The Year in Review
For ink companies, 2009 was a balancing act, as manufacturers dealt with the global recession, volatile raw material prices and a drop in demand. Still, ink industry leaders see some signs of improvement heading into 2010.
By David Savastano
By all accounts, 2009 was a difficult year for the printing ink industry. Manufacturers faced pressure from a variety of areas: the global recession, the downturn in the printing market, higher raw material costs and fierce competition.
“The commercial sheetfed market in particular suffered as print buyers reigned in on discretionary spending,” Mr. Leen said. “The publication printing market including newspapers worldwide also struggled considerably in 2009. In both of these cases, the effect of the general economic downturn has been exacerbated by a movement to Internet and other electronic alternatives.
“Sales are clearly below 2008,” said Dr. Peter Heimerzheim, director corporate communications, Siegwerk Druckfarben AG. “The decrease is mainly driven by the publication divisions web offset and publication gravure. In these segments, the European market, where our publication business is mainly engaged in, lost between 20 and 25 percent volume in the first six months.”
“Siegwerk NAFTA responded early and quickly to the economic downturn with initiatives to reduce operating expense and inventory levels while maintaining our customer focus and growing our business,” said Jim Ross, president, Siegwerk USA and Canada. “With the help of all employees, Siegwerk NAFTA made great progress and is trending favorably in all focus areas.”
Flint Group CEO Charles Knott said that 2009 was a challenging year for the industry.
“The reduction in industry volumes challenged not only the U.S. but also the global markets, but we responded quickly,” noted Bill Miller, president, Print Media Americas, Flint Group. “Considering what the industry was faced with, I am pleased with our performance.”
“In the first half of fiscal 2009, faced with the ongoing global depression, sales of gravure inks for construction materials and plastic colorants for automobile use remained sluggish in North America,” said Yu Adachi, corporate communications for Toyo Ink Mfg. Co., Ltd. “In Japan, failing to overcome the structural recession of the printing industry, the performance of offset inks remained weak. Gravure inks used as flexible packaging films in food packaging applications held firm in Japan and overseas. Given rising demand for eco-friendly products from customers, sales of non-toluene and water-based inks rose steadily.
“In the U.S., Toyo Ink’s offset division has been steadily growing with the addition of new accounts as printers look to get more value from their investments,” Mr. Adachi reported. “By delivering on Toyo’s value proposition of superior product performance and high quality-to-price characteristics, we’ve been able to help customers realize significant cost savings and exceptional print results.”
“Unfortunately, 2009 was not a very good year for Wikoff Color, due to a slowdown in sales, pricing pressure and raw material costs that were extremely high early in the year with relief from our vendors coming too little, too late,” Geoff Peters, president and COO of Wikoff Color, said. “Many printers struggled to keep the doors open and while others who were doing fairly well (i.e. folding carton packaging printers) were worried about the banking and credit crisis. The year was not without some positives, however, as we developed new paste and fluid products, landed new customers, and aggressively reduced costs to position ourselves well for the future.”
Rick Clendenning, president and CEO of INX International Ink Co., said that INX had a farily good year.
George Sickinger, president and CEO of Color Resolutions International (CRI), said his company fared pretty well relative to other industry segments.
“CRI is focused on the packaging industry, and, as we know, people continue to consume food and beverages in good times and bad,” Mr. Sickinger noted. “In fact, some of our customers who produce packaging for wine and spirits have reported a nice uptick in business. Our first quarter was off by about 12 percent, which I think was partially due to a drawing down of inventories throughout the supply chain. The gap narrowed to 8 percent in the second quarter, and beginning in July, we began to better prior year sales. Although 2009 isn’t over yet, I think we will end the year with sales being off 3 to 4 percent compared to 2008. Income will not fare as well.”
In order to brace their companies for the recession, ink manufacturers cut costs and streamlined operations.
“Since the end of 2008, the Toyo Ink Group has taken emergency measures focused on improving cash flows, such as reviewing capital investment plans, reducing procurement costs and cutting total fixed costs by streamlining operations,” Mr. Adachi said. “These efforts have produced significant results, impacting our bottom line in a positive way.”
