Despite Achieving Price Increases, Pigment Manufacturers Face Challenges
Despite improving economic conditions, pigment leaders have numerous concerns, including rising raw material costs and offshore competition.
By Sean Milmo
Suppliers of pigments to some parts of the European printing inks sector appear so far to be having a good year because of improved economic conditions in Western Europe. Some segments, such as inks for newspapers, packaging, digital and UV applications, have been growing more rapidly than GDP.
However, the picture is by no means all rosy for pigment makers. They are under pressure from steep rises in raw material costs, which is narrowing their margins and forcing them to ask their customers to accept additional price increases.
There has also been a stronger than average growth in specialty and high performance pigments, driven by a need among some ink customers, especially in packaging, for better quality printing.
“We believe growth will continue at a faster rate in specialty pigments than for classical pigments,” said Craig Foster, president, Flint Group Pigments. “Of course, this also demands great investment in research, development, service and new types of manufacturing infrastructure.”
European producers of pigments last year partly reversed a medium-term trend of declining prices when they put up their prices, with most customers being willing to concede the need for compensation for higher raw material costs. Now pigment prices are starting to rise again.
“In the current year, our customers are being confronted with a general surge in pigment prices,” said Thomas Boehland, Degussa’s product manager for carbon black printing ink applications. “We increased furnace black prices by 8 percent in November 2005 and by a further 9 percent as of May this year. Acceptance has been good.”
Pigment makers are warning that unless prices go up to adequate levels there is risk that some producers may have to pull out of the sector.
“We’re now seeing significant increases in the price of copper, naphthalene derivatives and some other materials that are critical to all pigment producers,” said Mr. Foster. “If the impact of these increases cannot be recovered, producers are at risk. The costs will either have to be absorbed, passed on, or some producers may simply exit the market.”
The upward impetus on prices has been partly generated by the tightness of European supplies stemming from cutbacks in investments in plant expansions in Europe in recent years. With demand rising at its fastest rate for a few years in segments like inks for packaging and newspaper, pigment producers are reporting that their European facilities are running flat out.
Imports Continue to Grow
Despite high capacity utilization rates, pigment manufacturers in Europe are still coping with the problems of continued growth in market share by imports from Asia. These are preventing them from pushing up their prices as much as they would like.
Plants based in low-cost production areas of Asia, some owned by multinational pigment makers like Ciba Specialty Chemicals and Clariant and vertically-integrated ink producers such as Flint Group, account for the vast majority of sales of classical organic pigments in Europe.
Asian domestic producers are now making inroads into the higher grade sectors of specialty and high performance pigments such as phthalocyanines and effect pigments.
Exporters of classical pigments are, however, facing difficulties establishing themselves in the European market because of the growing dominance of the vertically integrated ink producers with their own pigment making capabilities.
“There has been significant growth in integrated pigment supply within the printing ink industry,” said Mr. Foster, whose company is now a major vertically integrated player following the merger of XSYS Print Solutions and Flint Ink. “Integrated pigment supply now accounts for 65 to 75 percent of all organic pigments used in the industry, which reduces the share held by non-integrated companies. As the integrated ink companies grow, their pigment business will grow as well. As the geographic footprint increases, opportunities for extension into new pigment markets also increase. This growth is eroding the critical mass that is required by distributors and traders and allowing us greater penetration to serve a broader base of customers.”
In line with the trend to backward integration into pigments among ink makers, SICPA last year took over Wacker Chemie’s liquid crystals interference pigments. This acquisition aimed to bolster SICPA technologies in security inks.
Another problem for both domestic pigment producers and importers is that although there is at the moment little excess capacity in European pigments production, the European pigments market is continuing to be hit by worldwide overcapacity.
“The global supply/demand balance continues to favor the supply side with the majority of the excess capacity being in the low-cost Asian countries,” said Mr. Weighill. “Over the last year global supply has continued to outpace demand.
“This ever growing pigment supply/demand imbalance has resulted in continued price erosion of process color pigments,” he continued. “In spite of the increase in pigment raw material costs, prices for classical azo and phthalo pigments have continued to be eroded. With the recent dramatic escalation in the costs of copper and phthalic anhydride, the decline might, however, be arrested in the case of the phthalos.”
Trends on the foreign currency exchanges are likely to boost the international competitiveness of the Chinese, Indian and other pigment producers even further, especially since they tend to denominate their selling prices in U.S. dollars.
