The downturn in the U.S. economy has been the major concern this year, and signs are not positive. The stock market’s decline has been ongoing for more than a year and a half, and the Federal Reserve’s attempts to cut the interest rate and spark the economy have not had the anticipated impact.
There are other signs throughout the economy: unemployment is at 4.5 percent, and layoffs at major corporations are seemingly a daily occurrence. According to the Federal Reserve, industrial production has dropped 4.2 percent since last September, and corporate profits are also declining.
The impact is hitting practically every market segment, from manufacturing to technical companies and much more. The printing industry is also slow, with the Printing Industries of America’s (PIA) recent survey showing only a 0.3 percent growth rate during the second quarter of 2001.
As a result of the slump in printing, the same trends are holding true for the printing ink industry as well. According to quarterly sales reports compiled by the National Association of Printing Ink Manufacturers (NAPIM), sales of ink are down 4.2 percent during the first six months of the year. In terms of pounds, ink usage is down 7.5 percent.
Those declines in ink sales and pounds are across-the-board, with litho ink sales have declined the most, at 4.4 percent, while demand is down 9.6 percent. The drop in sales and volume of flexo and gravure inks, while not as dramatic, tell a similar story.
Individual ink companies are reporting similar findings. In particular, a number of ink companies are reporting that their sheetfed ink sales appear to be down around 5 percent so far this year.
There is also a concern that the state of the economy may be worse than it is being reported. “The economy may be worse than everyone is saying,” one ink company owner said, while another executive noted, “Everything is stagnant. It’s a standoff.”
Another major concern is the state of raw material prices. If the prices of key supplies rise, ink companies will either have to get higher prices from printers, or cut further back on their already slim margins. As a result, the economic worries are making for a grim 2001 for many ink companies.
Crude oil and its derivatives, such as ethylene and polypropylene, are the critical ingredients to countless raw materials for ink, and as such, are the key to the pricing of key ingredients for printing inks.
While major oil suppliers report that the market for crude oil is holding steady, even that does not hold good news for ink makers.
“Prices have been stable for some time, but because of the volatility of crude oil costs and cost of energy, we don’t foresee any price decreases,” said Jack Eberly, director of sales and marketing, special products for San Joaquin Refining, which supplies news ink oil.
“If crude stays in the mid- to upper $20s, we don’t see any changes in pricing,” said Tom Gwizdalski, general manager for Magie Bros.
As the price of crude oil has yet to really decline, key raw materials derived from crude oil, such as petroleum-based products, are compelled to keep resins and varnishes remaining at higher levels.
“The fact that crude oil is still up significantly over 1999 levels has hurt our industry,” said Art Brendel, vice president, global purchasing for Lawter International. “We anticipated crude at this time being at lower levels, thus affording us better raw material pricing in many products derived or patterned after crude oil and gasoline.
“C-9 monomers and DCPD (dicyclopentadiene) which are produced in ethylene crackers have also been impacted by higher crude pricing. Demand for these products in some cases exceeds supply, as is the case currently with DCPD. Inventories are tight, and there are fewer players in the world market today than there were a few years ago. The impact of lack of DCPD availability is also being felt in Europe. The C-9 producers are typically cracking lighter feed streams this time of the year and the availability of certain streams can be difficult to come by, demand is exceeding supply so prices currently are staying at higher than traditional levels,” Mr. Brendel said.
“Other raw materials to watch are CTO (crude tall oil) inventories, and prices currently appear to be stable,” Mr. Brendel said. “Even alkyd prices are under pressure due to higher vegetable oil prices (linseed oil and soybean oil). The lack of rain in key regions has caused some turmoil, and smaller adjusted crop sizes on flax and soybeans has driven the market up considerably in the last 30-45 days. Premiums are also up significantly over this time frame.”
“I thought we would see some relief as feedstock prices lowered somewhat during mid-summer, but it now looks like graphic arts-related petrochemical prices will increase through year-end,” said John Starkweather, global marketing manager, graphic arts business at Rohm and Haas.
“Acrylic acid, a key raw material for acrylates, has been flat, although there has been upward pricing pressure for nearly a year now,” said Brett Johnson, market manager, graphic arts at UCB Chemicals. “We will be competitive in the monomer and oligomer (acrylate) market, and business seems to be returning after a slightly weak first half.”
