bleaching 3,290 95
Power & Steam Gen.
(incl. recovery &
liquor prep.) 1,810 180
Effluent Treatment - 20
Misc. & Auxiliaries 1,350 45
Total 8,260 565
Process Continuous kraft pulping;
C-E-D-E-D bleaching
Fiber Furnish 100% virgin fiber; hardwood
from 50/50 roundwood/
chips
Pulp Yield Bleached - 44%
Mill Location Northeast
Boundary Limits Wood preparation through
bleached pulp
OPERATING COST*
($/ADMT)
Fiber Furnish 55.1
Other Raw Materials 17.4
Total Raw Materials Cost 72.5
Labor + Fringe @ 32% of
Hourly Rate 12.0
Supplies 7.9
Factory Overhead 3.0
Total Conversion Costs 31.1
Capital-Related Costs 33.1
• Total Factory Operating Cost 136.7
($124.0/ADST)
GS&A
Freight Out
Total Cost of Sales n.a.
• Total Delivered Cost n.a.
"Totals may not add due to rounding.
TX-M-16
Arthur D Little, Inc
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FIGURE IX-M-7
MATERIAL AND ENERGY BALANCE
(Basil: 1 ADMT slush pulp)
R-2 Process
19kgCI02
0.73 Cumt
HW Chips
Wood
(982)
Wood
Preparation
4%
Wood Losses"
(41)
Q82)
26 kg CI2 -
30 kg NaOH •
(1964^
Pulping
Bark
(126)
48%
Dissolved
Solids
(942)
(1017)
Bleaching
(900)
1.0 ADMT
@ 10%
Moisture
Rejects*
(5)
11% Vi% Rejects*
Loss 15)
Dissolved Solids
(112)
Recovery
5400 kg
(167)
1.3 MM kcal
Fossil Fuel
[5.2 MM Btu]
0.4 MM kcal
Power Boiler
Steam
650kg
Steam
2205 kg
Steam
[1.6 MM Btu]
Lime
Reburning
- 8255 kg Steam
.To Process
Power
Extracted
822 kWh
[25 MW]
565
kWh
257
kWh
( ) Indicates BO kg
* 2% loss on barking (suitable for fuel recovery) + 2% loss on chipping
(suitable for fuel or fiber recovery)
** Fiber loss suitable for recovery in lower-grade products
IX-M-17
Credited
A.I r-^
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1
• TABLE IX-M-9
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF
1 BLEACHED HARDWOOD KRAFT SLUSH PULP IN THE NORTHEAST
Item
• RA" MATERIALS
Pulpwood
1 Hardwood
1
Chemicals
1 Pulping
Bleaching
Other
1 TOTAL RAW MATERIALS COST
. -,_. „. __ ...._ —
CONVERSION (less capital-related):
1 Labor + fringe @ 32% hourly rate
Direct
Indirect
_ Maintenance
• Supplies
• Operating
Packaging
•Maintenance
Fuel
Steam/Power Generation
Residue Fuel
1 Fossil Fuel
Lime Reburning
Fossil Fuel
Power
• Extracted
• Purchased (credit)
Factory Overhead
Unit
Cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
37.0
6.3
6.3
7.3
-
2.0
2.0
0.021
Units per
ADMT
1.49
0.7
0.3
0.8
14.6
5.2
1.6
822
255
1 TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
1 Local taxes & ins. @ 2.5% PPG
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
1 General Administration
• Sales Expense Not Applicable
Freight Out
1 TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/ADMT
55.1
0.6
15.4
1.4
72.5
4.1
1.9
6.0
1.9
6.0
-
10.4
3.2
(5.4)
^ n
31.1
22.5
10.6
33.1
136.7
g Cost
$000/Yr
13,890
160
3,880
350
18,280
1,040
480
1,500
470
1,500
-
2,620
810
(1,350)
7fif)
7,830
5,690
2,680
8,350
34,460
for fixed and working capital)
• ix-M-19 Arthur D Little Inc
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Delivered Cost S/ADMT
Possible Increase
in Variable
60%
Possible Decrease
in Variable
60%
KEY VARIABLES
1. Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3, Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -50
+20, -20
+25, -10
+30, -30
Best
Guess
730
37
105
2.0
Possible
High
1100
44
131
2.6
Possible
Low
365
30
95
1.4
FIGURE IX-M-8 SENSITIVITY OF THE MANUFACTURING COST OF
BLEACHED HARDWOOD KRAFT SLUSH PULP
(NORTHEAST) TO KEY VARIABLES
IX-M-20
Arthur D Little
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TABLE IX-M-10
ECONOMIC SUMMARY OF SLUSH PULP MANUFACTURE
Functional Group
Grade
Basis Weight
Fiber Furnish
Plant Size, ADMT/day
Plant Location
Plant Specifics
Total Fixed Capital ($Million)
" " " per daily ton
($000)
N.A.
