The Packaging Ink Report
As the packaging market continues to expand globally, packaging ink manufacturers are enjoying growth, although higher raw material prices and consolidation remain concerns.
By David Savastano
The packaging ink market continues to enjoy solid growth globally, as demand for packaging is
Nielson Dairy’s The Ultimate Chocolate Milk, printed by Alcoa, received Best In Show honors at the 2007 Packaging & Label Gravure Association’s (PLGA) 2007 Print Quality Awards, as well as top honors for Reverse Printing.
This growth is confirmed by the National Association of Printing Ink Manufacturers (NAPIM), which reported in its 2007 State of the Industry Report that overall, U.S. packaging ink sales rose 5.8 percent in value while remaining flat in terms of volume. According to NAPIM, flexo solvent and gravure solvent were the highlights, with volume growth of 8.3 and 4.2 percent, respectively.
The higher prices, of course, are a reaction to the price increases of key petrochemical-based raw materials, including resins, solvents and energy-curable ingredients. Now, with the elimination of the VAT refunds in China on pigments and intermediates, further price increases are already being announced.
Richard Pettifor, Sun Chemical North America Packaging’s president, noted the growth in packaging, with the Asian market being particularly strong.
“We see the packaging market globally and in North America growing, spurred primarily by growth in the flexible packaging market segment. Because, however, imports are outpacing exports and because business is being moved off shore to Asia and South America, the packaging ink market in North America is relatively flat,” said Mr. Pettifor.
“We expect the majority of the growth in packaging inks to occur primarily in the Asian market,” Mr. Pettifor noted. “We see more and more global converters moving into Asia and South America by building a presence to support the needs of global consumer packaged goods (CPG) companies.”
Mr. Pettifor said that the paper and board and corrugated segments will also experience some growth.
“We expect increased sales in the flexible, paper and board and corrugated segments will come at the expense of rigid plastic and metal packaging,” Mr. Pettifor added.
The North American packaging industry consists of a wide variety of segments, each of which has its own challenges with which to contend.
Wyeast Laboratories, Inc.’s Smack Pack System, produced by Ampac Flexibles, A Division of Ampac Packaging, received the Highest Achievement Award in Packaging Excellence, as well as a Gold Award in Technical Innovation, during the Flexible Packaging Association’s (FPA) 2007 Flexible Packaging Achievement Awards. Smack Pack is a “pouch within a pouch” liquid yeast package for beer and wine making. To activate the yeast, the inner packet (containing a liquid malt nutrient base) is placed in the palm of one hand and firmly smacked with the other hand. This breaks the inner nutrient packet, allowing the contents to interact and start metabolizing.
“As an example, flexible packaging continues to be a dynamic packaging segment that is in constant technological change and has seen growth at higher than GDP rates,” Mr. Impastato said. “This growth has not come without struggles: raw material costs are the key concern among flexible packaging producers. In contrast, multi-wall bag packaging is a segment that is experiencing some difficulties. In the last few years there has been a very high growth in imported bags. There is a belief that bags coming in from Asia are being unfairly dumped in the North American market. The industry is following this closely and is prepared to pursue relief if necessary to level the competitive field.”
Siegwerk and INX International Ink Co. officials agreed that the packaging market is strong.
“The overall packaging market fare is following GDP growth,” noted Gilles Faure, global marketing director Paper, Plastics & Label (PPL) for Siegwerk.
“The North American packaging market has responded favorably to the ‘New Siegwerk,’” added Jim Ross, head of flexible packaging – NAFTA for Siegwerk. “Our expanded geographic presence and product portfolio has positioned Siegwerk to capitalize on new market opportunities.”
“The packaging market remains a stable segment with steady volume growth,” said Bryce Kristo, senior vice president and CFO, INX International Ink Co. “Prices have been stable since last year’s increases.”
Consolidation in the Packaging Industry
Consolidation is occurring at a rapid rate throughout industry, and the packaging field is no exception.
The FPA honored C&H Packaging – A Subsidiary of Appleton with the Gold Award in Environmental Achievement for the Malto Bella Gourmet Malt Balls package, which uses non-volatile water-based inks and adhesives yet provides superior graphics through the use of water-based inks, adhesive eliminating odors and retained solvents while using more renewable resources.
