Availability Becomes a Major Issue for Raw Materials
In recent years, the primary concern for purchasing executives at ink companies has centered around pricing. In order to keep some level of profitability during tight economic conditions, ink companies kept pressure on suppliers to keep prices as low as possible, much the same as printers have been doing to ink manufacturers.
Capacity was a key reason ink companies were able to keep raw material prices down and why ink prices also remained tight. In many markets, there has been overcapacity, and companies have struggled to maintain or increase market share.
This year, ink manufacturers are finding a very different market, as shortages of key raw materials and much higher prices for crude oil are driving prices much higher.
In particular, the reduced availability of acrylic acid is a major problem for ink companies. Due to the shortage of this essential ingredient for UV and water-based inks, allocations have gone into effect for key suppliers. As noted in “The Raw Material Report,” beginning on page 18, this situation is unlikely to change soon.
As a result of this shortage, prices have gone up dramatically for acrylic acid, with numerous increases coming through. While ink companies aren’t happy about this, there is little room to negotiate, as the shortage of supply has put customers in a tenuous position.
Interestingly, the companies that have been under contract with suppliers are in the best position, while companies that chose to shop around for the best prices every year are facing the potential of seeing their access to supplies limited.
As for other key ingredients, many are based on feedstocks resulting from crude oil and natural gas, and anyone who has filled up their car recently can attest, prices are zooming upward. The price of a barrel of crude oil, which was once thought to be extravagant at $30 has now passed the $45 mark, and the price of feedstocks have been impacted.
All of this means that ink companies are paying much higher prices for ingredients. Of course, it would be reasonable to think that these prices will have to be passed along to printers, but whether ink companies will be willing to implement higher prices or will further slash into perilously low margins remains to be seen.