“Demand for imports of Asian pigments is being helped by the current weakness of the dollar and will be helped even more if the dollar continues to be weak, especially at a time when domestic European producers are wanting to put their prices up,” said Fritz Brenzikofer, executive responsible for specialty products at IQ Chem, Basel, Switzerland, a developer and distributor of pigments.
For the remainder of this year, the prospects for pigment makers in Europe are a continued squeeze on margins with producers struggling to get back rising raw material costs. “Maintaining acceptable margins is a difficult task in the current environment,” said Mr. Weighill.
Competition will be especially stiff in the European market for effect pigments, just at a time when steep rises in metal prices has been pushing up the raw material costs of metallic pigments.
Asian suppliers have been able to take advantage of the pressure on European producers of effect pigment from higher raw material costs. The stronger competition has made it even more difficult to raise effect pigment prices.
“The Asian producers have been trying to bring down prices but they are not managing to take away business from us,” said Peter Clauter, marketing manager for packaging at Merck KGaA, which is Europe’s market leader in pearlescent pigments.
By the end of this April, copper prices were almost two and a half times higher than they were in the beginning of 2005, while zinc prices were almost three times higher. In the same period, aluminum prices rose by around two-thirds.
In May, the high metal prices started to slide. But makers of metallics were not expecting to benefit from any decrease for many months because of the time lag in changes in commodity markets filtering down to pigment raw materials.
“The cost of any pigment with metal in it will continue to go up for a while – despite what happens in the commodity markets,” said a commercial manager at one pigment producer.
The response of Europe manufacturers of effect pigments to fiercer competition and squeezed margins has been to seek out new markets, especially ones with high growth rates. They are also trying to take advantage of being local suppliers by stepping up their efforts to look after the specific needs of customers.
Some effect pigment segments are growing only at or a little above GDP rates of approximately 2 percent in Western Europe. Sales in some segments are increasing much faster, while demand is stronger in most Eastern European countries.
“We are seeing 10 percent or more growth in some packaging applications in effect pigments,” said Mr. Clauter. “A lot of the additional growth is coming from retailers and brand owners wanting more visible packaging on the shelves.”
Merck has been extending the scope of its Miraval pigments based on synthetic borosilicate pearlescent flakes in order to bolster its position in the upper end of the cosmetics packaging sector. Unlike mica pearlescent pigments, borosilicate flakes are transparent so that they do not hide background color while at the same time they have a powerful sparkle.
“The Miraval family of pigments meets the requirement of brand owners for eye-catching packaging,” said Corinna Ludwig, Merck’s marketing manager for printing. “The pigments work rather like a prism with a deep sparkle of scattered light which at the same time enhances the background colors because they are so transparent. We are at the moment focusing at the premium part of the cosmetics market where brand owners want their products to be especially distinctive and there is less concern about costs.”
Eckart GmbH & Co., a maker of both pearlescent and metallic pigments which is now part of ALTANA Chemie, has also been developing new pigment applications, including making innovations with pigments of much smaller particles. It has developed a system of physical vapor deposition (PVD) of aluminum particles of around 8-10 microns onto a film. These are then transferred into an ink so that printers do not need to rely on metallized film, paper or hot foil to gain a metallized effect.
“It is opening up new markets for us, like covers of magazines whose publishers have tended to consider an overall metallic look as being too visually strong,” said Juergen Harrenz, Eckart’s technical manager for liquid inks. “A major advantage is that this system avoids waste and cuts costs because the printer only has to use as much metallized ink as is required rather than having to cover with white ink those areas of a metallized film or foil which are not needed. The particles also have a smooth-edged dollar shape which provides a uniform brilliance and mirror effect.
Eckart’s latest innovation is a range of pearlescent pigments which are applied by the bronze dusting process at the end point of an offset printing line.
“The pigments are relatively coarse on the surface and also, at a size of 70 microns, are too big for some printing processes,” said Mr. Harrenz, Eckart’s technical manager for liquid inks. “But because of their coarseness they have more sparkle and more optical intensity than conventional pearlescent pigments. This is what the designers are requesting because it’s a way of achieving something new.”
Merck is among a number of European pigment producers which have either moved into or have been increasing their presence in the expanding niche for printing components which give security protection to consumer and other products, particularly against counterfeiting.
At IPEX 2006, Merck launched Securalic, a new series of pigments which, because of their special visual character, would be immediately recognized by consumers. They use interference, color-travel and other effects to provide angle-dependent colors which are extremely difficult to replicate.
In addition to expanding in high growth segments, producers of pigments in Europe are finding that combining innovation and quality services are a safeguard against growing competition from outside Europe.