Unbl. SW Kraft
N.A.
100% Virgin
730
Southeast
Integrated
84
115.0
91.3
Groundwood
Total Factory Cost
Raw Materials (delivered)($/MT) 46.4
Conversion ($/MT) 19.4
Capital Related ($/MT) 25.6
Sales Cost (less freight)($MT)
Freight in ($/MT product)* 14.5
Freight out ($/MT product)
Selling Price
Return on Fixed Capital, pre-tax
*Not included in total delivered cost
N.A.
N.A.
N.A.
N.A.
400
Northeast
22
55.0
85.1
39.7
32.9
12.4
9.2
IX-M-21
Arthur D Little Inr
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TABLE IX-M-11
DESIGN BASIS
Functional Group General
Grade Unbl. SW kraft slush
pulp
Basis Weight n.a.
Production 730 ADMT/day;
252,000 ADMT/yr
Net Operating Days 345/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 76,400
Other Fixed Capital 7,700
Total Fixed Capital 84,000
Working Capital 6,000
Total Capital Required 90,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWh)
Wood Preparation — 107
Digester (incl. washing
& screening) 1,734 111
Power/Steam Gen.
(incl. recovery &
liquor prep.) 1,734 173
Effluent Treatment 20
Water Supply - 20
Misc. & Auxiliaries 867 19
Total 4,335 450
Process Continuous kraft pulping
Fiber Furnish 100% virgin SW fiber from
50/50 roundwood/chips
Pulp Yield 48%
Mill Location Southeast
Boundary Limits Wood preparation through
pulping
OPERATING COST*
($/ADMT)
Fiber Furnish 46.4
Other Raw Materials 0
Total Raw Materials Cost 46. 4
Labor + Fringe® 32% of
Hourly Rate 10.2
Supplies 6,4
Energy (0.8)
Factory Overhead 3.4
Total Conversion Costs 19.4
Capital-Related Costs 25.6
• Total Factory Operating
Cost 91.3
($82.8/ADST)
GS&A Not applicable
Freight Out
Total Cost of Sales -
• Total Delivered Cost
'Totals may not add due to rounding.
IX-M-22
Arthur D Little Ir
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I FIGURE IX-M-9
MATERIAL AND ENERGY BALANCE
• (Basis: 1.0 ADMT slush pulp)
1
0.71 cunit <938)
• SW Chips
IWood
0.74 cunit ((976) Wood (g3?) 1(1875) (QQQ} LQADMT®
CIA/ / . ..^M r. r I.. ^. Pi i nmn ^»
I°W \ ** Preparation >• ruipmg p- 10o/o Moisture
Roundwood / Bark ^ |
(158)
| 0.4% Wood
Loss
- (39)*
1
1
1
1
1
1
.. ., _ , 0.378 Ml\
• Fossil Fuel
• [1.5 MM
Bark
(158)
52% Dissolved
Solids (970) i >
14% Rejects
(5)**
5,597 kg
Steam Steam
- Recovery - 2^^
___^_ Rtpam
(Available
Excess)
_, , 7Rn kn 6 377 ka
(197) Rower Steam .Steam
Ito te. / \
^ Boiler ^ S 1
. Steam
To Process
1 ^^^ Power
/Ikcal Lime ^ Extracted j'
Btul ^ Heburning 638 kwh 4CO kWh
I *»] 188 kWh
( ) Indicates BD kg (Credited)
1*2% loss on barking (suitable for fuel recovery) + 2% loss on
chipping (suitable for fiber or fuel recovery)
** Fiber loss, suitable for recovery
IX-M-23
1
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TABLE IX-M-12
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF UNBLEACHED
SOFTWOOD KRAFT SLUSH PULP
Item
RW MATERIALS
Pulpwood
Softwood
Chemicals
Pulping (credited)
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased (credited)
Factory Overhead
Unit
Cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
32.0
7.3
7.3
8.4
-
1.0
1.0
0.012
Operating Cost
Units per
ADMT
1.45
0.5
0.3
0.5
15.0
-
1.5
638
188
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPC
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST
COST OF SALES
General Administration
