The Asia-Pacific Ink Market
For printing ink manufacturers, the Asia-Pacific region, led by China and India, continues to offer the greatest opportunities for growth.
By David Savastano
Dainippon Ink & Chemicals opened a new manufacturing facility in March outside Ho Chi Minh City in Vietnam. It mainly manufactures gravure packaging inks and performs color-matching for sheetfed inks.
This growth is underscored by major movements on the merger and acquisition front in 2005. CVC Capital Partners’ merger of Flint Ink and XSYS Print Solutions into Flint Group has had an impact on the Asia-Pacific market, as the Flint Group continues to make headway in China. Siegwerk’s purchase of SICPA’s packaging ink division gives it an increased presence in China, India and Australia.
The largest impact can be found in Huber Group’s acquisition of Micro Inks, the leading ink manufacturer in India.
With all of these changes in place, the coming years figure to be active for the Asia-Pacific ink industry.
The Past Year
Asia-Pacific ink manufacturers were pleased with the growth they saw in 2005, although their optimism was tempered by rising raw material prices.
“The printing market in the Asian region grew by about 6 percent in 2005,” said Henry Leong, president, Flint Group, Asia. “It has been a very difficult year for the industry, caused primarily by significant increases in raw material prices. In view of the excess capacity of printing inks in the market place, implementing price increases in the market has been extremely difficult.”
In particular, Mr. Leong noted that China’s economy grew at 10 to 12 percent last year, and that Vietnam is emerging rapidly as a promising market with significant foreign investments going into the country.
“Together with high economic growth in China and India and a recovery of Japan’s economy, printing ink sales in the region basically fared well during 2005,” said Hisato Tanemura, group marketing director for Southeast Asia, Oceania and South Asia, Dainippon Ink & Chemicals (DIC). “However, due to the sharp increase in oil price, profit margins were severely squeezed.”
Mr. Tanemura said that India and Pakistan have shown the best growth, and China and Indonesia were also above average.
While growth in China, India and Indonesia has been consistent, Japan’s economy has been sluggish in recent years. In 2005, the Japanese economy improved, and because of Japan’s economic recovery, especially in real estate, electronics and the automotive industry, Mr. Tanemura said that demand for the printing and printing ink markets also slightly increased during 2005.
“The Japanese economy remains strong,” said Toshiyuki Sawada, general manager of International Operation Division of Sakata Inx. “The printing ink industry continued to be flat under the present situation. The selling price decrease and raw materials cost increase due to the crude oil price increases presses on companies.
Maoming Sakata Inx Co. Ltd., Sakata Inx’s new offset ink plant, is located in Guangdong Province in China.
Sakata Inx has been expanding its production in the region, launching two new facilities in China, an offset ink plant in India and a liquid ink facility in Ho Chi Minh City in Vietnam.
“In Asia, we increased the sales volume of gravure inks and, in addition, we started offset ink production, so we could increase sales volume,” Mr. Sawada said. “In China, we started liquid ink production in Shanghai and offset ink production in Maoming and have been expanding ink sales. We also increased ink sales in Indonesia, Malaysia and Vietnam. In Vietnam, we are preparing to start liquid ink production at the end of this year. India showed the most growth during the past year, as we increased gravure ink sales and have started offset ink production.”
China has been the center of tremendous economic growth, spurred on by increasing standards of living and relocation of manufacturing from other nations.
“GDP growth in China in 2005 was 8.5 percent, and the forecast for this year is about 7 to 8 percent,” said Mr. Leong. “The Chinese government is very carefully monitoring the situation to prevent overheating of the economy.”
The GDP has been strong, and the economic boom has been followed by growth in printing and, as a result, printing ink sales. Toyo Ink officials noted that the Chinese printing market has enjoyed more than 10 percent annual growth since 1999, spurred by packaging and book exports. To support that, the ink industry has grown with it. Mr. Sawada estimated that the annual ink usage was 300,000 tons in 2005, and it will continue going up.
The Chinese ink industry is a mix of international and domestic ink manufacturers, ranging from the large international ink players such as Toyo Ink, Dainippon Ink & Chemicals, T&K Toka, Sakata Inx and Flint Group to small family-owned operations.
