For the most part, raw material costs seem to have stabilized, and vehicle and varnish manufacturers are optimistic about the coming year.
Vehicles and varnishes play a major role in the formulation of printing inks. Ink vehicles provide needed chemical and physical properties for the ink, while varnishes offer key performance characteristics and help provide consistency for the finished inks. Much like its ink industry customers, vehicle and varnish manufacturers face numerous challenges.
B. David Aynessazian, vice president sales and marketing for Kustom Group, said that while raw materials have stabilized somewhat, some U.S. ink manufacturers have started to import inks, which impacts vehicle makers.
“It seems that just when we have seen some stability in the prices and availability of raw materials in our market, a new hardship has befallen the vehicle and varnish industry,” Mr. Aynessazian said. “2011 marked the beginning of the move of many ink companies to supply their U.S. needs from inks produced outside of North America. This trend has only accelerated in 2012 with many ink companies forgoing the manufacture of some or all of their own inks and reselling foreign made inks. This has dramatically reduced the chances of U.S. vehicle manufacturers to participate in the supply of vehicles for the manufacture of these inks, which has shrunk the market for all U.S. suppliers.
“As a result of these market changes, most if not all vehicle manufacturers in North America have expanded their product offerings to much more than ink vehicles,” Mr. Aynessazian added. “Many are now offering various chemistries; some have added black base and metallic, while others are now supplying products to markets outside of the graphic arts in addition to their traditional vehicles.”
“Over the last 12 months, the vehicle and varnish market has been stable,” said Mike Topp, technical marketing manager for Lubrizol Performance Coatings. “There haven’t been any major losses or gains. Most customers continue to hold market share and have shown growth. Liquid ink markets continue to make inroads in packaging as newer packaging configurations are evolved.”
As for any recovery, Mr. Aynessazian noted that the graphic arts markets is not a uniform business, but is really four separate markets.
“Generally, we talk about the graphic arts ink market like it is a single market when in fact it is really four very distinct markets, which are news, publication, commercial and packaging,” Mr. Aynessazian said. “The news ink area has been hurt the most in the last few years as more of their readers are moving on-line, which has caused a reduction in the number of printed newspapers. As a result, the number of news ink manufacturers is in the process of shrinking in a similar fashion to what happened in the solvent publication gravure market did years ago. It looks like the health of the few surviving news ink manufacturers is better as we have come out of the recession, but no one would call their business robust. Unfortunately, for the independent vehicle manufacturer, most of those surviving news ink manufacturers have had to internalize their vehicle manufacture so as to compete in this market, which has left little to no business to be had for them.
“The publication market has had similar issues as the news market, with readers going on-line or using digital devices such as the Kindle,” Mr. Aynessazian said. “Again, the publication ink makers have had to deal with a market where printed pages are reducing, although not at the same rate as in the news market. Also, like the news ink market, the numbers of publication ink makers are shrinking and more of them are internalizing their manufacture of vehicles to support the manufacture of their inks. Unfortunately, there is more over-capacity for the manufacture of publication inks than in news which continues to put pressure on ink margins. At this point, there is still some market for specialty products produced by the vehicle manufacturers in this market. But because of the over-capacity of the publication vehicle manufacturers, margins in this market are very small, even for relatively specialty products.
“The commercial market has had a comeback since the worst of 2009,” Mr. Aynessazian said. “Although digital printing is taking some market share from traditional offset printing in this market, commercial printing is relatively stable. What has changed in this market is the amount of ink sold in this area that is made outside of North America. Although this has stabilized the sales and margins of domestic ink companies in this market, it has hurt the domestic suppliers of vehicles as they have little opportunity to supply raw material for these inks which are make so far from North American shores.
“Lastly, we have the packaging market, which is the bright spot for domestic suppliers of ink raw materials generally and ink vehicle manufacturers more specifically,” Mr. Aynessazian said. “This market did not get hit as bad as the other three markets during the recession and has come back to growth in the last 12 months. The challenge of serving this market is the changes that are going on in what these printers are looking for technically from their inks today. Packaging printers are requiring lower odor, lower VOC’s and more shelf differentiation for their products than every before. And as the only market within the graphic arts industry that is growing, print buyers such as Nestle, Kellogg, Coca Cola, Pepsi, etc. have the clout to force these changes.”
