ChemCo seeks advice on a $20M capacity expansion for alkaline ash production. Through analyzing market demand-capacity gaps and cost structures, the candidate must recommend whether to expand. The Rest of Asia market shows the most attractive opportunity (demand exceeds capacity), but Chinese competitors have location advantages. However, U.S. firms have significantly lower production costs, enabling profitable sales even at competitive Chinese pricing.
Key Insights:
- Demand-supply imbalance varies by region: capacity exceeds demand in US/Europe/China, but demand exceeds capacity in LatAm/Middle East/Africa/Rest of Asia
- Rest of Asia is the most attractive market with expected 2 metric ton demand growth and significant capacity gap
- Chinese producers are key competitors due to large capacity and location, but U.S. firms have 42% lower production costs ($176.5 vs $251 per metric ton in 2020)
- Cost advantage stems from cheaper raw materials/energy for U.S. producers, offsetting higher freight and labor costs
- Investment is profitable in year one, generating $14.5M profit ($19.5/metric ton margin on 1 million additional tons), despite phased $5M annual capital expenditures