The Offset Report

By Tom Williams, Ink World Associate Editor | 09.06.05

Raw material costs, price pressures and printer consolidation have constrained growth rates, but the offset market continues to make gains while keeping a wary eye on the coming year

For offset lithography, which accounts for greater than 80 percent of commercial and publication printing ink sales, 2000 was a mixed bag. While both litho sheetfed and litho heatset posted gains, rising raw material costs, price pressures and printer consolidation constrained growth rates, making ink companies and their customers turn a cautious eye towards the coming year. One major development of the last year in the offset market was undoubtedly the raising of prices by both Flint Ink and Sun Chemical Corporation. According to the companies, after years of coming up with ways to avoid passing price increases along to customers, in 2000, this option was no longer viable.

“Sun Chemical has worked hard to introduce advanced formulating methods, new manufacturing techniques and more cost-effective administrative processes to better serve printers and protect them from ongoing cost increases,” said Michael Murphy, senior vice president and general manager of Sun Chemical Ink (GPI). “These have all helped to offset increased costs, but our returns on capital are not at an acceptable level. Maintaining major capital investment is a necessity to continue to provide our customers with the same quality of products, services and innovations.”

“I think the big change from a few years ago is that then, when raw materials prices increased, we figured out a way of getting around it and not passing it on. Now, there’s no way of getting around it,” said John Vogel, vice president of sales, commercial division, Flint Ink North America.

The necessity of price increases was not a divisional matter at Flint, whose offset operations are divided into commercial and publication sectors. According to Bill Miller, vice president and general manager, publication, at Flint Ink North America, it was not just the developments of 2000 but also the forecasts for the future that led to Flint’s increased prices.

“We have been notified of and are already seeing increases of over 4.5 percent for 2001,” he said. “This, coupled with our having held the line on pricing for so long, has led us to implement a price increase on a number of products.”

The fact that Sun and Flint have raised prices has opened the door somewhat for other manufacturers, but many are finding that without the leverage afforded market leaders, it is still extremely difficult to pass costs along.

According to Doug Anderson, technical director at West Chicago, IL-based Central Ink, despite the fact that solid sales volume has offset some of its increased costs, raw material increases have put the company under extra stress. “Raw material costs have certainly affected profitability this year,” Mr. Anderson said. “We have seen numerous raw material increases and have not been able to pass them on to our customers at all.”

Central Ink’s position is not unique in the industry, as Harvey Brice, president of Superior Printing Ink, refers to 2000 as a stand-off.

“We are cautious about price increases, and we are having tremendous resistance from our customers on raising prices” commented Mr. Brice. “We have raised prices somewhat across the board by making percentage changes. I believe the ink industry needs overall price increases as in any business, to keep up with normal expenses that companies experience. Unfortunately, many ink companies see this as an opportunity to increase sales by keeping thie rprices down to capture more of the market share.”

As a major part of the offset market, sheetfed ink manufacturers have been forced to at least attempt to raise prices this past year, because while growth has continued, the market has not kept pace with the gains of previous years.

“As a whole, the sheetfed market has been steady, but right now it is a very, very mature market,” said Mr. Vogel.

“The sheetfed ink market was fairly flat in 2000,” concurred Mr. Brice. “There are not a lot of new printers and there has been a significant amount of consolidation. This makes it more competitive for ink companies, because there are a lot less customers out there.”

Printer Consolidation
While the goal of printing industry consolidators was to improve profitability through increased market shares, efficiencies and organization, a soft printing market has, in some cases, resulted in the exact opposite. One such consolidator, Memphis, TN-based Master Graphics, Inc., has actually closed several locations since the beginning of the year, and, according to Mr. Vogel, this may be a developing trend.

“In the offset market, and the offset commercial market in particular, we are seeing a number of large consolidators not doing as well as anticipated,” he said. “We may see a trend with companies consolidating businesses they purchased into other businesses.”

In spite of this, according to industry analysts, most printers will not experience a dramatic downturn in business and the offset market will continue to display overall stability in the new year.

