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The European Ink Market Overview



Printing ink manufacturers are hoping to raise prices this year, but they are concerned about uncertainty in advertising trends.



By Sean Milmo, Ink World European Editor



Published September 6, 2005
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European ink producers appeared to have done well in 2000, with their sales volume increasing at the highest growth rate in recent years.

But they lost out because once again they were unable to achieve increases in their selling prices to offset a strong rise in raw material prices stemming from higher crude oil costs. In fact, ink prices generally went down so that the margins of ink makers were squeezed even further.

 

“Ink sales went up on average by around 3.5 percent in volume terms, but because of price pressures from intense competition among ink companies, prices decreased,” said Heiner Ringer, chairman of the printing inks group of the European council of the coatings, inks and colors industry (CEPE).

The council believes that the European ink sector’s growth in sales is usually the same as that of the increase in gross domestic product (GDP). With the European Union’s GDP expanding by an average of 3.5 percent last year, the increase in ink sales fell below the expansion of the EU economy.

In addition, with the total European printing market growing by 3.4 percent last year, according to the consulting group CAP Ventures, ink sales also seemed to have lagged behind that of the printing sector as well.


Price Increases
Volume ink sales are expected to rise by around 3.5 percent again this year, said CEPE. But this time, ink makers are hoping they can push up their ink prices for the first time in a few years so that at least their sales revenue growth will exceed that of the volume sales rise. They are optimistic that printers will accept that with the higher raw material costs higher ink prices are inevitable.

“Ink suppliers have been tending to reduce their prices just to keep their customers,” said Mr. Ringer, president of Huber Group, Munich, Germany. “There now seems to be a realization that this price cutting has to come to an end because of the higher raw material costs.”

Since prices of many paper grades are expected to ease this year, ink companies are hoping that printers will, as a result, be more amenable to accepting higher ink prices. Last year, prices of paper, which can make up a high proportion of printers’ costs, went up following a sharp increase in pulp costs.


Rising Raw Material Costs
For ink makers, raw material costs were around 3.5 percent higher on average, according to Mr. Ringer. This follows a 7.5 percent increase in prices of carbon black, 4 percent for color pigments, 4 percent for waxes, 10 percent for mineral oils and 17 percent for solvents.

Organic pigment producers say that their price rises have been in line with the increases in their own production and raw material costs. But they are warning that there would be further rises this year.

“There is still pressure from raw material costs, so we are still waiting to see whether more price increases in our pigments might be necessary,” said an official at Ciba Specialty Chemicals.

In fact, ink producers are expecting that their raw material costs could go up by even more than last year, because the full effects of more expensive oil have still to filter through to their suppliers.

“The raw material price rises came through relatively late last year, so at my own company we are expecting that this year they could go up by as much as 4 percent,” said Mr. Ringer.


Economic Slowdown
The inks sector will, however, have to try to gain price increases at a time when the European economy appears to be slowing down.

Although the decrease in growth will not be as big as that expected in the U.S., the predicted rise in GDP in the EU of 3 percent will nonetheless be lower than the 3.5 percent expected in the U.S., according to the Paris-based Organization for Economic Cooperation and Development (OECD).

The European Chemical Industry Council (CEFIC), to which CEPE is affiliated, is forecasting that chemical production in Western Europe will slow this year from a 4.5 percent increase in 2000 to 3.6 percent.

The decrease will be triggered by the slower growth in world trade caused mainly by a slackening U.S. economy. In addition, the EU’s own economy will also be weaker.

Already there are signs that the economy in Germany, Europe’s biggest printing market, is faltering, with its unemployment rate going up in January.

Economists have as a result begun to consider whether the EU’s economy may deteriorate even more than was expected at the end of last year.


Advertising Expenditures
Forecasts of advertising expenditures in Europe, which finances approximately 60 percent of printing output, were optimistic in mid-2000. Zenith Media, one of the largest international media buying companies, was predicting 8 percent growth in spending in 2000, with a continued strong increase in 2001.

Media pundits were confident that the advertising sector would continue to be bolstered by the new economy, in particular by the promotional activities of dotcom companies.

