The Pigment Report

By David Savastano, Ink World Editor | 09.06.05

Facing rising costs, many pigment makers raised their prices, but as the U.S. economy begins to slow down, the future is uncertain.

For printing ink manufacturers, 2000 marked the year when rising raw material prices and other costs forced ink prices to rise. For many companies, the final piece was the price of pigments; when the price of pigments increased at the end of 2000, the price of ink had to follow suit.

As one top ink executive put it, “Every pigment company seemed to want to raise its prices in January.”

Consolidations also occurred, as a number of pigment manufacturers acquired smaller companies in order to access new markets.

As 2001 unfolds, there is a new financial concern: the apparent economic slowdown in the U.S., which could have worldwide implications.

Pricing Pressures
For pigment manufacturers, the major news in 2000 was that rising raw material prices finally pushed pigment prices upward for the first time in at least five years.

For the most part, pigment makers say these price increases were accepted by the ink industry, but pigment manufacturers are also casting a wary eye on the economy.

“2000 was a good year for the pigments industry in general and a successful year for Clariant,” said Dr. Alexander Sieber, head of business unit, ink pigments, for Clariant GmbH. “This global picture is however tainted by the effect of the softening industrial production in the U.S., which resulted in a sluggish demand for pigments in the second half of the year.”

“The pigment industry did well in 2000, showing modest growth, but return on investments continue to be extremely poor,” said Maurice Carruthers, general manager, ink business unit, for Sun Chemical Corporation’s Colors Group. Sun Chemical raised its flush color prices in 2000 to offset increased raw material and energy costs.

“We raised prices in 2000 effective October 1,” said Tom Ashe, vice president of sales and marketing at CDR Pigments & Dispersions. “The pigment industry hasn’t had a price increase in the past five years, and as a whole, the industry has seen numerous price increases in our raw materials, packaging, shipping and personnel costs which we have absorbed during that time.”

“Like all chemical manufacturers, the sharp rise in fuel has translated into increased raw material costs,” said Edward daPonte, technical service manager at BASF Corporation.

“I think 2000 was a reasonable year for the industry,” said Jean-Luc Schwitzguebel, president of the colors division, Ciba Specialty Chemicals. “We expect that it had 3 to 4 percent growth. Overall, we’ve seen an increase in our raw material costs, and we increased our prices at the end of last year.”

Mr. Ashe said that CDR had an excellent year in more than one regard. Its parent company, Flint Ink Corporation, acquired two major U.S. ink manufacturers, the Ink Company and Alper Ink Group, the latter of which also had a new dispersion plant in Beaufort, SC.

“As a whole, the industry grew at a normal rate,” Mr. Ashe said. “We had a very good year because we internalized pigment usage from Flint Ink’s acquisitions of The Ink Company in late 1999 and the Alper Ink Group in 2000 and at the same time grew our external sales.”

Raw material costs were not the only area that increased: utilities, transportation, wages and insurance also jumped due to the rising cost of crude oil and other factors.

“We had a price increase that was accepted by our customers,” said Andy Grabacki, vice president of sales and marketing for General Press Colors Ltd., which had its best year in 2000. “Our raw material costs, from resins to pigments, have increased, as well as utilities, wages, insurance and shipping. We absorbed the price increases from resin manufacturers, but once pigment prices went up, we had no choice but to follow.”

“The prices for most raw materials began to increase, being towed by the oil price,” Dr. Sieber said. “The time gap between the increase of the price of crude oil and the respective raw material is longer for products further down the value added chain. Therefore, some prices are still rising, although the oil price peaked some time ago. Another factor must not be forgotten: the higher oil price also resulted in increased costs for utilities – steam, electricity, ice etc. – and last but not least, petrol, hence higher transportation costs. Overall, an increase of costs by approximately 10 percent is estimated”.

Like so many other pigment manufacturers, DayGlo also was forced to raise its prices for the first time in six years. “The costs of oil, transportation, labor and warehousing all have gone up,” said Mark Wright, DayGlo’s market manager. “We take our business very seriously, and put our money back into R&D.”

Ultimately, the pigment companies follow the lead of their customers.

“The pigment industry in the U.S. fared as well or as poorly as the industries they serve,” said David Dugan, sales manager for Clariant Corporation. “Ink pigment sales were below expectations, as were sales to other key industries such as coatings and plastics.”

While Clariant saw some raw material price decreases which allowed it to maintain its pigment prices, Mr. Dugan said that a price increase is imminent.

“We have not passed along any cost increases, yet,” Mr. Dugan said “This will no doubt occur later in 2001. Energy cost increases are our biggest concern today.”

Carbon Black
For printing ink manufacturers, the carbon black market faces its own price pressures.