“As we pointed out in our new Vision 21 study, offset is still a very healthy market,” remarked Ron Davis, chief economist for the Printing Industries of America (PIA). “In terms of products, the catalog market is still strong, as are direct mail, short-run periodicals and magazines. We don’t foresee any decline in the market and expect it to continue to grow in the coming years.”

The offset market has remained steady in part due to increases growth in the heatset segment. According to Vince Bellini, market manager for web heatset, Sun Chemical, all sectors of heatset performed well in 2000, despite the fact that a drop off was witnessed at the end of the year in magazine printing. Mr. Bellini added that heatset has made some gains in the short-run area in magazines and books, apparently at the expense of sheetfed. “Trade magazines are proliferating, with very low press runs of as little as 5,000 being run on web presses,” he said.

“The heatset market appeared to be up considerably,” concurred Mr. Anderson. “I attribute this to the strong economy and the strong advertising dollars, strong competition amongst retail stores. They all want a piece of the pie and people to shop at their store.

“I also think heatset has been making gains in the short-run area because there are more small webs available,” Mr. Anderson continued. “Gradually over the years, I think that heatset and mini-webs have been competitive against sheetfed printing.”

Technology Driven Market
According to Mr. Davis of PIA, in spite of the mature nature of the offset market, there is still room for improvement in offset technology, and this is a trend that is both driving and shaping the market.

“Suppliers to the industry and software developers are still making investments in offset technology to improve it and make it faster, better and cheaper in terms of what you print,” Mr. Davis concluded.

Offset presses have become more efficient, allowing inks to run better and more efficiently, but the consensus is that the greatest gains are being made in the prepress area.

“Prepress preparation for running a job has improved dramatically and makes a real difference in jobs,” remarked Superior Printing Ink’s Mr. Brice. “It is this automation of the prepress area that allows the printer much more freedom to increase his capacity in the printing. It allows them to be more competitive, flexible and productive.”

A prepress technology of particular interest at the moment is computer-to-plate (CTP) printing, which is becoming increasingly prevalent and is aiding printers in producing a higher quality product.

According to Sun’s Mr. Bellini, in heatset, CTP and on-press color controls are making a large impact in production efficiency.

“Real-time, closed-loop systems measure color using densitometry or spectrophotometry. Then the systems make automatic adjustments that reduce makeready time and paper waste. CTP is removing many steps in the prepress process, saving time and dollars, as well as improving color registration,” he said.

The Digital Effect
Surprisingly, the technology which appears to have the strongest possibility of impacting the offset market in the future is not an offset technology at all, but comes in the form of digital printing.

The consensus is that the true impact of digital processes upon the offset market is still a few years away, but that there is a very real possibility that it will consume some of the market share currently owned by offset. However, PIA’s Mr. Davis maintains that offset will continue to grow even as it loses share to digital, because the overall market will be growing as well.

“There is no doubt that the digital segment will be growing in the future,” concurred Tak O’Haru, vice president, graphic arts, Toyo Ink America. “My opinion is that the offset market will not decrease its size because of digital printing applications. But quite a large part of offset market growth can be taken by digital printing, including personalized promotion, very short runs and just-in-time type of work. It will all depend on technology from hardware, software and consumables such as inks and substrates.”

2001 and Beyond
With both positive and negative factors affecting the offset market and its different segments, predicting what’s to come in 2001 is a difficult task. However, given the co-dependent relationship of ink manufacturers, printers and the state of the general economy, all signs are pointing towards a slowdown in 2001. However, because offset is one of the sturdiest sectors of both the printing and ink industries, it seems one can expect the storm to be weathered in the same manner it has been in the past.

“Economic indicators are pointing towards a slowdown in 2001,” said Mr. Davis. “There will still be growth, but at a slower pace. I think at this point in time printers are a little cautious about what is going to happen next year with both the consensus being a slower economy and also certainly in terms of the possibility of a recession. I think that the mindset of the printer is going to be rather cautionary. Optimistic, but certainly not as optimistic as they were six months or a year ago.”