“In response to the economic environment, we have revisited our operating plans for this year and recast them in view of more recent volume projections,” Mr. Leen added. “We will have to intensify our cost reduction efforts by tightening our belts even further. Simultaneously, we are raising our focus on the customer by helping them grow their businesses and succeed. That means working for our customers everyday to further improve our performance on the essentials of our business, such as quality, service and innovation in ways that drive productivity or enhance value.”
The Recession’s Impact on the Ink Industry
Without a doubt, the global recession took its toll through virtually all segments of the printing industry, and the ink industry felt the impact. Advertising is one area that has been affected.
“I think every business and every market was impacted in some way, and some more than others,” Mr. Clendenning said. “The advertising segment is one where we have seen the most impact. People are doing without some or most of their advertising and using those budget dollars elsewhere. This is evident by how newspaper and magazine companies are faring.”
“The recession has led to a large drop-off in advertising-related printing, and we understand that publication printing of all types is off as well,” said Daryl Collins, vice president of national sales and regional operations for Wikoff Color. “Food packaging, including folding carton, flexible packaging and labels, has fared much better, but is likely to finish the year with little or no growth. Sales of new presses are not as robust as in years past, usually a solid indicator of reduced print production and ink consumption.”
“The print media industry came down by 20 to 25 percent,” Mr. Heimerzheim noted. “ In packaging, the picture is slightly different, depending on the end products. All packaging related to daily needs of people, like fast food, sweets, hygiene or frozen food, show a stable demand. Paper and board, for example, is different, as well as the labels business, which is closly linked to luxury goods like expensive perfumes or champagne. In these segments, we see a strong decrease in our customers’ industry and the ink business as well.”
“The overall printing market has seen significant declines as a result of the recession,” Mr. Ross said. “There is a great deal of variability across market segments. We are not seeing specific markets or geographies improve at that time.”
The newspaper industry has been heavilyu impacted by the recession.
“The newspaper industry has been hit incredibly hard during the global downturn,” said Norm Harbin, news ink business director for Flint Group. “The market was already declining due to online competition from other news and advertising outlets. The economy merely exacerbated the problem. While the severity of the hit will decrease, the newspaper industry will never recover to previous levels.”
CRI is primarily in the packaging ink segment, and Mr. Sickinger said that overall, the packaging industry has held up well.
“However, the commodity players, not surprisingly, have been hammering on cost and biding their business while the value added companies have been focused on improving quality and performance while embracing innovation,” Mr. Sickinger noted. “At CRI, we prefer to deal with the latter. In geographical terms, the declines seem to mirror the areas where housing and automotive were hit the hardest.”
Mr. Collins and Mr. Clendenning indicated that the market seems to have stabilized, but there still remains a need for caution.
“As we project into 2010, we no longer see a decline in sales, and many of our markets, especially packaging, have stabilized,” Mr. Collins added. “We forecast growth in the coming year at modest levels. We plan to keep a very close eye on expenses to ensure we are prepared for a slower rebound than projected.”
“Although we are seeing some signs of improvement in a few of our business segments, we are moving ahead cautiously,” Mr. Clendenning said.
“Worldwide, the economy will continue to face challenges, but economic indicators will improve,” said Bill Miller, president Print Media Americas at Flint Group. “The print sector traditionally lags general economic recovery, but with patience and smart management, we will see a stabilising of demand in most print segments. Complacency is not an option. Even as print budgets recuperate, alternative media will continue to take a larger piece of that pie. Our strategies and plans address current and future market trends so we can continue to be a primary print industry supplier long into the future.”
The Volatility of Raw Material Costs and Supply
Pricing of raw materials can best be described as volatile, with prices of crude oil and other key ingredients swinging sharply. The global recession also has played a significant role, as some key suppliers were acquired and other companies shuttered some facilities in cost-saving moves.
For ink manufacturers, trying to forecast what will happen next is a major challenge.
