Carbonated Commodities: An Unpleasant Taste in the Mouth

Spend Matters would like to welcome a guest post from Nick Peksa of Mintec Ltd.

When drinking a carbonated beverage, have you ever wondered what the difference is between citric acid and phosphoric acid? In the soft drink industry they are both additives that provide a tangy or sour taste. There is no real difference between the two; however, phosphoric acid has a tendency to be the cheaper ingredient, as it is a mass-produced chemical with a higher production yield than the more expensive processes by the manufacture of citric acid. Today we will enter the world of chemistry and examine how a simple equation, the Datagain system and some math can help us negotiate.

Phosphoric Acid -- Production Phosphate rock is used in the production of phosphate fertilizer products such as ammonium phosphates and superphosphates. It is estimated that fertilizer production accounts for more than 90% of world phosphate rock consumption. The remaining 10% of phosphate rock is consumed as animal feed, an additive for the food and beverage industry and in a variety of detergents. In order to be used in the above applications the rocks must be converted into phosphoric acid.

Phosphoric acid can be prepared two ways -- the Thermal Process and the Wet Process. For the food industry the primary process used is the Wet Process. Phosphoric acid is produced when sulfuric acid is added to a phosphate rock, like calcium phosphate.

Market Drivers
In 2011 the market price for phosphate rocks and phosphoric acid has steadily been moving upwards. The feedstock material (rock) has increased by 40% and energy and fuel is up, so the end price for phosphoric acid looks fair at a 40% increase.

Looking at the market deeper, the primary driver of the phosphoric acid market price is the supply and demand requirements of the fertilizer industry; however this should not stop us exploring the feedstock materials for the manufacturing process (phosphate rocks, sulfuric acid), energy, freight and labor costs.

In order to assess the amount of sulphuric acid and rock required we need to write a balanced equation, examine the atomic mass of the individual compounds, and then we can identify the ratios of products required and then we can calculate the ratios:

3 H2SO4 (Acid) + Ca3(PO4)2 (Phosphate)+ 6 H2O ? 2 H3PO4 + 3 CaSO4.2H2O (Gypsum)

We can than see that:

1 Tonne of Sulphuric Acid + 1.5 tonnes of Phosphate Rock = 1 tonne of Phosphoric Acid + Gypsum

In general, for a primary or secondary process we can assume that the overheads in the manufacturing process will only account for a small proportion of the end cost -- around 40% max. We have all the information we need to calculate a cost model for phosphoric acid and then compare it to the marketplace.

Placing the percentages into Datagain these are my findings:

Interestingly enough, the difference between a calculated price and a general world price has been quite wide in the second half of 2011. Is it supply and demand movement or clever pricing policies and increased margin? As I don't buy the chemical it is not my place to speculate, but it was certainly interesting to explore.

-- Nick Peksa, Mintec Ltd.

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