Sales Expense Not applicable
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl . interest on borrowed funds
$/ADMT
46.4
(1.0)
If*
.0
46.4
3.4
2.3
4.5
1.9
_
4.5
_
_
1.5
-
(2.3)
3.4
19.4
18.0
7.6
25.6
91.3
$000/Yr
11,690
(250)
250
11,690
860
580
1,150
470
_
1,150
_
_
380
_
(570)
860
4,880
4,540
1,910
6,450
23.020
for fixed and working capital)
IX-M-24
Arthur D Little, Inc
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Delivered Cost $/ADMT
Possible Increase
in Variable
60%
Possible Decrease
in Variable
FIGURE IX-M-10 SENSITIVITY OF THE MANUFACTURING COST OF
UNBLEACHED SOFTWOOD KRAFT SLUSH PULP
(SOUTHEAST) TO KEY VARIABLES
IX-M-25
60%
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -50
+20, -20
+25, -10
(Not Applic
Best
Guess
730
32
84
able)
Possible
High
1100
38
105
Possible
Low
365
26
76
Arthur DI ifffc»
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TABLE IX-M-13
DESIGN BASIS
Functional Group General
Grade Groundwood slush
pulp
Basis Weight n.a.
Production 400 ADMT/day;
136,000 AD MT/yr
Net Operating Days 340/yr
CAPITAL REQUIREMENTS*
($000)
Physical Plant 20,100
Other Fixed Capital 2,000
Total Fixed Capital 22,000
Working Capital 3,000
Total Capital Required 25,000
ENERGY REQUIREMENTS
(per ADMT)
Steam Power
(kg) (kWh)
Wood Preparation - 25
Pulping - 1,350
Effluent Treatment — 15
Misc. & Auxiliaries 140 10
Total 140 1,400
Process Stone groundwood
Fiber Furnish 100% softwood (spruce/
fir)
Pulp Yield Unbleached - 95%
Mill Location Northeast
Boundary Limits Wood preparation
through pulping
OPERATING COST*
($/ADMT)
Fiber Furnish 37.7
Other Raw Materials 2.0
Total Raw Materials Cost 39.7
Labor + Fringe @ 32%
of Hourly Rate 12.9
Supplies 3.5
Energy 10.8
Factory Overhead 5.7
Total Conversion Costs 32.9
Capital-Related Costs 12.4
• Total Factory Operating
Cost 85.1 ($77.27
ADST)
GS&A
Freight Out
Total Cost of Sales n.a.
• Total Delivered Cost n.a.
*Totals may not add due to rounding.
IX-M- 26
Arthur D Little, Inc
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FIGURE IX-M-11
MATERIAL AND ENERGY BALANCE
(Basis: 1.0 ADMT slush pulp)
0.92 cunit
Softwood
Wood
Bark
(966) _
(157) _
(900) _
Wood (947) toB
n • ~^ Pulping
Preparation ^
Bark
(157)
^—
Wood
Loss d
(19) '
Losses
(37)
700kg
(176) Stpam 560 kg Steam
A X
1.0 ADMT @
10% Moisture
Refined Rejects
Generation
Credited
140 kg Steam
Power
Extracted
70kWh
To Process
Purchased Power 1330 kWh
1.400
kWh
Indicates BD kg
IX-M- 27
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TABLE IX-M-14
ESTIMATED OPERATING COST FOR THE MANUFACTURE OF GROUNDWOOD
SLUSH PULP FROM VIRGIN FIBER
Item
RAW MATERIALS
Pulpwood
Softwood
Chemicals
Other
TOTAL RAW MATERIALS COST
CONVERSION (less capital-related):
Labor + fringe @ 32% hourly rate
Direct
Indirect
Maintenance
Supplies
Operating
Packaging
Maintenance
Fuel
Steam/Power Generation
Residue Fuel (credit)
Fossil Fuel
Lime Reburning
Fossil Fuel
Power
Extracted
Purchased
Factory Overhead
Unit
Cunit
man-hr
man-hr
man-hr
MM Btu
MM Btu
MM Btu
kWh
kWh
Unit Cost
($)
41.0
6.3
6.3
7.3
2.0
-
0.01
Units per
ADMT
0.92
1.1
0.5
0.4
1.24
70
1330
TOTAL CONVERSION COST (less capital-related)
CAPITAL-RELATED
Depreciation @ 5.4% Fixed Capital
Local taxes & ins. @ 2.5% PPG
TOTAL CAPITAL-RELATED
TOTAL FACTORY OPERATING COST.