“Carbon black demand was very strong throughout calendar year 2000,” said Jay Brooks, technical manager, Wolstenholme International. “The economic environment for carbon black is considerably different than it is for other pigments used in printing inks because the rubber industry is, by far, the dominating factor. Even though carbon black was in high demand for use in inks all through the past year, printing ink is a relatively small, minority consumer for the carbon black industry. Extremely strong automotive and industrial rubber demand for carbon black put considerable pressure on supply and contributed significant upward pressure on prices.

“Upward price volatility for carbon black was at an unprecedented level during all of 2000,” Mr. Brooks continued. “The combination of high demand, competing with the rubber business for capacity, a rapid escalation of oil prices and finally, an even more abrupt increase in natural gas prices, forced carbon black prices higher during 2000 by more than 20 percent. Most industrial chemicals and pigments are affected by oil and energy prices but furnace grades of carbon black (the types consumed by the ink industry) use oil and natural gas as its only raw materials.

“Under these circumstances, it was impossible to fend off carbon price increases, which occurred numerous times in the course of the year,” Mr. Brooks said. “Wolstenholme increased prices modestly during 2000 but not enough to recover all of the revenue lost to raw material increases. The price increases were met with grim acceptance by our customers because the necessity was obvious.”

Mr. Brooks believes that prices for carbon black will remain high, and added that it might be in the best interest of all concerned if prices did not decline.

“In the case of carbon black, I am not optimistic that there will be any price relief in the coming year,” Mr. Brooks said. “The carbon producers are somewhat constrained by worldwide demand for the particular grades of oil that are used for producing carbon black. These types of oils are also desirable for numerous other purposes and its price is often fairly independent and considerably higher than the benchmark crude oil price. It is extraordinarily capital intensive to increase carbon black production capacity, so the producers will be very cautious before bringing new furnaces on line. A severe and sustained slump in automotive demand is the most likely source of price relief, but considering what effect this would have on the overall economy, the cure might be worse than the disease.”

In terms of consolidation, the pigment industry was very active in 2000, as a number of smaller companies were acquired by larger competitors looking to access new markets.

“It is estimated that the global pigment industry achieved a growth rate of 3 to 4 percent in 2000,” said Dr. Sieber. “The U.S.-based players could be considered successful if they were able to maintain their 1999 level. As a consequence, many companies found themselves confronted with unsatisfactory results, and began to develop severe cost-cutting or even exit strategies. Prices for pigment companies fell in the U.S., and the industry has seen more takeovers than in any previous year.”

In the last four months of 2000, Magruder Color acquired Uhlich Color, Lansco Colors acquired Aarbor International, and Apollo Colors acquired Allegheny Color from PCl Group. PCL Group, in turn, was consolidated into Sun Chemical.

Each of these companies had strong reasons for acquiring a smaller pigment manufacturer. For Magruder Color, Uhlich Color provides them with a stronger dry color selection. Allegheny Color gives Apollo Colors access to coatings and plastics markets. Through Aarbor, Lansco Colors gained a stronger position in China. PCL brings its knowledge of pigment intermediates to Sun Chemical.

Flint Ink was also active, acquiring the Alper Ink Group in spring 2000. As a result, Alper Dispersions, Beaufort, SC, was integrated into Flint Ink’s CDR Pigments & Dispersions. The new CDR plant gives the company needed capacity, and allowed CDR to relocate its dispersion operations from the Drew plant.

“The Beaufort facility is a state-of-the-art dispersion plant that utilizes the latest technology,” said Mr. Ashe.

Pigment leaders expect further consolidation this year. “The consolidation process in the pigment – and ink – industries will continue, not only in the U.S.,” Dr. Sieber said.

“Consolidation may continue as weaker pigment companies look to survive as partners/parts of stronger, global suppliers,” Mr. Dugan said. “Companies with strong global distribution systems will become the desired partners for the major global ink companies.”

Metallics Continue Growth in Ink Market
Metallic pigments are one segment experiencing strong growth in the pigment industry, as ink manufacturers responded to their customers’ desires to differentiate products and catch the eye of consumers. In particular, aluminum pigments have done well.

“The recent trend of increased use of all types of printed ‘special effects’ is expected to continue,” said Jay Brooks, technical manager, Wolstenholme International. “In the graphic arts, the use of metallic pigments continued to grow in popularity during 2000, especially for aluminum pigments.”

“The demand for metallic ink was strong; particularly aluminum,” said Oliver Crowhurst, director of business development, graphic arts, Eckart America. “The metallic pigment industry was quite buoyant in 2000, especially aluminum, which seemed to be popular with designers, particularly automotive, for all segments.”

“Aluminum pigment sales to the ink industry were strong during 2000,” said Peter Ford, market development manager for Silberline. “There is increased interest for special effect pigments. With respect to aluminum pigments, the market is also attempting to achieve brighter aesthetics and smaller particle sizes. We anticipate the demand for aluminum pigments to remain strong through the next few years.”