But the sharp dive in the fortunes of the dotcom operators and other factors, like the effects of the slowdown in the U.S. economy, have started to undermine growth in advertising.

Zenith has now cut back its overall forecasts for this year from 6.5 percent to as low as 5.5 percent. Nonetheless, growth in Europe would still be as high as 6.7 percent, compared with 4.6 percent in the U.S.

Some European markets would be affected more than others by the decline of the dotcoms and a decrease in rapid growth of sales of items like mobile phones.

The U.K., for example, which has benefitted more than most countries from the boom in the Internet and mobile phones, could switch from being one of the fastest growing advertising markets during the last few years to one of the slowest in 2001.

The investment bank ABN Amro has predicted that the increase in U.K. advertising spending will slow by approximately a third, to 5 percent this year. It claimed that dotcom advertising in the country would actually fall in 2002, after showing a year-to-year rise of 350 percent in mid-2000.

A grim indicator of future short-term prospects came in November when advertising expenditure in the U.K. actually fell in real terms for the first time since the recession of the early 1990s, according to the advertising research organization ACNielsen MMS.

In Germany, media companies have been reporting a faster than expected decline in advertising revenue in the first quarter of this year. Some of the biggest falls were in spending by TV advertisers, but newspaper and magazine publishers revealed that declines in advertising sales have been as high as 20 percent compared with a year ago.

Like in the U.K., part of the decrease was due to the troubles in the German dotcom sector. But there was also a drop in advertising by telecommunication companies and financial service providers. An outbreak of bovine spongiform encephalopathy (BSE), or mad cow disease, in Germany triggered a dramatic fall in advertising of meat products.

However, the German media and advertising industries have been expecting a slowdown this year because 2000 was considered an exceptionally good year for advertising, with expenditures estimated to have risen by 12 percent.


Outlook According To Sectors
Across Europe, some media sectors are doing better than others. Direct mail is now one of the fastest growing promotional vehicles in the print sector, with expenditure outpacing that of advertising spending as a whole.

A recent study by U.K.-based consultants Pira International concluded that during the current decade, volume growth of direct mail in Europe would be 140 percent. This would be well ahead of other fast-growing print media such as directories and catalogues and nearly triple that of books and magazines.

Direct mail is benefitting from the multimedia era in which advertisers are increasingly seeking to use a variety of ways of reaching consumers, rather than devoting most of their advertising to a single outlet like TV.

Unilever, for example, has been reducing its reliance on TV in the U.K. for the promotion of its detergent brands. Instead it now markets the products to consumers through 15 different communication channels.

The desire among advertisers for a more direct and targeted approach to consumers has been helping some segments of the magazine market. A growing number of consumer product companies and retailers have been bringing out their own publications, some of which are now sold on magazine stands. Nine of the top 10 magazines in the U.K. in terms of circulation are now published by corporations selling products and services to consumers.

Magazine advertising spending in some countries like Germany, the largest print media market in Europe, is going up faster than average advertising expenditures.

A lot of the increase is driven by the success of consumer magazines in niches in both the women’s and men’s sectors. One of the latest of these is a new form of fashion-oriented celebrity magazine, several of which are due to be launched in the U.K. in the first half of this year.

Newspapers are currently predicted to have static or slow growth in most European countries over the next few years. Nonetheless, newspaper paginations have been rising during the past year, despite an average 20 percent rise in the European price of newsprint.


Demand for Inks
Newspaper publishers’ revenues have been boosted by the success of color supplements and pull-out sections aimed at specific groups of consumers. These, in particular, have helped them push up pagination rates while average circulations have been going down.

They have also lead to an increase in demand for coldset color inks, with greater emphasis on the need for higher quality printing as supplements try to match the color printing standards of magazines.

The tendency for new and existing magazines to target particular groups of consumers has slowed down the growth of heatset web offset inks to the benefit of sheetfed offset inks.

Demand for heatset inks has been increasing by as much as 10 percent in recent years. But this could have been as much as halved last year as a result of a move by magazine publishers to more targeted products requiring shorter runs.

“The heatset market could be close to reaching a saturation point,” said Mr. Ringer. “The trend among publishers for more customized and regionalized magazines has meant that with some, publication heatset is no longer the optimum printing process. This has provided new opportunities to the sheetfed sector, which has been stagnant and may now even be growing.”