“Many are concerned about pricing and the stability of our raw materials,” Mr. Clendenning said. “At INX, we can’t plan too far in advance because of the current instability and uncertainty. Most of our customers understand this because they are experiencing a similar situation on their end. We are doing our best in these times and will watch and monitor our costs very carefully as we enter 2010.”
“The volatility in raw material cost is an ongoing concern,” Mr. Heimerzeim said. “We are working to solidify the availability and quality of raw materials from our supplier base.”
“We will improve our global supply chain management, including increases in the local procurement rate as necessary,” said Mr. Adachi.
Ben Price, director of purchasing for Wikoff Color, noted that raw material pricing was extremely volatile throughout the second half of 2008 and into the first quarter of 2009. While he said that pricing has been relatively stable for the most part, there have been some attempts at price increases in the fourth quarter.
“We have had a small number of suppliers announce price increases in the fourth quarter of 2009, but in general, these suppliers have been unable to get the increases they are seeking,” Mr. Price said. “With demand still down, there are just too many competitors looking for opportunities to pick up new business for widespread price increases to be accepted at this time.”
Mr. Sickinger said that except for solvents, and to a lesser extent, resins, CRI has not seen much volatility in raw materials this year.
“The big problem was coming off the fourth quarter of 2008, with raw material costs reaching a five-year high while volume was declining,” Mr. Sickinger said. “Some pricing relief was achieved, but the impact wasn’t really felt until the summer months.”
“Despite a recent respite in the pace of volatility, there are a number of areas of concern,” said Ed Pruitt, chief procurement officer, Sun Chemical. “First, oil industry experts would say that the crude market will continue to be highly volatile, with an expectation that prices will eventually return to the very high levels of recent years due to the inability of new production to offset the gradual depletion of existing supply and the growth of demand in developing nations.
“Secondly, the petrochemicals market has risen sharply recently due to actions taken by producers to shut down high cost production,” Mr. Pruitt added. “Third, there are individual products today in a variety of categories including pigments, base chemicals and resins that are still at very high levels and are not expected to decline to 2008 average price levels.
“At Sun Chemical, we continue to work on controlling our own costs closely with our supply chain partners, to improve our internal operations, and to develop new value oriented products that can help customers grow their business,” Mr. Pruitt said. “We will continue to invest in those areas that provide our customers with innovative products and services, allowing them to be more competitive and present the best value propositions in the market.”
In 2008, Flint Group took the decision to professionalize the procurement, moving procurement from a regional to a global organization, to enable the company to better leverage its purchasing power.
“Taking further costs out of our processes as well as working together with our customers in order to help them become more cost efficient has been critical,” said Jan Paul van der Velde, senior vice president procurement for Flint Group. “We expected raw material prices to remain extremely volatile throughout 2009, and believed that in managing our purchasing activities well, we would be able to provide a greater competitive advantage to the market.”
“This volatility in raw material pricing is not a new phenomenon, and we have witnessed spikes in pricing over a number of years despite the general increase in raw material costs which have been driven by unbalanced supply and demand for specific feedstocks,” Mr. van der Velde added.
“Over the last few months, base raw materials have started to increase, in some categories quite significantly, following the increases earlier in the year on the base chemicals, and many suppliers have announced serious price increases. There are also clear signs that the prices in some markets will rise further in the very near future, even if the price of crude oil should remain stable or decrease.
The impact of the many plant closings and consolidation among suppliers will be felt in the future.
“As a general rule, raw materials suppliers are actively shuttering plants, rationalizing product lines and taking the steps that companies must take in extraordinarily difficult times, but steps that could lead to interruptions or tightening supply despite the overall weakness of the global markets,” Mr. Pruitt added.
“External public market data clearly shows an underlying upward trend for all major ink raw materials and this will affect the development of ink prices accordingly. Recent small increases in demand have seemed to trigger an upwards price spiral, as the capacity of major raw material suppliers, both of intermediates and our raw materials, has been reduced quite significantly in 2009. In addition, the overall raw material supply chain has been totally ‘de-stocked’ during the recession with the emptying of high cost stocks. Any additional increases in market demand could potentially lead to further disproportional price pressure,” concluded Mr. van der Velde.
