David Savastano, Editor10.30.14
Printing ink prices are driven primarily by the prices of its ingredients, and the price of crude oil is typical of the volatility of costs that ink manufacturers have to juggle. Crude oil is essential to key feedstocks, and when crude oil prices rise, so do the cost of feedstocks. A decline in crude oil prices doesn’t always lead to a decline in feedstock prices, though.
In November 1998, the price of crude oil was below $20 per barrel. Contrast that to summer 2008, when crude oil prices rose to more than $145 dollars per barrel. In the past year, crude oil has fluctuated from more than $100 per barrel in mid-September 2014 to below $86.35 per barrel on Oct. 30, 2014.
What caused this drop of nearly 30%? U.S production is up, while demand has declined in Europe and China. Analysts report that the emphasis on defending market share has led countries to reduce their prices and undercut their competition.
Ink industry executives say that this volatility has become the new norm, but overall, pricing generally remains stable. Meanwhile, geopolitical events are always a huge concern.
“Even with a short term relief in crude oil pricing - which is not too significant looking at the preceding price climb - there are still many risks for a large number of raw materials,” Robert Doerffel, corporate communications Europe for MHM Holding GmbH, said last month. “The global political situation does currently not invite for speculations for a stable situation. Those perspectives do have an impact on trading, contracting and availability. Actually this affects almost everybody and not only the ink industry.”
“The crude oil and petrochemical feedstock markets have displayed some volatility due to geopolitical events and occasionally operational issues, but in general they continue to trade in ranges not very different than they have over the last two years,” said Ed Pruitt, chief procurement officer at Sun Chemical. “We believe the slow growth in the global economy as well as adequate supply is keeping a cap on significant price excursions. Having said that, it is important to remember that any period of relative calm can be quickly shattered by a major supply risk.”
“Pricing of crude oil for us over the last 12 months has been stable by today’s standards,” James La Rocca, Superior Printing Ink’s COO, noted.
The declining cost of crude oil is not translating to lower costs for ink companies.
“Driven by weather – a strong winter in the U.S., a weak winter in Europe – changing feedstock, and global geopolitical issues, both Brent and WTI prices have been moving up and down,” said Jan Paul van der Velde, senior vice president, procurement, sustainability, regulatory and IT for Flint Group. “As a result, farther down the supply chain we’ve seen significant additional costs, such as increased refinery fees. For example, even as crude costs decreased in the last two months, Gas Oil, which is a key driver for many oil derivatives, continue to trade at higher levels. We do not anticipate that conditions will improve any time soon. The ‘backwardation’ of crude pricing (i.e. crude oil being cheaper in the future than now) has almost disappeared. Hence, forward contracts are now more expensive and also include more risk premiums.”
Even as pricing declines, ink industry executives suspect that pricing will remain consistent overall.
“While the short term pricing of crude fluctuates, in the long term we expect it to remain steady,” Ken Klug, Wikoff Color’s director of purchasing, said.
In November 1998, the price of crude oil was below $20 per barrel. Contrast that to summer 2008, when crude oil prices rose to more than $145 dollars per barrel. In the past year, crude oil has fluctuated from more than $100 per barrel in mid-September 2014 to below $86.35 per barrel on Oct. 30, 2014.
What caused this drop of nearly 30%? U.S production is up, while demand has declined in Europe and China. Analysts report that the emphasis on defending market share has led countries to reduce their prices and undercut their competition.
Ink industry executives say that this volatility has become the new norm, but overall, pricing generally remains stable. Meanwhile, geopolitical events are always a huge concern.
“Even with a short term relief in crude oil pricing - which is not too significant looking at the preceding price climb - there are still many risks for a large number of raw materials,” Robert Doerffel, corporate communications Europe for MHM Holding GmbH, said last month. “The global political situation does currently not invite for speculations for a stable situation. Those perspectives do have an impact on trading, contracting and availability. Actually this affects almost everybody and not only the ink industry.”
“The crude oil and petrochemical feedstock markets have displayed some volatility due to geopolitical events and occasionally operational issues, but in general they continue to trade in ranges not very different than they have over the last two years,” said Ed Pruitt, chief procurement officer at Sun Chemical. “We believe the slow growth in the global economy as well as adequate supply is keeping a cap on significant price excursions. Having said that, it is important to remember that any period of relative calm can be quickly shattered by a major supply risk.”
“Pricing of crude oil for us over the last 12 months has been stable by today’s standards,” James La Rocca, Superior Printing Ink’s COO, noted.
The declining cost of crude oil is not translating to lower costs for ink companies.
“Driven by weather – a strong winter in the U.S., a weak winter in Europe – changing feedstock, and global geopolitical issues, both Brent and WTI prices have been moving up and down,” said Jan Paul van der Velde, senior vice president, procurement, sustainability, regulatory and IT for Flint Group. “As a result, farther down the supply chain we’ve seen significant additional costs, such as increased refinery fees. For example, even as crude costs decreased in the last two months, Gas Oil, which is a key driver for many oil derivatives, continue to trade at higher levels. We do not anticipate that conditions will improve any time soon. The ‘backwardation’ of crude pricing (i.e. crude oil being cheaper in the future than now) has almost disappeared. Hence, forward contracts are now more expensive and also include more risk premiums.”
Even as pricing declines, ink industry executives suspect that pricing will remain consistent overall.
“While the short term pricing of crude fluctuates, in the long term we expect it to remain steady,” Ken Klug, Wikoff Color’s director of purchasing, said.