European Pigment Producers Focus Efforts on High-Performance Pigments
By Sean Milmo, European Editor
The announcement has come at a time when the European coatings and printing ink sectors have been hit by a shortage of raw materials, including pigments. This has been raising new concerns among European-based ink producers about the region’s reliance on low-cost Asian producers for its supplies of the vast majority of standard pigments.
Now the European printing ink sector seems to be more vulnerable than ever before to global fluctuations in raw materials, such as pigments, which are well outside its control.
The Paisley facility, which was owned by the Swiss-based company Ciba Specialty Chemicals before its takeover by BASF was completed last year, was at one point during its 50-year-old history the largest producer of printing ink pigments in the world.
In recent years, the Paisley workforce had been cut by almost half to 350 while the plant diversified into pigments for architectural and automotive pigments. Now the staff is being diminished by another 232, or by two-thirds to 120, so that it can concentrate on the production of azo pigments.
The personnel reductions at the site account for 46 percent of a total of 500 redundancies which BASF has disclosed as part of a restructuring of its global pigment production following the Ciba acquisition. The business has a global workforce of 2,900.
“What’s happened at Paisley shows that the European industry for standard printing ink pigments has reached the point of no return,” said a senior executive at one European pigments supplier. “Europe can no longer compete with the low costs of the pigments producers of the emerging economies of Asia. It doesn’t make sense to produce commodity pigments in most of Europe because it is not economically viable any more.”
The demise of Paisley highlights the current strategy of Western pigments producers like BASF to focus their know-how in Europe on the development and manufacture of higher-end organic and effect pigments and colorants for new markets like printed electronics.
As a result, BASF and its major rivals like Clariant of Switzerland, Merck KGaA of Germany and Sun Chemical, which despite being owned by DIC Corporation of Japan, has pigments production capacity in Europe, continue to dominate the market for high performance pigments and effect pigments for the packaging, large format and other printing sectors.
Meanwhile, Chinese and Indian pigment producers are strengthening their position as a dominant force within the European market for commodity graphics pigments. At the same time, low-cost plants based in China and India but owned by Western companies, including the leading pigment producers such as BASF, Clariant and Sun Chemical, are estimated to have a share of around 20 percent of the standard printing ink pigment sales in Europe.
Nonetheless, as Asian pigment companies raise their production competence and expertise in colorants, they are beginning to enter the low-priced sections of the European graphics markets for high performance and effect pigments. As this added-value sector becomes more fragmented and varied, it is also being penetrated by medium-sized and small producers from Europe, North America and Japan, so that the large players are facing intensified competition on two fronts in the region.
Most of the Chinese and Indian printing ink pigments available in Europe are being marketed and delivered by European distributors. Some of these offer services like quality control through laboratory facilities.
The relatively fragility of the pigment supply chain from India and China has been highlighted during the current period of raw material scarcities across the world. This has been caused by inventory building after the destocking during the recession, closures of bulk chemical production plants and chemical suppliers deciding to withdraw from sectors like the printing ink industry.
The dearth of certain types of pigment has been worsened by the continued strong growth of China’s economy. China’s regulatory authorities have also been enforcing more strictly environmental rules on emission limits on production plants, which has led to the closure of a number of Chinese plants making intermediates for pigments.
Similarly, high demand for pigments and their intermediates is diverting products which would normally be exported from India’s into the country’s domestic market.
Pigment Pricing on the Rise
As a result of rising intermediate prices, some of which have been going up more steeply than the crude oil derivatives from which they are made, pigment prices have been rising.
“These basic price increases, combined with a number of specific challenges on some key pigment intermediates in China and India, specifically with BONA (β-oxynaphthoic) acid, 4B (4-aminotoluene-3-sulphonic) acid – both for red pigments – and copper and orthoxylene – both for blue pigments – are causing major cost challenges for pigments,” said Jan van der Velde, senior vice president for procurement at Flint Group, which has a pigment plant at Shanghai, previously owned by BASF.
Shortages of pigments and their intermediates has been benefiting a small number of Chinese and Indian pigment producers, such as Longyu Pigments & Chemicals Corp, Trust Chem Co. of China and Sudarshan of India, which have subsidiaries in Europe. These provide their own sales and distribution networks in the region.
They are currently focusing on the issue of reliability of supplies in the hope that pigments scarcities in indirect distribution channels run by European distributors will help them increase their market shares.
“Slower demand and overcapacities helped contain prices at the beginning of 2010,” explained Phillip Myles, operation director at Union Colours, Stalybridge, England, Longyu’s European subsidiary.
“However, this has now been overtaken by issues of availability, much of which is related to new environmental controls being imposed in China and India and raw material availability,” he added. “So pigment availability is starting to have upward pressure on prices and we expect this to continue in the short term.”
Some Chinese and Indian pigment producers with their own presence in Europe are also taking advantage of their backward integration into raw materials to strengthen their reputation as dependable suppliers.
“We are vertically integrated into the production of intermediate and raw materials so we are able to guarantee supplies to our customers in Europe,” says Robert Paul Wielinga, director of Trust Chem Europe, Amsterdam.
Trust Chem believes that partly as a result of the shortages and its ability to gain new customers in Europe, it could increase its pigment sales by as much as 50 percent this year, despite the uncertainty of the European economic recovery.
The BASF cutbacks and capacity reduction and closure by other smaller European pigment producers have been providing new market opportunities for Asian suppliers.
“While the remaining European pigment producers are distracted by their rationalization programs, markets are opening up for us in more sophisticated products sectors such as flexible packaging inks,” said Mr. Myles. “But only those Asian producers with solid technical capabilities will be able to serve this market in the medium to long term. The cutbacks at BASF/Ciba are significant, and the absence of many of their products will continue to fuel imports from Asia.”
Chinese and Indian producers are establishing themselves in niche segments in Europe, often by specializing in the supply of low-cost high performance pigments such as diketopyrrolopyrrole (DPP), which was originally developed by Ciba but is now off-patent.
“There are not many high performance pigments which have not been successfully copied by Chinese and Indian producers,” said Fritz Brenzikofer, a pigments consultant at Bremaco GmbH, which is based in Lupsingen, Switzerland. “HPP prices are as a result decreasing, especially for DPPs but also for other pigment groups like benzimidazolones.”
Union Colours has its own product development team in the UK staffed by Europeans, some of whom have been recruited from European pigment manufacturers.
“We have expanded our R&D team significantly over recent years with our European-based development team working with clients on a direct basis,” Mr. Myles said. “We believe it is our development capabilities combined with our cost competitive manufacturing locations that clearly set us apart from our competitors. Union Colours has launched over 50 new products in the last few years and 10 more will be launched in the next six months, taking key color indexes for the flexible packaging market to a new level.”
Last year, Union Colours entered into a strategic alliance with Rolfes Colour Pigments International of South Africa, which has a European division based in France. Under the deal, Rolfes will make higher-end, mainly naphthol, pigments developed by Union Colours’ R&D unit.
As Western pigments companies try to concentrate their resources on high-performance organic pigments and mainly inorganic effect pigments, they also are sourcing some key intermediates from China. Some of them even modify organic pigments made in China to be combined with effect pigments to provide layers of light and color in packaging and other coatings.
“Backward integration into the production of intermediates and raw materials will be, in my opinion, a key success factor for all major pigment producers,” said Mr. Brenzikofer. “With the exception of BASF, the major suppliers of high-performance pigments are not completely backward integrated, so they have to source a lot of their intermediates in China. Over the next five to 10 years, access to raw materials will be a major influence on the market.”