Tianjin Toyo is the largest ink manufacturer in China.
Ink industry leaders see plenty of room for growth in China.
“The printing inks market in China is forecasted to grow about 10 percent this year, with packaging leading the way with 12 to 14 percent growth forecasted,” Mr. Leong said.
With high growth in the overall economy in China, sheetfed and packaging inks, particularly liquid and UV offset inks, continued to grow in 2005, Mr. Tanemura said. He added that packaging inks, particularly offset, UV offset and gravure, have done particularly well.
However, there are areas of concern amid the growth. Mr. Leong and Mr. Tanemura both noted the decline in real estate advertising. Mr. Tanemura noted that due to the tight monetary policy, especially regarding the real estate industry, local newspapers have reduced pages with fewer advertisements, affecting the sales of news ink.
The newspaper market has been affected recently by a drop in advertising revenues for the first time in many years,” Mr. Leong said. “Much newspaper advertising is for housing, including pictures. Now the government has curbed the activity in property and housing with new capital gains taxes aimed at reducing speculation and new restrictions on loans, making it difficult to borrow.”
India continues to enjoy economic growth. With a population of more than 1.1 billion and improving standards of living and literacy, there are tremendous demands for packaging and print media. Since 2000, the sales of ink in India have grown by double-digits annually, surpassing $330 million according to Ink World estimates.
The Indian printing and printing ink markets showed excellent results in 2005. Mr. Tanemura noted that the industry witnessed double-digit increases in the sheetfed, news and liquid ink areas.
In India, the leading ink producer is Micro Inks, which reported approximately $240 million in sales in 2005, with a little more than half of that total coming in the domestic market. Micro Inks’ rapid growth unseated Coates, a subsidiary of DIC/Sun Chemical, as the largest ink manufacturer in India. Sakata Inx and Flint Group are among the international ink manufacturers making gains in the marketplace.
“India is the emerging jewel and continues to grow at greater than 8 percent,” said Damian Johnson, president, Flint Group, India/Pacific. “There are new newspapers starting up regularly; local demand and export are growing. Packaging is growing at greater than 15 percent due to the cultural shift from semi-bulk to packaged goods. Unlike some other parts of Asia, India’s growth in ink is all internal and not based on export to other regions. Rather than supplier consolidation occurring, new ventures are emerging daily and multinationals are increasing investment.
“In India, the high growth segments are packaging at greater than 15 percent, followed by news inks at greater than 10 percent,” Mr. Johnson added. “The positive aspect of this growth is that it is all internal usage and is on the back of strong investment in packaging and the expansion of literacy and consumer spending. Sheetfed and publication growth will follow as economic momentum gathers pace.”
With an eye toward this opportunity, Sakata INX India started production of newspaper and commercial offset inks during the past year.
“GDP in India increased in the fiscal year 2005 by 8 percent,” Mr. Sawada said. “As a result of developing economic growth, we estimate the printing ink industry will continue to grow much more.”
Australia and New Zealand
Multinational ink manufacturers are the leaders in the Australia and New Zealand ink industry, controlling an estimated 90 percent of the market, led by Flint Group and Coates Australia. Flint Group is the ink industry leader in Australia and New Zealand, and Mr. Johnson reported mixed results in 2005.
“2005 was characterized by a mixture of performances in each country, with each experiencing intense competitive pressure and varying degrees of movement in raw material costs,” Mr. Johnson said. “The New Zealand market continues to decline as volume moves offshore to Australia and parts of Asia. There is significant consolidation of printing and packaging houses occurring. New Zealand appears to be feeling the pressure of globalization faster than other countries.
“In Australia, the segments performed differently,” Mr. Johnson continued. “Publication and news segments appeared buoyant. The packaging sector exhibited all the signs of slowing due to a variety of reasons such as overseas competition, cyclones and floods, consolidation of converters and an economy coming ‘off the boil’ unlike the norm for a few years. Raw material and fuel cost increases have strained cost models.”
