Latin American Ink Growth Tempered by U.S. Downturn
There are good opportunities for growth in Latin America, notably in packaging, but ink manufacturers are keeping an eye on the U.S. economy.
By Charles W. Thurston
Latin American Correspondent
The estimated $785 million Latin American market for ink is growing moderately, both through
“Latin America is looking far more attractive to American companies these days, even in comparison with China,” said George Sickinger, CEO of Color Resolutions International, Fairfield, Ohio. “One manufacturer in the packaging industry recently said that after all factors are added in, North American production cost is a wash with the cost in China, so I am concluding that Mexico is a better place to do business, given its reduced labor rates,” he said.
Ink manufacturers also are still bullish on the region, if less so than last year. “There is still a huge opportunity in Latin America for converters in areas like food packaging, and label printing is going gangbusters,” said James Cunningham, president of Sun Chemical Latin America. “We’re seeing a lot of migration of capacity from the U.S. and from Canada to Mexico and Brazil. The industry expansion through displacement could grow at a faster rate than the overall economies in Brazil and Mexico.
“While there has been a lot going into Mexico, it also now is going into Brazil at a comparatively slower pace from North America,” Mr. Cunningham added. “But capacity also is going into Brazil from Europe.”
Growth in ink markets will be, as in years past, echoed by gross domestic product growth in the region. GDP growth in Latin America will decelerate to 4.4 percent this year from 5.6 percent in 2007, and ease further to 3.6 percent in 2009, according to a projection by Anoop Singh, the director of the International Monetary Fund’s Western hemisphere department, in Washington, D.C.
Increasing per capita GDP levels also will fuel the regional demand for ink, especially in segments like food packaging, newsprint and other consumer-driven markets. Per capita GDP in Latin America is expected to rise by roughly 3 percent annually over the next decade to $13,000 in 2020, according to one Rand Corporation analysis.
The outlook for ink growth by market segment continues to vary widely.
“Everything in liquid inks, be it solvent- or water-based, is doing well, while paste inks are not doing as well,” Mr. Cunningham said. “The best segment is obviously flexible packaging, with a CAGR over the 2007-2012 period projected to be 7.6 percent in U.S. dollar terms for both industrial and consumer packaging consumption.
“We still are seeing new equipment being installed for heatset and coldset, but not for sheetfed operations,” added Mr. Cunningham. “Newspapers probably are, at best, flat in Latin America, but because newspapers have taken a huge hit in the U.S., the negative trend likely is going to move south.”
More Limits to Growth
Among factors limiting Latin American ink market growth, U.S. economic contagion, inflation, and even the Green movement must be watched carefully, industry leaders suggest.
“The market growth in the region this year will depend how deep the recession is in the U.S. and how this will affect the rest of the continent,” said Ernesto Sanchez, president of Sanchez SA de CV, Mexico City. While U.S. GDP growth acceleration is expected to bottom out at 0.5 percent this year, Latin America is proving to be somewhat resilient with 4.4 percent growth, although regional growth may decelerate to 3.6 percent in 2009, according to IMF projections.
Inflation may have the greatest impact on growth in the region this year, since it continues to outstrip GDP expansion. In 2007, inflation raged at a cumulative 6.3 percent in Latin America, and it is not expected to slow this year, according to the IMF.
“Inflation adjustment in Argentina and in Chile is a huge problem,” said Mr. Cunningham. “As inflation increases – in substantial part due to government-mandated wage increases – companies’ cash positions obviously diminish, so as materials costs become more of a problem, is will be difficult for the printers to immediately pass those higher costs on to customers.”
The growing sophistication of Latin American consumers also may cause the Green movement there to dictate less color in packaging, Mr. Cunningham said.
“The broader strokes of the Green movement in Europe and the United States is not going to move to Latin America immediately, but there already is something of a Green trend, and there is some risk that it is going to cause a change in packaging markets with reduced color or graphics,” he suggested.
Show Fastest Growth
Within the region, Argentina and Peru are demonstrating the fastest economic expansion this year, at 7 percent.
“The Argentine market is demonstrating robust growth, and Peru, albeit a small market, also is very robust,” said Mr. Cunningham.