Pigments are the key component in ink, and as such, account for a greater percentage of costs. Earlier this year, pigment companies reported getting relatively minor price increases for the first time in years. However, as demand slows and capacity continues to expand, these companies are working hard to try to remain competitive.
“From a standpoint of availability, there are no problems ahead for synthetic organic pigments,” said Tom Rogers, president and CEO of Apollo Colors. “There is plenty of capacity, and with business being down, demand for products is substantially lower. Even though petrochemical prices fluctuate, I don’t see any price increases for the precursors.”
“Pricing is still very competitive,” said Maurice Carruthers, general manager of Sun Chemical Corporation’s Colors Group.
“Pigment prices are still very low, and because of the aggressive nature of the market I don’t see any recovery,” said Vince Schladen, sales manager for Toyo Ink Color LLC. “I don’t see raw materials for pigments going up dramatically, although that depends upon the petroleum market.”
Holding the Line For the Time Being
Unlike last year, when prices for certain raw materials began to skyrocket, the overcapacity in certain segments, coupled with decreasing demand and increasing pressure from imports, has led to intense price competition. In addition, the U.S. economic downturn is having an impact worldwide.
“We are seeing that the general economic slowdown has slowed pricing pressure in North America,” said Craig Foster, vice president, materials management at Flint Ink Corporation. “Excess capacity has developed faster than inventories have been reduced, which has put pressure on the raw material markets. Europe, which has been a bit healthier, is showing signs of slowing both based on some impact from North America as well as slowing in the U.K. and mainland Europe. Currency issues continue to be a problem in South America, Australia and New Zealand. Weakening currencies are pressuring imported material costs at the same time that business is slowing, so they are taking a double hit.
“The economy is a significant factor in material pricing,” Mr. Foster added. “Unfortunately for all, energy, transportation, basic feedstocks and other costs have not necessarily declined as demand has slowed. It is public knowledge that many businesses have had to curtail capital spending, which may have consequences for all these industries in the mid and long-term. “Another significant factor is the importation of ink at below-market pricing – a situation that is supported both by foreign countries through export incentives and by the current domestic duty structure for ink imports,” Mr. Foster said. “Ultimately, this will equally affect the ink, pigment and resin markets, further compressing margins that had not reached acceptable levels.”
All of this has forced companies to further tighten their belts and look for new ways to bring in business.
“We’ve taken steps to reduce our raw material costs which, coupled with manufacturing efficiencies, have allowed us to remain competitive,” Mr. Carruthers said.
Mr. Starkweather said that it has been difficult to pass along cost increases to ink companies. “We’ve been able to recover only a fraction of the raw material cost increases we’ve experienced,” Mr. Starkweather said.
Creating improved new products is another way of maintaining business in a tight economy.
“In spite of the market softness in general-line products like monomers and epoxies, UCB continues to develop newer energy curable products which are designed to make ink formulating easier,” Mr. Johnson said.
Still, there is a belief among many raw material suppliers that the pressure to keep prices down is keeping margins unacceptably tight and making business untenable for their companies. Many vendors believe that the need for raw material price increases has not been lessened by the economic downturn in the U.S., and suppliers continue to face pressure to keep prices low. “We need to all be in this together,” one supplier said.
Another problem is that suppliers say that prices for a wide range of products for the ink industry have been suppressed for many years, and some products have even been sold at a loss. Some suppliers said the day may come when key companies pull out of the ink market all together, instead concentrating on more profitable opportunities.
“Suppliers have to make a profit, too,” one supplier said. “Ink companies complain about their margins, but they should be able to pass their costs down to printers.”
For ink companies and suppliers, 2001 has been a tough year, and there’s no sign yet that the economy will turn around.
“My expectation is that the U.S. economy will not recover in the near future to any notable degree,” Mr. Foster said. “Current imports of ink into the North American market are further affecting supply and demand, and the resulting pricing of ink, resin and pigment does not bode well for returns and investment in any of these areas.”
All in all, it looks to be a very challenging year ahead for the printing ink industry and its suppliers.