Because of the high appreciation of the Australian dollar, its economy was less affected by high petroleum prices during 2005, Mr. Tanemura noted. He pointed out that the stronger exchange rate also has made imported inks from Asia/Europe less expensive in Australia.
Australia and New Zealand ink manufacturers are watching the rest of the Asia-Pacific region closely for any potential impact.
“In Australia and New Zealand, more attention is being given to the effects of Asia,” Mr. Johnson added. “While some packaging printing business has moved from Australasia to Asia, importing inks from Asia still does not make sense from an economic or quality perspective for this market.”
Key Trends in the Region
When discussing important trends in the Asia-Pacific region, environmental concerns are among the most important. Mr. Tanemura noted that environmental regulations are tightening in the region, and because of that, demand for environmentally-friendly inks, such as non-toluene/non-MEK liquid ink, water-based gravure ink and VOC-free offset ink are increasing, especially for export-oriented companies.
Mr. Sawada agreed with the importance of environmentally-friendly products. “We have furthered the sales of environmentally-friendly inks such as commercial printing offset and newspapers inks and gravure inks which are developed to have high quality and productivity,” he said.
“UV and EB are strong growth areas,” Mr. Johnson said. “India follows Asia in that some ink formulations are acceptable whereas they cannot be used in the West. Environmental concerns are exhibited in Australia, India and New Zealand, but usage of ink is determined by the converter or printer.”
“UV applications are rapidly increasing in the Chinese printing market,” Mr. Leong said. “Packaging is trending toward more environmentally friendly inks, primarily due to the pressure from the FMCGs (fast-moving consumer goods companies). There are thoughts in the market that the Chinese government is going to pass regulations this year limiting the amount of toluene residues in packaging.”
Inkjet ink is a growing market, and Sakata Inx has made inroads in it. The company made a significant move when it acquired Triangle Digital, which had worldwide sales in the wide format market.
“We acquired inkjet ink manufacturer Triangle Digital LLC, and we expect they will be profitable for us,” Mr. Sawada said. “Moreover, we started focusing on selling color toner for various kinds of printers and color pigment dispersions for color filters.”
Pressure on margins will continue, which may lead to further consolidation.
“The outlook for 2006 is one of intense pressure on margins due to the effects of increasing fuel costs and converters’ resisting the recovery of these increases, while ensuring that we meet the needs of rapidly expanding markets and printing/converters moves for consolidation and growth,” Mr. Johnson said. “The India/Pacific region will continue to grow while experiencing a shift in volume dynamics as one market declines and another experiences rapid, sustainable growth. It needs to be managed carefully. A major push throughout India/Pacific is the need for consolidation as customers recognize that proliferation adds costs.”
Mr. Tanemura added that high raw material prices, especially for solvents, and consolidation in the printing industry will affect margins for the ink industry. Because of that, he said, consolidation in the printing ink industry, especially in China, will be active
As standards of living improve, the packaging industry is faring very well.
“Packaging is growing strongly in most countries in Asia, particularly in China,” Mr. Leong said. “Organization of the rural population, coupled with increased exports, are the primary driving forces.”
“An increase in the number of middle-class consumers and opening of retail markets to foreign players in China and India has created a big increase in demand for packaging, especially in food and daily commodities,” Mr. Tanemura said, while strong export growth also contributed to the increased demand for packaging.
Outlook for Asia-Pacific
Ink industry executives are understandably optimistic about the future of the region.
“We cannot expect Japanese printing industry to grow up more,” Mr. Sawada said. “On the other hand, we think the printing industry in the Asia-Pacific market will be growing up more together with the economic growth in Southeast Asian market. We have made middle-term sales plans to sell our products 1.5 times as much as this year in whole Asian area.”
“The growth rate forecasted for the Asian region for the next three to five years is at about 5 to 6 percent,” Mr. Sawada added. “For China, the growth is significantly higher, 10 to 12 percent for the next three to five years heading up to the 2008 Olympic Games.”
“With the high economic growth in China and India, two of the most populated countries in the world, demand for printing ink in Asia/Pacific region should continue to grow for at least the next few years,” Mr. Tanemura concluded.