2005 was another challenging year for the printing ink industry and its suppliers, as companies faced continued increases in raw material prices as well as supply pressures of critical formula components.
Suppliers of waxes, solvents and additives are facing the same pressures.
“We are having a good year from a demand and volume point of view but have suffered due to our inability to pass on all our raw material increases,” said Dr. Hemant W. Dandekar, vice president & general manager, Americas for Hexion Specialty Chemicals. “For 2006, we expect 1 to 3 percent increase in volume. It is too soon to tell how margins will fare next year – a lot depends on whether and how quickly petroleum derivatives return to pre-Katrina/Rita levels in 2006.”
“2005 was a challenging year with many of our raw materials being derived directly from petroleum,” said Josh Rosenheck, commercial platform manager for Noveon, Inc. “The combined impact of high base oil prices and the devastating hurricane season made for unprecedented price pressure on raw material. We have emphasized our development efforts on the use of more cost stable raw materials and we have high hopes as we head into 2006.”
“I expect Elementis Specialties to finish the year with modest growth over 2004, especially in the target areas of organoclay technology along with our liquid ink products, which include dispersants, defoamers and surface tension modifiers,” said Craig Baudendistel, business director, inks for Elementis Specialties. “I expect similar growth in 2006.”
“As a start-up company, we experienced double digit growth in 2005 and expect the same in 2006,” said Alan I. Kalmikoff, president of Keim-Additec Surface USA, LLC.
“2005 has been a good year for Clariant in the wax and additive area, due mainly to our new product introductions as well as continuous improvements in existing product line business,” said Bernhard Ehrenreich, head of Printing Industries Business, Clariant P&A Division. “We are optimistic about 2006. I’m not sure others in the industry share this opinion.”
Suppliers expect more of the same in the coming year, as well as increasing interest in low cost products.
“We continue to experience the same trends as in the past couple years,” Mr. Baudendistel said. “That is, increased competition both domestic and abroad, continued price pressure on raw materials and overall cost of doing business, and continued emphasis on value added product development and problem solving initiatives.”
“We continue to see a demand for low cost products in all segments,” said Dr. Dandekar. “Customers want to pay the minimum possible for sufficient product performance.”
Mr. Ehrenreich and Mr. Rosenheck said that the recent major consolidations have had an impact on suppliers.
“The ongoing consolidation of the printing and printing ink industries have increased the purchasing leverage at the large customers,” Mr. Ehrenreich said. “This requires suppliers to be more flexible, innovative and competitive in order to survive.”
“Consolidation of the industry through acquisitions has become an identifying trend,” Mr. Rosenheck said. “Another trend has been the central focus of time and effort on cost reduction by our R&D group, which takes away from working on advancing technology.”
Water-based technologies are making gains in the market.
“The water-based ink and coatings businesses continue to look for new and innovative ways to compete with solvent and energy curing systems,” Mr. Kalmikoff said.
“The future of printing inks will continue to see the market supplant traditional solvent-based inks with waterborne formulations,” said Chris McCormick, director of technology for Munzing/Ultra Additives. “This trend towards water will provide additional opportunities for us to technically partner with the ink industry since our additives are specifically adapted for this technology.”
Pricing and Supply Concerns Continue
The rapid rise in raw material prices continues to be a concern for manufacturers of waxes, solvents and additives. The good news is that supply has stabilized.
“We do not have a major scarcity of raw material,” Dr. Dandekar said. “However, year over year, raw materials have increased from 20-40 percent for most products in North America.”
“Our wax and additive products are directly influenced on the price of crude oil,” Mr. Ehrenreich said. “Waxes based upon ethylene and propylene are particularly vulnerable to price changes in raw materials. Transportation costs become an ever-increasing percentage of the total cost to deliver to the customer.”
“Raw material prices continue to increase due to price increases with petroleum and natural gas related to the natural disaster around the Gulf Coast region,” Mr. Baudendistel said. “We have not experienced any major raw material supply issues from our supplier base.”
“We have experienced a steady increase of raw material prices,” said Mr. Rosenheck. “Supply of raw materials, with the exception of some hurricane-related shortness, has not been a major issue.”
“The effects of the Gulf Coast hurricanes led to raw material shortages and logistical challenges,” said Tim Cauffman, product manager, photocure products at Sartomer. “Some raw material manufacturers declared force majeure. As a result, many raw material manufacturers increased prices at the start of the fourth quarter.”
“As we all know, oil and energy prices have dramatically increased over the past two years to unexpected levels,” said Bob Whiteley, Munzing/Ultra Additives’ vice president of sales and marketing. “Although we implemented a price increase to offset these costs, the increase reflects our continued commitment to being a responsible supplier and thus, remains well below the increases in raw materials we have continued to experience since 2004.”