As with the larger pigment families, the cost of raw materials for metallic pigments have risen. Mr. Crowhurst said that costs for bronze (i.e. copper) rose about 20 percent in 2000, and aluminum went up about 15 percent. Part of the increase in costs for ink companies comes from the increased interest in larger markets, such as automotive paint and coatings.

“Strong automotive demand for aluminum pigments in 2000 caused tight supplies throughout the world,” Mr. Brooks said. “Since the same milling capacity is used for the pigments in both graphic arts applications and automotive finish applications, there is the potential for the situation to become even tighter.”

Mr. Brooks said the key for metallic companies to thrive is to be vertically integrated and to be somewhat self-sufficient.

“Through its parent companies, Wolstenholme International, Ltd. and Schlenk Metalpulver, MD-Both is vertically integrated in metallic pigments for inks,” Mr. Brooks said. “New capacity for gold pigments was brought on line just last year at both companies so we’re well situated for bronze. Schlenk is currently in the last stages of bringing new aluminum capacity on line. MD-Both and its parent companies have been able to maintain sufficient supply, but it was a very near thing at times. So far, we have been able to maintain our prices.”

Mr. Crowhurst noted that Eckart did not pass on price increases to its customers, while Silberline implemented a “modest” price increase during 2000 to help offset rising raw material and business costs.

Mr. Brooks said that it is not likely that new companies will enter the metallic pigment production field soon.

“There are huge barriers to entry into this business and the relatively small demand for gold pigments coupled with the capital requirement is probably discouraging to potential new producers, either here or offshore,” Mr. Brooks said. “Aluminum pigment production is an even more costly venture to enter because the fire and explosion hazards of milling aluminum necessitate a very specialized and highly automated manufacturing plant. All of the current producers of both aluminum and bronze pigments have been in the business for a long time and have accumulated a concentration of expertise, proprietary processes and equipment that would be very difficult to assemble from ‘scratch.’”

What do metallic pigment manufacturers expect for 2001 and beyond? As the market for metallic pigments is relatively small, any shift in fashion can have a major impact on the industry.

“For 2001 we expect to see pigment sales steady in bronze and continued strength in aluminum at least through the first half of the year,” Mr. Crowhurst said. “For metallic inks, both bronze and aluminum, we expect to grow as our end user customers strive to differentiate their packaging. The use of metallic inks remains a tiny fraction of the total ink consumed which means that trends in fashion/ design can more than offset any potential downturn in business.”

“The demand for metallic pigments for inks, more than most other colors, are very mercurial and subject to fashion,” said Mr. Brooks. “Also, because they are such a small part of the overall printing picture, the decision to use or not use metallic colors by just a few major advertisers can have a noticeable impact on the entire metallic pigment business.

“Because of this, it can be hard to spot trends since they can be buried under year to year variations,” Mr. Brooks concluded. “If recent years are any guide, we can expect the use of silver (aluminum) to continue to grow faster than golds in 2001. Special effects seem to be growing in popularity and our expectation is that this will continue during 2001.”

Foreign Competition
In certain pigments, the challenge of raising prices to meet rising raw material costs are counterbalanced by the strong dollar as well as imports from the Asia-Pacific region.

“The pigments producers in the U.S. were struggling to compete against imports from low-cost countries in Asia, and the low value of the Euro helped exports from some European countries,” Dr. Sieber said. “This also applies of course to products downstream in the value-added chain, like printing inks, which negatively affected the demand for pigments in the U.S.”

“Imports are having a big impact in the market,” Mr. Dugan said. “Lower prices are the rule as the U.S. dollar continues to be strong against most world currencies, allowing importers to lower the U.S. price but maintain their local currency pricing.”

“Imported pigments have certainly reduced the price of pigments for use in the lower-end ink applications such as corrugated and some water flexo applications,” added Mr. Carruthers.

“Increased offshore competition has kept pigment prices depressed,” said Dan Bolon, market manager, graphic arts at PMC Specialties Group.

One area that has intense competition is dry pigment, where foreign competition, supported by government subsidies and lower environmental and labor costs, is keeping the price down. “Dry pigment manufacturers face tremendous competition,” said Tom Rogers, president and CEO of Apollo Colors. “The fight that the industry faces with Chinese and Indian manufacturers will be a tough struggle.”

Dr. Sieber said that the quality of some imported pigments is improving. “We saw an increasing number of products with acceptable quality coming from India and China,” Dr. Sieber noted. “There are clear attempts in these regions to cover more sophisticated, or even high performance, pigments.”

Higher Concentrations
One area of interest often mentioned by pigment producers is a need for higher pigment concentrations.