COST OF SALES
General Administration
Sales Expense Not Applicable
Freight Out
TOTAL COST OF SALES
TOTAL DELIVERED COST (excl. interest on borrowed funds
Operatin
$/ADMT
37.7
2.0
39.7
6.8
3.3
2.8
0.7
2.8
(2.5)
-
13.3
5.7
32.9
8.8
3.7
12.4
85.1
g Cost
$000/Yr
5,130
270
5,400
920
450
380
100
380
(340)
-
1,810
780
4,480
1,190
500
1.690
11,570
for fixed and working capital)
IX-M-28
Arthur D Little Inc
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Delivered Cost $/ADMT
Possible Increase
in Variable
60%
60%
Possible Decrease
in Variable
'O
KEY VARIABLES
1 . Scale of Operations, MTPD
2. Delivered Cost of Fiber, $/Cunit
3. Fixed Capital, $ Million
4. Cost of Energy, $/MMBtu
Percent
Variation
+50, -50
+20, -20
+25, -10
+30, -30
Best
Guess
400
41
22
2.0
Possible
High
600
49
28
2.6
Possible
Low
200
33
20
1.4
FIGURE IX-M-12 SENSITIVITY OF THE MANUFACTURING COST OF
GROUNDWOOD SLUSH PULP TO KEY VARIABLES
IX-M-29
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N. SUMMARY AND DISCUSSION
1. Review of the Bases of Economic Analysis
The bases of this economic analysis and the methodology used were des-
cribed in detail at the beginning of this volume (Sections A through
D). Some of the key assumptions and cost bases of the analysis are sum-
marized here for reference in interpreting the findings and to provide
a rationale for the overall conclusions, as we have perceived them, that
were derived from the specific findings.
a. Costs and Selling Prices
Almost all estimates of costs and selling prices used in this section
were based upon mid-second-quarter 1974 values and included no allow-
ance for future inflation. The major exception was waste paper; we did
not believe that its prices in mid-second-quarter 1974 were indicative
of long-term price trends. Accordingly, to estimate future prices, we
developed cost models for waste paper collection, shredding, and baling;
a markup was included to provide a return that we considered reason-
able over the long run.
b. Pulp and Paper Manufacturing Cost Models
All estimates of investment cost, operating cost, and profitability
pertain to a new grass-roots facility producing a single product on a
single machine. If we had chosen to examine the economics of using
secondary fiber (either exclusively or in a fiber blend) in existing
mills, we believe that the comparison vis-a-vis virgin fiber would not
have been as clear; the results would more likely have reflected the
constraints or advantages of specific plants, such as size and type of
equipment, market opportunities, and access to waste paper resources.
We have considered opportunities for the use of secondary fiber in
existing operations in a more generalized assessment of the recovery
levels that might be achieved by 1983. (See Section X.) However, we
have not attempted to postulate costs and profitability levels for an
existing mill; this study was limited to a more generalized assessment
of the future role of secondary fiber in the U.S. pulp and paper in-
dustry.
A separate but related characteristic of the cost models that should be
noted concerns the unit sizes that we selected for the manufacturing
facilities. For models using virgin fiber, the unit size is typical
for a new installation; thus, while it does not always represent the
largest size in existence or contemplated, it is selected to take
advantage of the economies of large scale. We assumed that there was no
constraint on the supply of pulpwood. For the secondary fiber models,
on the other hand, the unit size selected for analysis was influenced
by our intuitive belief regarding the incremental supply of waste paper
available to support a new operation; the natural site for a new facil-
ity would be in a large metropolitan area, where another facility would
IX-N-1
Arthur D Little Inr
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probably already exist. Hence, we chose a low (perhaps even the minimum)
economic scale of operation.
Clearly, an inherent bias is built into the calculated cost models as a
result of the latter assumptions. It is axiomatic (and clearly shown in
the sensitivity analysis for each cost model) that the potential profit-
ability of the examples based upon secondary fiber would be increased
substantially if there were sufficient waste paper to support a single
larger machine, or if two machines using dissimilar waste paper grades
were operating at the same site.
c. Profitability
The simple pre-tax return on fixed capital (ROI) was the only quantitative
measure used to compare the profitability of virgin versus recycled fiber.