“Over the last 10 years the number of mergers or acquisitions in packaging has averaged around 15 per year,” Mr. Impastato said. “In 2006 there were 16 M&A, but the value of these was under $1 billion, a lower total value than we had seen in previous years. Key M&A activity this last year has included Alcan’s acquisition of Recubrimientos in Mexico; Constantia’s acquisition of Huech Foils; Hood Packaging’s acquisition of Glopak; plus several acquisitions on the rigid container side of the industry. Driving the M&A activities is a real need to consolidate the industry and reduce the overcapacity we see in many of the market segments. Fueling the M&A has been the relatively easy access to financing.”
“In general there are more and more private equity firms executing roll-up strategies,” Mr. Kristo noted. “These strategies take out excess capacity and create more efficient organizations. We have benefited by capturing new share from our customers’ acquisitions, as it has been an opportunity to expand our business into new locations for the most part. These activities also increase pricing pressure as they seek synergies and purchasing power.”
The 2007 acquisition of Altivity by Graphic Packaging and the potential spin-off of Alcan’s packaging business by Rio Tinto could make 2007 a major year for consolidation in the packaging business. Graphic Packaging’s purchase of Altivity merges the two largest folding carton printers, who combined have one-third of the estimated $10 billion North American folding carton market.
Buitoni Pasta/Sauce Pouches, printed by CLP Industries Ltd., received the Gold Award in Packaging Excellence during the FPA’s 2007 Flexible Packaging Achievement Awards. In the switch from jars to stand-up pouches, Buitoni used shaped pouch technology to maintain its sauces’ distinctive profile on the supermarket shelf, easing loyal customers’ transition to new packaging while novelty and luscious graphics draw new shoppers to its products. Microwaveability, easy-opening laser scores and lightweight construction enhance consumer convenience.
Ink industry leaders anticipate more consolidation in the coming years, although concerns in the financial markets may slow down some activity.
“This trend will continue until the packaging industry reaches a point where there are only large strategic companies left,” Mr. Kristo said.
“It’s likely there will be additional merger and acquisition activity in the coming years, but the activities in the packaging market will be constrained by the same challenges facing any other industry,” Mr. Pettifor said. “With the expected tightening of cheap and available debt, we look for the amount and size of consolidations to be slow.”
“The recent market concerns we have seen related to subprime lending may make it more difficult to access future financing, which could slow down some M&A activity in the next year or so,” Mr. Impastato said. “But more M&A is likely. There is still overcapacity in the market, which will drive larger participants to take action to further consolidate the industry.”
For ink companies, the consolidation of customers is impacting business, but it also provides opportunities.
“Consolidation always makes suppliers nervous because it usually produces some winners and some
President’s Choice Dark & Milk Chocolate Concerto, printed by Sonoco Flexible Packaging, earned the Gravure Association of America’s (GAA) 2007 Golden Cylinder Award for Packaging, Flexible Paper.
“There has indeed been consolidation in the converting market,” Mr. Faure said, noting as an example the sheetfed offset market, with tens of thousands of printers on each continent. “The need for mergers is a given and pushes for standardization,” he continued. “Siegwerk, with global presence and brands such as Tempo in conventional offset and Sicura for UV, is ready to support the process at new emerging regional and global printers.”
“Sun Chemical is uniquely positioned to meet the expanded needs of the converter as consolidation in the marketplace and expansion into new markets continues to take place,” Mr. Pettifor said. “As packaging converters continue to make acquisitions and to merge, they are looking to partner with suppliers, such as Sun Chemical. This has shown our ability to bring them new technologies to address the issues that are most important to them, including supporting their growth globally, printing on and delivering consistent color and a high level of print fidelity on multiple substrates, reducing their impact on the environment by reducing the output of volatile organic compounds (VOCs), and addressing product safety.”
Overall, the packaging market is enjoying growth throughout its segments. Mr. Pettifor said that Sun Chemical has experienced solid growth in all markets, especially the flexible packaging and the corrugated segments. In North America, the company continues to see growth in flexographic printing and expects digital printing to play a more significant role in packaging.
