However, as was the case for virtually every key raw material supplier, 2004 will also be less fondly remembered for the large increases in raw material prices.
With uncertainty over future pricing looming, wax, solvent and additive manufacturers are doing their best to get ready for 2005 and beyond.
2004 and the Future
In general, 2004 was a fairly successful year for suppliers.
“2004 has been an overall success,” said Michael Kucharski, marketing manager of graphics for Surface Specialties UCB. “We have seen organic growth for the first time in two years. Our sales to the graphics market are up 5 percent for both UV and waterborne customers, and next year, we expect to see a continued growth in the graphics market of 1 to 3 percent. We anticipate any slowdown will be because we’re coming off an election year, along with the continued move of the corrugated market outside of North America.”
“The recovery in the U.S. economy has impacted Sartomer very positively in 2004,” said Paul Elias, business director of specialty products for Sartomer. “Our results exceeded the prior year by a significant margin. This improvement is the result of increased activity across all the markets we serve, both domestically and internationally. With the continued economic recovery, we anticipate 2005 will be a robust year for business, barring any major political disruptions.”
“In general, our additives business is in the fastest growing areas – ink jet and UV curing inks and varnishes,” said Christopher Bridge, regional marketing manager-Americas, imaging and inks business line, coating effects segment at Ciba Specialty Chemicals.
“As a result, we have seen growth in these businesses, although we experienced in the early part of the year price pressures for some photoinitiator-type products.”
“Elementis Specialties is having a good year in terms of volume,” said Craig Baudendistel, business director at Elementis Specialties. “However, increasing raw material and energy costs has been a challenge.”
“Waxes and additives have not been impacted as heavily as many other areas of the ink industry,” said Phil Runge, product manager, Lawter International. “Prices on standard ink waxes such as microcrystalline, polyethylene and PTFE have been fairly stable over the last few years. However, intense price pressure still exists on the varnish portion of the wax compounds.”
Overall, Mr. Runge is optimistic about 2005.
“2005 will face many of the same challenges that 2004 experienced,” Mr Runge said. “Costs will continue to dominate discussions, and companies will have to continually evaluate their cost to manufacture. We expect to grow in 2005, and if the market continues to grow out of the depression that it currently faces, we expect 2005 to be an excellent year.”
Pricing and Supply
Raw materials pricing and availability are the key variables for suppliers.
“We see this year as a transition year for suppliers to continue strengthening their relationships with customers as both go through a time of adjusting to the fluctuating costs of raw materials,” said Joon Choo, vice president, worldwide marketing at Shamrock Technologies. “As we had been actively realigning and improving our internal capabilities in production and process development, we were able to minimize the impact of raw material increases for some of our product lines, which had ranged from 8 percent to 30 percent. We continue to work on this, and will support our customer base the best we can.
“Furthermore, processing recyclable PTFE has been one of our strengths, and in the face of rising raw material costs of prime resin, we have been able to assist customers in minimizing their costs increases for a key ingredient in their formula,” Mr. Choo said.
“2004 was a difficult year for raw materials,” Mr. Elias said. “While the U.S. economy suffered in recession from 2001 to 2003, very little industrial expansion took place. As a result, many industries were not prepared for the sudden increase in demand caused by the rapid expansion of the Chinese economy and the major improvements in the U.S. and Japanese economies.
“This lack of investment, combined with the record level of oil prices, has resulted in significant escalation of raw material costs and spot shortages of some materials,” Mr. Elias said. “The supply of acrylic acid is particularly tight, as are many of the alcohols that are used to manufacture the acrylates used in ink formulations. Several suppliers have announced force majeure on their contracts and have put their customers on allocation. For many raw materials, those which are not on allocation have been put on sales control. The net result is much higher prices for products when you can get them. The most critical issue facing the industry in 2005 will be maintaining an uninterrupted supply chain. With product shortages projected to continue well into the year, it will be very difficult to avoid an interruption.”
“We have seen rapid escalation of prices in almost all of the products we purchase,” said Mr. Kucharski. “Leading the way has been acrylic acid and all of its esters. Styrene is another key material undergoing rapid escalation. To add to the difficulties with escalating prices is the global shortage of acrylic acid and its esters. The entire industry is on allocations ranging from 50 to 80 percent of its annual consumption.”
Mr. Kucharski said that supply is the most difficult challenge.
“The global shortage of acrylic acid has forced many suppliers outside of North America to stay home due to the limited volumes,” Mr. Kucharski said. “The exit of those suppliers has caused a vacuum which the local suppliers are being forced to service with limited material. We continue to try and fill this gap, but there is a continuing tightness of supply. The idea of going out and being opportunistic in this market is next to impossible. We don’t expect this situation to change over the course of the next year, and we expect our raw materials to continue to increase until our suppliers get to the levels of reinvestment economics. “We’re informing our customers at every step of the way about continuing market developments so they can plan as best as possible,” Mr. Kucharski added. “At the same time, we’re looking at the possibility of different raw materials that may provide similar performance with better supply position.”
“The final part of the year has seen some high price increases coming through, with more forecast in 2005,” Mr. Bridge said. “This has been mainly following the oil price rises, as many raw materials are close to oil, but in addition there have been some capacity issues, most notably in acrylates. Supply of raw materials from China has become more difficult due to the rapid growth of business there, greater than the infrastructure provision. The cost of shipping from China, in particular, has become much more expensive as a consequence. Also, as the internal Chinese economy grows, and getting product through the ports increases in difficulty, more focus is being given on supply to Chinese customers.”
Meeting Challenges
How to meet and overcome these challenges has become essential for suppliers. “The continuing challenge in the ink industry is the focus on lowering the overall cost of the ink due to increasing global competition and rising raw material and energy costs,” Mr. Baudendistel said. “Margins are being squeezed and one of our biggest challenges is to sustain healthy profitability in a highly competitive market place. At Elementis Specialties, we solve our customers’ most difficult problems by developing cost effective, value added products which help our clients to gain a competitive advantage in the market place. This approach is a win-win for Elementis Specialties and for our clients that we work with.”
“Acquisitions also play a key role for Elementis Specialties,” said Mr. Baudendistel. “In July 2004, we completed an acquisition which will broaden the range and performance characteristics of our specialty surfactant offerings and extends our innovation capabilities.”
Partnerships provide an excellent opportunity.
“The primary impediment to growth is the short-term focus mentality,” Mr. Runge said. “While companies do need to pay their bills today, very few companies are taking a long-term view. The primary way for printers, ink makers and suppliers to make strong margins again is to create true partnerships throughout the entire manufacturing chain. By understanding the drivers that affect each step of the process, each member of the chain can work together to remove waste from the entire system. This type of discussion will provide a very fertile ground for exploring new technologies and manufacturing methods.”
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New Waxes, Solvents and Additives |
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