The largest markets, in Brazil and Mexico, are yielding faster growth in some segments – including
For Sun Chemical Latin America (SCLA), the outlook is cautiously positive.
“There is a tremendous amount of potential in the region, but there are some troubling things, of which the biggest is the up-and-down cycle variation of boom-to-bust,” said SCLA vice president Jim Cunningham. “Over the last three years it’s pretty much been booming, but now all the economists say that the growth spurt in Latin America has slowed.
In the printing area I’m not so sure that’s true,” Mr. Cunningham said. “In packaging, we expect 4 percent growth in consumption, which bodes well for us. But there may be no growth or may be a decrease in newspaper and heatset printing.”
Oil price increases are a major problem in the Latin American ink industry now, despite substantial oil production in the region.
“Oil price increases are affecting the industry directly and indirectly; it is a
huge and troubling situation for us and for printers as well. It’s difficult for them to pass on increases to their customers,” said Mr. Cunningham. “We also are at the point now, for the first time in 30 years, where suppliers of certain (raw) materials are saying, ‘this is the price and it’s not negotiable.’”
Brazil Still the
“Market of the Future”
The Brazilian ink market continues to be promising, yet volatile, although there should be a slight acceleration of growth this year. GDP is pegged to jump to 3.9 percent this year, from 2.3 percent in 2005, according to the forecast of the UBS team. At the same time, inflation should cool to 4.5 percent this year from 5.6 percent last year.
And as per capita income moves through the $5,000 per year level, stronger consumer spending should stimulate food and other consumer goods packaging, if not newsprint and magazine printing.
“We are mainly focused on magazines and illustrations in Brazil, and we do not expect these markets to increase as fast as GDP this year; perhaps they will grow at 2 percent or 3 percent,” said Fernando Ribeiro, the general manager of packaging business for Siegwerk Tintas Graficas Ltda., in Sao Paulo.
“We expect 3 percent growth in publications for the next few years, but also expect packaging to grow at 8 percent, mostly in flexography and corrugated boxes,” said Adhemur Pilar, the commercial director for Flint Ink do Brasil Ltda., in Cotia, just outside of Sao Paulo. “This year we physically moved a sheetfed production line from Venezuela to Brazil; we intend to focus on our market share in the sheetfed segment in Brazil. We now have a 65 percent market share in news, a 60 percent share in heatset, a 15 percent market share in sheetfed and a 15 percent share in flexographic and gravure liquid inks,” he added. “We see opportunities in both sheetfed and liquid inks.”
In the crowded Brazilian market, Cromos Tintas Graficas has scrambled to compete as a mid-sized company over the past year while it was squeezed by the pricing power of the multinational giants and by foreign exchange pressures.
“Growth in 2006 will be more difficult than last year because we soon will be having elections and because of the World Cup, but the market growth should equal GDP expansion,” said Jacques Aubry, the chief executive officer of the Rio de Janeiro-based company.
Cromos abandoned its foray into flexographic inks under pricing pressure from the multinationals, he indicated. The company now is focusing on liquid inks for metal can printing, other packaging products and offset ink segments.
“We are attempting to hold our customers through long-term commitments, including technical support,” he said.
Some small companies in Brazil are pursuing non-standard business practices to survive, including off-formula mixing and cash kickbacks linked to over-invoicing, one source in Brazil suggested.
Another problem Brazilian ink manufacturers have been dealing with is the relatively strong value of the national currency, the real, compared to the U.S. dollar. The real is trading in the 2.35-to-1 U.S. dollar range now, following a rate of closer to 4-to-1 in 2002, when Brazilian exports boomed.
“Exports to the U.S. are no longer interesting for Brazilian companies because of the exchange rate,” Mr. Aubry said.
“The real/dollar exchange rate can fluctuate up or down by 10 percent to 30 percent in a matter of months,” added Mr. Ribeiro.
To balance currency risk, Cromos is planning more exports within the region.
“Our goal is to increase exports from a current 10 percent of sales to 25 percent within two years,” Mr. Aubry said. “Within Brazil, we hope to expand our
market share to 10 percent this year.”
Ink companies in Brazil which are reliant upon imports also are under pressure from high tax rates.
“Import tax and other taxes can amount to 45 percent; they strangle us,” said Siegwerk’s Mr. Ribeiro.