The Role of Vehicles and Varnishes
The role of varnishes and vehicles is an important one for ink formulators.
“Ink vehicles (material for making ink) are looked at in two ways by ink makers, chemically and physically,” Mr. Aynessazian said. “Chemically, the ink vehicle must have the proper balance of solubility and compatibility to wet the pigment particle and yet not too much to cause misting and dot gain. In addition, the lithographic ink vehicle must have proper water balance to emulsify with fountain solution so as to take it to the printing plate in the lithographic process but not too much so as to dilute the ink and its print density.
“Physically, ink vehicles must also strike up a balance of flow and structure,” he added. “They must have enough flow to transfer through the roller train of a printing press but not too much flow or they will mist and have dot gain. The ink vehicles must have just the right balance of set speed (cure rate in the case of UV) making it set fast enough on the substrate so the sheets can be handled quickly after they are printed but not too fast or they will make the ink dry on the rollers of the printing press. Ink vehicles are all about giving ink the balance that it needs.
“When it comes to overprint varnishes and coatings, ink companies are looking for performance and consistency that they can count on,” Mr. Aynessazian noted. “Most ink companies resell overprint varnishes and coatings, which means they are putting their name and reputation on the line on a product that they did not actually make. Key to the ink company is that the varnish will perform time after time and will not reflect badly on them at their printer customer because it is either inconsistently made or not robust enough for the wide variety of substrates, inks and press conditions that it will be used in.
“New in the OPV and coatings market in the last 12 months has been an emphasis on visually different and tactile products,” Mr. Aynessazian concluded. “Soft Touch, Sandy Feel, Sparkle and Glitter are hot. Where in the past, the simple difference between a glossy area and a matte area on the same print was enough to catch a person’s attention, these new types of products are pushing the envelope and grapping the consumer’s attention.”
Raw materials remain a major concern for vehicle and varnish manufacturers. Mr. Aynessazian noted that since the spring of 2009 until the summer of 2011, raw material costs rose steadily.
“Ink vehicle manufactures historically have learned to balance raw materials to achieve a technically acceptable product while having them relatively cost effective,” Mr. Aynessazian said. “In the past, this was done by switching to alternative chemistries at times where a specific chemical was very high in price. Unfortunately, there has been significant consolidation in many areas of raw material supply, leaving only two legitimate suppliers of certain material types. The result is that pricing from these suppliers of their products is no longer specifically tied to their underlying costs. They have increased their selling prices so as to increase their traditional margin and there is little we as vehicle companies and ink companies can do about it.
“In the last 12 months, it seems that the raw material suppliers have noticed that they may have pushed their margins too much too fast for a consolidating industry and have generally left prices stable,” Mr. Aynessazian added. “This has given vehicle and varnish manufacturers some time to deal with the ‘new normal’ in terms of standard raw material costs and availability. Their ink company customers are now in the process of getting their pricing in-line with this. Although this reset has begun, it is certainly not finished.”
“Raw material supply continues to be tight for the entire chemicals industry,” Mr. Topp said. “This tightness has caused slight upsets in the supply chain. We have seen continued raw material pricing increases across the entire industry.”
Overall, vehicle and varnish manufacturers are carefully watching their markets.
“This will be a very demanding year as industry issues continue to place a heavy emphasis on cost,” Mr. Topp said. “The uncertainty of the global economy has affected industry behavior. The industry is more prudent in spending.”
“Last year, when this question was asked, we said, ‘We believe that the second half of 2011 and early 2012 will be a time of slow stabilization for our industry,” ” Mr. Aynessazian said. “There will continue to be significant economic pressure on all the companies in our industry and further consolidation will likely continue to be the result, but many now understand the market we are in and have found ways to cope. Finding your strengths as a company and partners that you can count on will be more important than ever.’”
“This prediction has generally proven to be correct,” Mr. Aynessazian added. “It appears that our marketing information is good and allowing us some visibility into the future. We continue to remain optimistic about the future. We, like many others in our industry, need to be nimble in our approach to the market. There are parts of the graphic arts market that have stabilized and will be growing in the next 12 months. It is important to us to orient our company and its products toward those markets and chemistries.”