“The good news is we are in a secure supply position on all of our major raw material sources for oils, siloxanes and polymeric technologies,” added Frank Portaro, vice president of supply chain for Munzing/Ultra Additives. “Our sources reported no significant downtime, supply,or transportation issues. Fortunately, we were very lucky since none of our suppliers’ processing facilities reported disruptive damage or downtime due to the various hurricanes.”
“Supply has not been a problem but material costs and energy costs, as we are an importer of goods from Europe, have been challenging,” Mr. Kalmikoff said.
There are many challenges facing manufactures of additives and waxes, including raw material price increases and more competition. Mr. Rosenheck noted that raw material pricing and foreign competition remain the most difficult challenges facing the industry.
Mr. Baudendistel cited raw material costs, global competition and the development of new value-added technology that provide margin growth for both suppliers and manufacturers as key challenges.
“The biggest problem facing the industry today in the inability of the ink producers in the publication segment to pass on raw material increases,” Dr. Dandekar said. “As a result, most suppliers have very low profitability which puts future investment in capital and R&D at risk, thus endangering the long term viability of the raw material producers.”
“I think a significant challenge will come from additional suppliers trying to enter the market,” Mr. Ehrenreich said. “There is not much growth potential in traditional printing ink use of wax.”
Companies are also developing global operations in order to participate in the growing Asia Pacific market. For example, Shamrock Technologies and Munzing/Ultra Additives both opened major facilities in China in the past year.
“As costs continue to impact printing ink formulations, we suspect an increase of lower cost imports from Asia,” said Dr. Jean Schaefle, CEO of Munzing/Ultra Additives. “We are positioned to capitalize on the trend in the Asia printing ink market with our newly completed technical center and office facility in Shanghai. Our plan is to grow our business in Asia and begin manufacturing locally in China by 2007.”
For manufacturers of waxes, solvents and additives, working closely with their customers to develop new technologies will be critical to future success.
Web Extra - Responding to New Challenges
The recent reductions in R&D at ink companies is also placing more emphasis on suppliers.
“A reduction in the R & D and product development staffs of our customers creates an environment of fewer evaluations for new and innovative raw materials,” Mr. Kalmikoff said. “We offer to do the work for our customers.”
One way suppliers are responding to these challenges is by working on new products that offer value or are less expensive, depending on the needs of their customers.
“Elementis Specialties is responding by focusing on operational efficiency and meeting our customers' needs with unique value added products and services,” Mr. Baudendistel said.
“We are constantly experimenting with new raw materials that may help us lower costs,” Mr. Rosenheck said.
“Ink suppliers are continually looking for ways to reduce costs and improve the performance of their inks and our primary focus on technical partnerships has provided them with both requirements,” said Bob Whiteley, vice president of sales and marketing for Munzing/Ultra Additives.
While suppliers are working hard to keep costs down, there will come a time when price increases are bound to happen.
“Our supply chain personnel and our suppliers have been very diligent in keeping us from having a stock out situation,” Mr. Cauffman said. “As result we have kept our customers supplied without interruption. Unfortunately, this has occurred at higher costs. For the most part, our customers understand the situation but they certainly don’t like it. They face competition from other technologies (other than UV/EB) as well as imports. Fortunately, they saw the foreign supplier disappear when products became very short last year. That was a clear indication of their lack of commitment to the American market.”
“We have used a combination of raw material reformulation, Lean manufacturing and fixed cost reduction through consolidation of manufacturing sites and reducing headcount at existing sites,” Dr. Dandekar said. “This has helped mitigate the price increases which we have passed on to our customers. However, going forward, any further increases in raw materials will have to be passed on to our customers to ensure the sustainability of our business.”
Creating new products is critical for this marketplace.
“We have been very busy this year with listening to customers, and refining the specifications of existing products, as a means of developing products that works,” said Joon Choo, vice president of marketing for Shamrock Technolgies. “Our new products are fine examples of this.”
Clariant is investing in new metallocene wax production for a variety of applications in the polishes, plastics, coatings, adhesives and printing inks areas. These new Licocene brand waxes can be tailored made, giving Clariant the ability to meet strict customer demands with a single product.
“Clariant continues to spend money on development of new generations of wax products, particularly the metallocene waxes, and of functionalized waxes for markets such as energy curable inks,” said Mr. Ehrenreich.
“Through our technical partnerships, we created value for many printing ink companies in 2005 with our customized additive solutions,” said James Hept, product and marketing manager for Munzing/Ultra Additives. “Longer press runs have put more emphasis on defoaming technology that provides long-lasting persistence, and our unique 3-Dimensional (3D) Siloxane products offer this performance without sacrificing substrate wetting.”