In practice, of course, business decisions are based on many additional
factors—cash flow, discounted rate of return, magnitude and availability
of capital to fund new or expanded manufacturing facilities, market op-
portunities, and various other considerations. Many of these consid-
erations are influenced by the economic and commercial situations of
the individual firms; information on these situations is normally pro-
prietary and difficult to incorporate within a generalized economic an-
alysis. Nevertheless, implicit in the derivation of our overall con-
clusions drawn from the specific findings is a qualitative consideration
of these other economic and commercial factors that influence the method
by which a firm chooses to expand its production capacity.
2. Major Findings and Implications
(a) The unit size and capital requirement for an integrated virgin
fiber pulp and paper manufacturing facility are an order of magnitude
larger than for one based upon secondary fiber.
(b) The calculated ROI for the manufacture of newsprint and corru-
gating medium from secondary fiber is about equal to or slightly greater
than that associated with the use of virgin fiber.
The ROI for the manufacture of jute liner (i.e., liner from secondary
fiber) is substantially lower. Nevertheless, with a calculated ROI of
9% and the prospect of its increasing to about 19% if certain key var-
iables were to reach possible highs (see Figure IX-E-6), this product
appears sufficiently profitable to warrant more detailed examination
of candidate sites.
Fiber blends and secondary fiber look particularly attractive for the
manufacture of tissue and uncoated book paper. (See Tables IX-G-2
and IX-I-11.)
Table IX-N-1 summarizes the magnitude of the capital, capital inten-
sivity, and scale of operation for selected paper and paperboard products.
IX-N-2
Arthur D Little,
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IX-N-3
Arthur D Little, Inc
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(c) The calculated ROI for some of the secondary fiber cost models
is probably understated, because they are compared directly with commodity
products made from virgin fiber on larger machines. In practice, the
smaller machines using secondary fiber would probably be used to make the
higher-added-value specialty items in their respective product categories;
the short duration of the machine run would tend to offset the economic
advantage of the larger machines using virgin fiber.
(d) The use of secondary fiber in the various functional groups
would have unequal effects on the overall level of waste paper recovery.
For example, a 5% increase in the S/F content of containerboard would
result in a substantially higher tonnage of S/F reuse than a similar gain
in any other functional group, because of the larger apparent demand (con-
sumption) for containerboard.
Table IX-N-2 lists the functional groups and shows the proportion of
U.S. paper consumption that each represents. Thus, it indicates the
potential importance of each category in influencing the level of recycle.
(e) The relative importance of the various economic cost models should
be recognized, since they clearly are not equally representative of the
numerous products included in each functional group. For example, con-
tainerboard as a functional group represents 25.2% of total industry con-
sumption. The two commodity grades we have selected for our economic
models (linerboard and corrugating medium) represent 95.6% of the total
functional group. Since they are commodity products, the economic models
are applicable to the entire production, with the understanding that the
models represent new installations and thus do not represent production
costs for existing capacity.
Groundwood papers as a functional group represent 18.2% of total U.S.
paper and board consumption. This functional group includes both a
commodity (newsprint) as 86.1% of its total and specialty products (ground-
wood printing papers). Thus, our economic models for newsprint production
are broadly applicable to new-capacity costs for a relatively large portion
of the U.S. paper industry, whereas our uncoated groundwood printing paper
models provide examples of new-capacity costs for a much smaller industry
fraction.
Tissue and other machine creped paper at 4 million tons constitute 6% of
the total U.S. consumption, while the specific box facial and roll toilet
tissue considered in our cost model comprises roughly 45% of this func-
tional group.
Printing and writing papers at 17.8% of total U.S. paper and board con-
sumption are an example of specialty products. The grades selected for
our models (bond paper and uncoated book paper) represent about 43%
of the total functional group While the preceding cost models exhibit
a range of quality variation, there is a wider range of quality variation
within this functional group and even within the individual cost models.
IX-N-4
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TABLE IX-N-2
SUMMARY OF 1973 U.S. CONSUMPTION IN
PRODUCT
GRADES SELECTED
FOR ECONOMIC MODELS
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Functional Group Consumption
and Grade (000
1 . Containerboard
Linerboard
Corrugating Medium
2. Groundwood Papers
Newsprint
Groundwood Printing Papers
3. Tissue and other Machine Creped
Papers
4. Folding Boxboard
Combination Board
Bleached (SBS)
5. Printing, Writing and Related
Papers
6. Industrial Packaging, Converting
& Misc.
