Kelor Chemical

From the Exhibit 4, U.S. Frasch Sulphur Industry Prices and Profitability, 1940-1967, we can get the information about the variations in the return on invested capital earned by the industry over the several decades. In sulphur industry, the return on invested capital was around 15% from 1940 to 1945. From 1946, rate of return began to increase dramatically, starting from 16.2 %( 1945), and reached 33.8% in 1950. This high rate of return kept for couples of years (1951-1955), ranging from 29% to 31%. Starting from 1956, rate of return on invested capital in sulphur industry dropped sharply, all the way back to the profitability level of early 40’s 15% rate of return in only 2 years. This fall did not stop until the rate of return dropped to as low as 7.5% in 1963 where the very bottom was. From 1964, the profitability started to rise again. The rate of return went back to the original 15% level in 1966.

From Exhibit 6, U.S. Sulphur Supply, Demand, and Inventory Statistics, 1953-1967, we can get the data of annual total supplies and total demand. We take Production and Imports together as the total annual supplies of U.S. Also, we take Exports and Domestic Consumption together as the total annual demands of U.S. Based on the data we have, we can see that the total annual demands increased every year. This increase was from both sides of the demands, Exports and Domestic, especially the latter in later years of this period. From economics theory we know that increasing demands lead to increasing price. Increasing price leads to increasing supplies. In order to meet with the increasing demand, manufacturers needed to raise their supplies. As a result, this increase in manufacture required more capital investment.

The background note also addresses the profitability level of sulphur industry. Before late 1950s, the sulphur industry was highly profitable. During late 1950s to early 1960s, the price eroded by new production from Canada and France, causing the rate of return fall below 10%. After 1963, sulphur industry’s profitability began a return to its formal level due to the rapid growth of demands. Demands affect the product price. Meanwhile, the supplies influence the price in the other way. If the supplies exceeded the demands, product price would drop. That’s the reason that when foreign supplies came into the market, sulphur price eroded and profitability also fell in the down period. From the total demands, we can tell that the total demands grew rapidly and exceeded the supplies. This caused the rate of return raised again in the mid-60.

higher the capacity (thousand tons of sulphur/year), lower the total unit production cost.