“I am more concerned about 2010 and 2011, when the global economy comes roaring back,” Mr. Sickinger said. “I believe we will see higher material prices and shortages. The 2009 recession cooled things off, but also caused some capacity to be furloughed or eliminated.”
Expectations for 2010
Heading into 2010, ink industry executives understandably are not quite sure what to expect. There are signs that the economy is improving, yet there are concerns about possible setbacks as well as unstable raw material costs.
Mr. Peters and Mr. Clendenning are optimistic about the coming year.
“Wikoff expects 2010 to be a better year; we believe that the recession is ending and consumer spending will help lead a jobless recovery,” Mr. Peters said. “We also believe that the cost adjustments that Wikoff and other American businesses have made will pay dividends next year. We expect demand to improve, and with less inventory on hand, production could increase significantly. The risk for our business will be with material costs and our ability to manage those costs in conjunction with customer pricing.”
“I am very optimistic about INX International’s business in general and overall performance for 2010, but I expect it to be a difficult year filled with uncertainty,” Mr. Clendenning said.
Felipe Mellado, chief marketing officer, Sun Chemical, said that he believes 2010 will continue to be a challenging year for Sun Chemical and the ink industry as a whole.
“The cost of raw materials will likely continue to increase,” Mr. Mellado said. “However, Sun Chemical has taken steps to better meet the needs of its customers and offset these costs. Sun Chemical wants to continue being known as the company that truly works for its customers. To be able to achieve this, our customers have to know that we are here to help them with their problems. We’re optimistic that Sun Chemical’s investments in quality, service and innovation will help our customers succeed. In the current challenging market conditions, our solutions are designed to help customers operate more efficiently without sacrificing quality or service to their customers.”
“We do not expect a significant increase in our markets. We will work hard to stabilize our volume and revenues on the level of 2008 if possible,” Mr. Heimerzheim said.
“Siegwerk NAFTA expects a slow economic recovery will continue to impact the ink industry in 2010,” Mr. Ross said. “We are well positioned to invest and execute on key initiatives in 2010.”
“We’re no different to our competitors or our customers when it comes to forecasting a recovery or not. We all have very little visibility on volumes for 2010,” said Mr. Knott, CEO, Flint Group. “Having said that, we have cut our cloth to meet the needs of the market, with the focus being on helping our customers deliver consistent quality, with attractive cost/value propositions.”
“Under one roof, we have an extensive team of experienced, knowledgeable industry professionals, whether it be in ink, blankets pressroom chemicals, consumables, flexo printing plates or sleeves, supported by a full range of products manufactured within Flint Group,” Mr. Knott added. “The combination of these is a key asset in our quest to deliver exceptional value to our customers.”
“The ink industry is in obvious turmoil, but we anticipate a positive upswing in 2010 as Toyo’s U.S. operations continues to add new accounts and new product offerings, particularly those that offer environmental benefits,” Mr. Adachi said. “Toyo will also be making a strategic foray into the South America market, which offers growth opportunities in printing and ink. In China and Southeast Asia, demand for printing inks and high-performance pigments mainly for LCDs has been improving. We will continue to focus on expanding operations in growth regions such as China, Southeast Asia and India. We will further improve our printing inks business so that it generates profits irrespective of fluctuations in sales volume, by continuing to streamline our supply chain management system and expanding our lineup of high-performance and eco-friendly products.”
“I think 2010 may be a tougher year than this one,” Mr. Sickinger said. “Unemployment is still rising and is not forecasted to peak until well into next year. Unemployment and its relationship to consumer spending has a negative impact on the whole supply chain and often leads to pricing pressure and other undesirable business practices. This could dovetail with rising raw materials costs resulting from the quicker economic rebound of China and India.
“However, even with these possibilities, I personally feel optimistic about next year and beyond,” Mr. Sickinger added. “Customers want help in improving their operations, and ink people are uniquely positioned in the pressroom to offer such services. Being close to the customer has never been more important.”