While the volatility in the Brazilian market makes new capital investment decisions difficult, some major players, like Sun Chemical, currently are considering new capacity in the country.
The Mexican market for ink continues to grow both from general economic expansion and from the transference of U.S. printing capacity to the country. The GDP growth rate this year is pegged at 3.9 percent, up from the 3.0 percent logged last year, UBS indicates.
A key factor in Mexican consumption is per capita income, now close to $7,200 per year, compared to the regional average of $5,200. While oil-driven price increases seem unavoidable, the forecast for inflation is nonetheless flat at about 3.3 percent.
“My estimation for growth in the Mexican ink market is around 7 percent,” said Ernesto Sanchez, the director general of Sanchez S.A., in Mexico City.
“However, our sales show an increase of 12 percent in kilos as of May ’06 compared with May ’05,” Mr. Sanchez added. “We hope to continue this trend for the rest of the year. Our best performance last year was in the heatset market, and this year we are having excellent results in both heatset and sheetfed offset inks. We also just completed the acquisition of Sporre S.A., a company that manufactures offset ink and is also well positioned in the plates, blanket and press chemicals market. Our exports have been growing steady in the Central America area, mainly in El Salvador and Costa Rica,” he added.
At Siegwerk Mexico, general manager Luis Orozco sees “4 percent growth, even though we are in a presidential election year.” The Tuluca-based company’s sales in volume terms are up 18 percent this year, and exports to Central America and the Caribbean are up by 22 percent, he said.
Among other investors in Mexico, Color Resolutions has installed a blending facility and several in-plant facilities over the past year.
“We feel very good about Mexico,” said George Sickinger, the chief executive officer of the Fairfield, OH-based company. “We went into Mexico following a major U.S. customer, which turned out to be a slow process. But in the interim, we developed other business. We’ll grow faster than 6 percent this year. The Mexican market is still trailing the U.S. in terms of color use and fine graphics, so there are opportunities there.”
Among U.S. printers, Standard Register, of Dayton, OH, recently announced plans to set up operations in Mexico. Elsewhere in the region, several countries are attracting U.S. printing business. Canadian printer Quebecor World announced plans to relocate some of its U.S. book printing activity to Colombia, Mexico and Peru, in conjunction with a $330 million investment program to support the transfers.
Other southern cone countries – Argentina and Chile, in particular – are showing strong economic growth and an equally strong demand for inks.
Argentina’s GDP is slowing from the frenetic 9.2 pace set last year to 7.3 percent this year, suggests UBS. The slowdown will continue next year to a predicted 4.2 percent GDP expansion level, which is more sustainable. Inflation, however, is hovering near 13 percent and showing few signs of diminishing.
The good news, though, is that the Argentine ink market expansion could follow the inflation rate. “According to the results of an extensive survey among our customers, the expectations of growth in the Argentine printing market for 2006 are of 13 percent for offset inks and 12 percent for packaging,” said Dominique Marchand, Flint Group’s director of marketing for Latin America, in Buenos Aires.
“But we should be careful with these numbers since the market is affected by important increases in raw material costs, mostly fuel,” she added. “Perhaps a more realistic number for ink sales in Argentina would be of an increase of 9 percent for 2006.”
Flint’s Argentine sales are more robust than some competitors. “In 2005 we had a sales increase of 25.8 percent, and this year sales are up 37.6 percent,” she noted. “Notably, sales in Argentina are up 22.5 percent compared with 2001, the last year before the crisis,” she added. “2006 is being considered a year of consolidation and major investment is predicted.”
Argentina also is increasing some exports to Brazil. “The demands of the Argentine packaging market are different than in Brazil,” said Mr. Cunningham of Sun Chemical. “We’re also seeing some hefty exports of printed packaging material – more high-end structures – to Brazil, perhaps because the demand can’t be met within Brazil.”
In Chile, the GDP growth appears to be more stable at 5.4 percent this year, down a notch from 6.1 percent in 2005, the UBS team reckoned. Growth in 2007, though, also is predicted to hold at 5.1 percent.
The political situation in Chile supports economic stability, especially following the January election of Michelle Bachelet as the first female president in the history of the country. Such stability attracts foreign investment.
“We’re evaluating investments in Chile now. We have to constantly evaluate what we’re doing and when the time is right,” said Mr. Cunningham.