Aquafina Wild Berry, printed by Diversapack, earned top honors in the category Film – Reverse Printed during the PLGA’s 2007 Print Awards.
“Letterpress continues to slow down in labels to the advantage of UV flexo and UV offset,” Mr. Faure said. “Generally speaking, the environmental pressure is pushing growth in waterborne and in UV technologies.”
“Our flexible packaging business continues to grow, added by some of the consolidation in the marketplace,” Mr. Kristo said. “On the process side, our heatset, flexo and digital business are also very robust. We are very excited about integration of digital applications into the packaging market.”
Rising Raw Material Prices
Higher raw material prices have been a fact of life for ink manufacturers in recent years, and the past year has brought more of the same.
“Rising raw material costs are the greatest concern for both ink suppliers and printers,” Mr. Impastato
Advance Brands Chicken Breast Patties, printed by Nordenia USA, earned the Gravure Association of America’s (GAA) 2007 Golden Cylinder Award for Packaging, Flexible Film.
Despite the rising costs of materials, Sun Chemical is striving to control costs by working closely with its supply chain partners and by improving internal operations to minimize the impact of this trend.
“Though we continue to pursue new value-oriented products, improve our efficiencies and reduce internal costs, we do not anticipate these measures will totally compensate for what we see as the continued current rising raw material costs,” said Mr. Pettifor.
“Our expectation is another wave of price increases from our supply side, of which we will have to pass through in order to remain healthy,” Mr. Kristo noted. “It is yet to be seen how much we can absorb and how much will have to pass through.”
The Coming Years
There are plenty of opportunities for growth in packaging, whether it is in digital and flexible packaging or centered in rapidly-expanding regions.
“The overall packaging market fare is following GDP growth,” Mr. Faure noted. “This is why from a global perspective, Siegwerk sees many opportunities in the BRIC countries (Brazil, Russia, India and China).”
All in all, ink manufacturers have opportunities to make gains.
“There are several exciting growth areas for the coming years,” Mr. Pettifor noted. “We see continued opportunities in the flexible packaging market. We also see the need for introducing new technologies that offers the converter improved productivity. The benefits seen in cure time coupled with the improved runnability with energy curable (EC) inks, specifically electron-beam cured inks, place these inks in the opportunity window. Offering the converter the ability to improve its color matching capabilities with new tools is another opportunity for growth – including the areas of printable coatings technology that either enhances packaging barrier properties, actively helps to maintain the original quality of packaged food, or intelligently provides information on the quality of packaged food. We also see opportunities as brand owners seek and converters deliver packaging designed to meet the demand for environmentally friendly packaging with sustainability in mind.”
“As consolidation and globalization continue, significant opportunities will come to those who can position themselves to provide high value-added products and service to the large global acquiring companies,” Mr. Impastato said. “To do so, they will have to have a well developed and sophisticated communication capability coupled with superior local service and a broad product portfolio. Having the right product, at the right place, at the right time, at the right price will be invaluable to large global printers."
“We are very excited about our new solvent-based flexo and gravure process inks,” Mr. Impastato said. “Our customers have found that our Sterling inks provide superior process printing. High quality process printing is more important all the time, as more and more products utilize process printed graphics.”
“Sun Chemical has introduced several new technologies to address opportunities in the packaging market,” said Michelle Hearn, director of marketing, Sun Chemical North America Packaging.
SunStrato Duratort is a retort lamination ink system, a one-part system uniquely formulated to be used to print both flexographic and gravure with the same system. It provides converters the ability to capitalize on the fast growing retort packaging market.
“WetFlex is the breakthrough wet-on-wet flexographic printing process, patented by Sun Chemical,” Ms. Hearn said. “It is designed, along with the patented UniQure ink system, to meet the needs of the flexible packaging market for the highest level of print fidelity and food product safety, along with the required durability to protect the package integrity and improve printing efficiency. The UniQure ink system is formulated without volatile organic compounds (VOC’s), minimizing a converter’s impact on the environment. With WetFlex, Sun Chemical has made available a technology that supports the market’s need and desire for creating sustainable packaging today and into the future.”
HydroTense Ultra is a new pH-stable water-based ink technology to the corrugated market, offering printers greater color consistency throughout a run with less press monitoring and cleanup.