Packaging & Converting
Tube, Can & Drum
7 . Construction Paper and Paperboard
Construction Paper
Total U.S. consumption, grades repre-
sented by economic models
TOTAL U.S. CONSUMPTION, ALL GRADES
IX-N-5
tons)
11,624
5,300
10,500
1,700
4,000
2,763
1,755
11,900
5,270
820
1,800
57,432
67,000
% of Total
U. S. Consumption
all grades
17.3
7.9
15.7
2.5
6.0
4.1
2.6
17.8
7.9
1.2
2.7
85.7
100.0
Arthut
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Accordingly, the models represent specific grades and are not applicable
to the entire group.
In a similar manner, the relative importance of our specific cost models
varies within each remaining functional group.
(f) The manufacture of secondary fiber products from pulp-substitute
grades of waste paper presents a special economic problem. Unlike OCC
and old news, which appear to be in abundant supply, only limited quan-
tities of P/S grades are available. (See Section VII.) The shortage
increases their selling prices and thereby reduces the potential profit-
ability of recycling them.
So long as the P/S recycling operation competes with nonintegrated mills
using market pulp, our calculations indicate that the S/F operation
could remain competitive. (See Tables IX-G-13, IX-I-8, and IX-1-18.)
Nevertheless, its overall profitability is not sufficiently attractive
to justify the construction of new manufacturing facilities unless
new sources of high-grade deinking and P/S grades are developed (or
present ones are substantially expanded) to provide a low-cost cellulosic
raw material.
(g) The sensitivity analyses of the studied examples indicates
that the delivered cost of fiber and the scale of operation are the key
cost variables. Other assumptions and cost estimates that are included
in the cost model, such as the cost of energy or the amount of fixed
capital required, are comparatively insignificant.
(h) The sensitivity analyses of the derived return on investment
(ROI) indicate that selling price is by far the single most important
variable. The mid-second-quarter 1974 prices that were used in the
original calculations have increased significantly in practically every
category during the preparation of this report.
(i) Transportation costs account for a sizable fraction of the
total delivered cost of secondary fiber. If they could be reduced — or
even kept reasonably stable — by such means as optimum site selection
or the consolidation of shipments in and out of the mill, the profit-
ability of practically all the secondary fiber examples would be sig-
nificantly improved.
3. Conclusions
(a) Largely because of inflation, increased scale of operation,
and anti-pollution regulations, the capital investment required for
the construction of new grass-roots facilities more than doubled between
1969 and 1974. These rapidly rising capital requirements, combined
with the lack of plant sites with adequate wood resources and the in-
creasing cost and scarcity of market pulp, are making incremental ex-
pansion of secondary fiber pulping more attractive.
IX-N-6
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(b) Compared with a virgin pulp mill, a facility for repulping
secondary fiber is generally less capital-intensive; thus it can be
relatively small and still be economically attractive.
(c) The high cost of market pulp and the possibility of building
a pulp mill based upon secondary fiber on a comparatively small economic
scale provide potentially attractive opportunities for nonintegrated pulp
mills, which have historically relied upon market pulp. As noted in
Section VII, however, the shortage of suitable waste paper (namely,
pulp-substitute and high-quality deinking grades) may be a constraint.
In integrated mills, the use of secondary fiber instead of slush pulp
is generally not as attractive as the replacement of market pulp in
nonintegrated mills.*
(d) We have not presented economic models for the use of secondary
fiber as fiber blends in existing integrated pulp and paper mills. How-
ever, the incremental production would clearly be attractive if the supply
of virgin pulp were the constraining factor.
(e) Because the delivered cost of a recycled product is so depend-
ent on the cost of waste paper and the scale of operation, any actions
that stabilize the delivered cost of waste paper at a price competitive
with virgin fiber or that increase the economic accessibility of waste
paper, thereby permitting a larger scale of operation, will strongly
encourage the use of secondary fiber.
*This statement does not apply to the manufacture of newsprint or corru-
gating medium from 100% secondary fiber; the problem with these products
is the availability of sufficient waste paper for an economic-sized
operation. (See Section VII.)
IX-N-7
Arthur D Little, Inc
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Environmental Protection Agency
Region V9 Library
230 South Dearborn Street
Chicago, Illinois 6060H
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