China, Environmental and Currency
Issues Impact the Pigment Market
In recent years, the dramatic increase in the price of crude oil and its derivatives has severely impacted the ink industry and its suppliers. However, the relative stability of prices for pigments, typically the most expensive ingredient in ink, had helped keep price increases for ink somewhat in check. In particular, some ink manufacturers turned their attention to lower-cost pigments coming from China.
There were quite a few reasons why these pigments were less expensive that those from North America and Europe. One of the major reasons, though, was that the Chinese government had implemented a value added tax, or VAT. In essence, China was subsidizing its domestic pigment and pigment intermediates industries from 8 to 13 percent, and portions of those savings were being passed along to ink manufacturers. The end result was that the domestic pigment industry in North America found competition extremely difficult, and a number of these companies are no longer in business.
In June 2007, the Chinese government rethought its position on VAT, and eliminated or reduced the tariff on pigments, among many other products being exported. Chinese officials also began a crackdown on pollution, putting many smaller pigment operations out of business. The overcapacity that plagued the pigment market has been reduced, with the result that there are now fewer options for ink manufacturers. In addition, more price increases are thought to be coming.
For ink companies, the impact of these higher pigment costs has been difficult. Passing along further price increases downstream is becoming increasingly challenging as printers are also caught in their own squeeze, facing higher paper costs and tight competition.
There are other rather sizable hurdles ahead. Increased regulations, REACH in particular, could lead to a further destabilization in the pigment market as some manufacturers decide it just isn’t cost effective to register certain products. Demand for raw materials needed for pigments is increasing in much larger industries than printing ink. The weakness of the U.S. dollar relative to other major currencies is also negatively affecting purchasing power.
How this will ultimately shake out remains uncertain, but for now, pigment manufacturers are doing all they can to prepare for the challenges of the present and the future.