Mr. Grabacki said he has seen ink manufacturers seeking higher pigment concentration in products. “In offset, pigment percentages in flush have gone up,” said Mr. Grabacki. “Our customers want higher pigment loading with the same body. In the past, that has been a challenge.”

“Customers are looking for increasing performance in areas such as heat stability, lightfastness and weatherability,” Mr. Schwitzguebel said. “Customers want increased pigment concentration during processing. What was acceptable in the past is not acceptable now.”

“In pigment preparation such as dispersions and flushed colors, our customers are looking for higher pigment concentrations, yet easier handling and dispersing,” Mr. Ashe added.

“Sun Chemical introduced in late 2000 a new sheetfed flush system, SunQwick Millennium, which offers the ink maker a combination of high strength and a workable body,” said Mr. Carruthers.

“These flushes, due to their high pigment load, can be used to produce a wide range of sheetfed inks including high gloss, fast set and high solids types, hence reducing the customer’s flush line inventories,” Mr. Carruthers said.

Other Trends
Aside from higher pigment concentration levels, there were numerous trends within the industry, ranging from finer particle sizes for ink jet inks to improving environmental characteristics.

“Quality requirements are increasing as well as an increase in new technologies such as ink jet, digital and UV offset and flexo,” said Mr. Carruthers.

“This is an evolutionary business, not a revolutionary one,” said Mr. Rogers. “I see continued improvements in printing and in the quality of ink, and we work together with ink manufacturers on specific applications.”

Mr. Rogers said that there is critical work being done on pigments and dyes for ink jet technology. “I think that’s a spectacular area of opportunity,” Mr. Rogers said.

One area of growth is in pigments for ink jet inks, and Mr. Ashe said that CDR is successfully moving ahead in that area.

“We now have pigmented water-based dispersions that are acceptable for digital print heads, with dispersions that have particles no greater than 0.4 microns,” Mr. Ashe said. “We also have some dry toners available for ink jet use.”

“The increasing use of non-impact printing – be it toner-based for small volume printing, or wide format ink jet for advertising – creates a demand for more economical solutions to the technical challenges of these technologies,” Dr. Sieber said.

Mr. daPonte said he noticed that there was a trend toward using dry pigments in 2000.

“There were few changes in the market as to the type of colorants used,” Mr. daPonte said. “However, the trend to move more into using dry pigments away from flush became more evident in 2000. To meet the growing demand for these pigments, BASF has extended its portfolio of colorants offered in the U.S. to accommodate the varied needs.

“I see the change in the market not so much in what type of pigments are used but the format in which pigments are delivered to customers,” Mr. daPonte continued. “We see a shift to dry pigments in markets which traditionally used flush. This in part would be to improve formulation latitude and reduce cost in some cases. Also, with the increased acceptance of UV as an alternative to traditional inks, pigments and even flushes suited for these systems will become more prominent. BASF has addressed these changes by ensuring that new product developments are in line with the trends in the market. Our portfolio continues to be adjusted to accommodate these trends.”

“On the technical side, the continuous improvement in the influence of the pigments on the rheology of both liquid and paste inks, is still an issue,” Dr. Sieber noted. “The objective is to minimize thixotropy. There is also further room for improvement of pigments for UV ink applications. Last but not least, environmental aspects in production with the use and disposal of pigments playing an even more important role. This is particularly evident for large volume pigments in line with Environmental Protection Agency’s HPV program.”

Thoughts on 2001
The apparent economic downturn is very much on the minds of pigment manufacturers as they complete the first quarter of 2001.

“I think 2000 was a reasonably decent year for the industry, but 2001 will be more challenging because of what I perceive to be a general decline in the economy as a whole,” said Mr. Rogers. “I think you won’t see much growth in the remainder of the first or second quarter, but that there will be growth in the second half of the year.”

“It’s very interesting right now,” said Mr. Grabacki. “The rumblings are that the industry is slowing down due to the economy.”

“We are forecasting growth of the same magnitude for 2001,” said Mr. Schwitzguebel. “We see a North American situation that is not clear, and if the economy has a hard landing, it will have an impact on the industry and the rest of the world.”

“I am cautiously optimistic for 2001,” Mr. Ashe said. “We are continuing to make product improvements that allow us to grow, but I do have concerns about the economy.”

“The pigment industry in 2001 will see modest growth due to a slower economy but increasing pressure to increase return on investments,” said Mr. Carruthers.

“For the reasons mentioned above, and the tight margins in this segment, the prices for many classical pigments will increase,” Dr. Sieber concluded. “The high performance pigments will continue to attract new players and be subject to the process of becoming more like commodities. There will only be a few pigment producers who have the innovative prowess to develop new and even patent protected pigments.”

With all of the changes that occurred in 2000, 2001 will present its own challenges for the pigment industry.

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