Among new market developments in Argentina, Siegwerk Argentina is building a new “Center of Excellence” in Buenos Aires. And in the plastic packaging segment, Petropack, based in Entre Rios, is preparing to launch an IPO on the Buenos Aires Stock Exchange this year.
Overall, investments in the Argentine printing industry in 2008 are expected to exceed the $100 million spent during 2007, according to market analyst Business Trends.
Peru’s economy is in even better condition than Argentina’s. Peruvian inflation, for example, is only half the GDP expansion rate. The recent U.S.-Peru Free Trade Agreement also is attracting new U.S. direct foreign investment, much of which is export oriented.
Brazil Trims Growth Rate
Growth for Brazil’s massive economy is expected to slow only slightly this year to 4.8 percent from 5.4 percent last year, according to a projection by the IMF. Expansion will continue to slow in 2009 to 3.7 percent, the IMF reckons.
Among recent investments in Brazil, Agfa Graphics is building a $23 million chemicals and offset plant in Suzano, in the state of Sao Paulo. Siegwerk Tintas Graficas also is building a new blending center in São Paulo. And Color Resolutions is “looking” for a beach head in Brazil at present,” said Mr. Sickinger.
In newsprint, one of the country’s largest printers, Plural Editora e Grafica, plans to double its web offset press capacity, utilizing Goss machinery. Similarly, Oceano is improving its technological capabilities with new KBA press machinery.
Indústria Brasileira de Filmes has begun a third offset printing line, and Porto Alegre-based publisher Zero Hora recently ordered equipment for three Ferag insertion lines.
In cardboard, Brazilian demand is expected to increase by about 4.5 percent this year, according to market analysts Elton Eicudo and Amaryllis Romano at Tendencias, in Sao Paulo.
Brazilian pulp and paper maker Klabin recently completed a $1 billion investment program, including new paper production capacity at Telemaco Borba, in Parana state. In October, vertically integrated Klabin forged a strategic relationship with MeadWestvaco for U.S. paper sales.
Mexico Avoids U.S. Economic Problems
Despite Mexico’s historic tendency to follow U.S. growth rates, the country has thus far avoided the full impact of the economic troubles in the U.S. In 2008, Mexican growth is pegged at 2.0 percent, down from 3.3 percent last year, according to an IMF projection. In 2009, however, Mexico’s GDP growth is expected to accelerate to 2.3 percent, the IMF indicates.
“The Mexico market for ink will grow faster than GDP, and we see lots of opportunity for growth beyond whatever GDP is predicted to be,” said Mr. Sickinger. “There are lots of niches in the Mexican market which are still undisturbed by American and Mexican companies; niche clients which are not accustomed to the level of service commonplace in the U. S. So we’ve been building infrastructure where we see the need, as in flexible packaging, within which the proliferation of new brands is boosting the niche.”
Other executives agree. “In Mexico, the slowdown of the U.S. economy has not affected us so far, and I still believe our growth will be greater than the rest of the economy,” said Mr. Sanchez.
In September, Sanchez acquired offset specialist Prodaplag and its sister company, Barnimex.
“Our fastest growing segment still is packaging, but we have also invested in other areas of our business, like the integration of Prodaplag into our organization,” Mr. Sanchez said.
In Chile, Color Resolutions has become active over the past year. “The weak American dollar has helped us,” said Mr. Sickinger.
For local manufacturers who must import raw materials, however, the strong peso is now a disadvantage.
“We believe that the ink market in Chile will expand by 4 to 5e percent over the next year, but inflation and the exchange rate – which impacts import costs – is negatively affecting the market,” said Rene Garcia, the sales manager for Flint Group, in Santiago. “The Central Bank has set an inflation target of 4 percent over the next two years, but this is an uncertain time for the Chilean market and for the global economy,” he added.
Within Chile, other recent segment-specific investments included Carrascal Neopak’s $27 million cardboard box plant targeting food and beverages.
Andean countries also are demonstrating limited ink market growth. In Ecuador, Grupo Granasa is utilizing new Goss equipment to add color to its two daily newspapers in Guayaquil. Similarly, Colombia’s Panamericana and Venezuela’s Editorial Primavera are purchasing new press equipment from KBA. During the recent drupa show in Germany, KBA vice president Klaus Schmidt was quoted saying, “Latin America now makes up some 5 percent of our business, and it may grow to 10 percent.”