On the other hand, demand for gravure publication inks remains flat and may even be declining. CEPE estimates that publication gravure share of the conventional printing inks market is around 20 percent, but much of this is due to the relatively large share gravure has of the printing sector in Germany, where it is almost even with offset.

In neighboring France, for example, publication gravure now has a share of only 8 percent of the country’s printing inks sector, one sixth of that of offset inks, according to figures from the French coatings industry federation (FIPEC).

On the other hand, flexographic printing is continuing to gain share in the European packaging market, with predictions that within a few years it could overtake litho in the sector. This would mean it could account for half or more of packaging ink sales against around 30 percent at present.

The attraction of flexo has been its versatility and its capacity for lower costs because of its suitability for computer-to-press technologies. It is also seen by printers as an aid to helping them to meet stricter safety and environmental requirements.

At the moment one of the biggest safety issues being tackled by CEPE in printing inks is standards for printing inks applied to the non-food contact surface of food packaging in order to avoid migration of chemicals into food and print set-offs. CEPE’s printing inks group is at present drawing up a test program to ensure the protection of human health.


Going Digital
With an average growth of around 20 percent in Western Europe, digital printing is continuing to be the fastest growing printing sector in the region, although it still has a relatively small proportion of the total market.

However, it is steadily making inroads into markets dominated by the conventional technologies, particularly at the lower end of the litho commercial sector.

Commercial digital printing is predicted by Pira to almost triple its share of the total market from 4 percent last year to 11 percent in 2010. With desktop printing going up from 5 percent to 9 percent, digital’s total share will be 20 percent by the end of the decade.

The expansion in digital will be in response to a 20 percent reduction in typical run lengths over the next 10 years, Mike Hancock, Pira’s managing director, told a London conference on digital printing in February organized by the consultancy.

Some estimates suggest that desktop printing will account for 25 percent of all promotional material in 2010 against 5 percent last year. Its share of stationery and transactional products will be 43 percent against 9 percent in 2000.

Pira’s research shows that at present only 10 percent of printers are thinking of installing a digital press within the next year. But the proportion more than doubles when they are asked their intentions in two to five years.

The restraints among printers to going digital are no longer worries about quality, lack of speed or reliability, but concerns that their applications are not suitable to digital, anxieties about capital costs and dissatisfaction about the current digital equipment on offer.

The drivers behind expansion into the digital sector are now the desire to service new markets and to meet the need for print on demand and for variable data applications.

Digital printing is also looking more attractive in terms of costs, particularly at a time when there is increasing use of Internet distribution of files for printing of products for international markets.

“Perhaps the biggest benefit of digital production is ‘distribute and print’ versus the traditional ‘print and distribute,’” Donald Siese, assistant vice president, Pearson Education, told the Pira conference. “Globally the market is ready. Files can be transmitted or retrieved via network to the area requesting the product. This removes the additional costs and delays associated with shipping and customs. Faster to market means quicker customer satisfaction.”

The economics of traditional printing is that the more units that are produced the less cost there is per unit. This, however, requires the build-up of orders to ensure the printing equipment is kept busy with long runs.

With digital printing, the economics are entirely different. Since even one copy can be produced economically, short-run digital production does not require back-orders to maintain press runs.

“This means a savings related to traditional practices, involving costs associated with films, plates and make-readies,” said Mr. Siese.

With books and other lengthy documents, the cost per unit for digital printing is almost 2.5 times higher than a first printing with traditional equipment. But after taking into account inventories and unsold returns, total costs of digital are a fraction of those of traditional printing, he claimed.

With a printing job of 288 pages, the total cash outlay for digital is £146 ($216) against £1,320 ($1,953) for a traditional reprint and £3,512 ($5,197) for a first printing with conventional technology.

“The cost of digital production to meet the order is definitely the most economically effective method,” said Mr. Siese. “After all, don’t you have better things to do with your money than sticking it on a shelf in a warehouse? The savings of just a few short-run titles may be enough to underwrite the cost of getting started in digital on-demand printing.”

Bill Holmes, technical director of Kall Kwik Printing of the U.K., told the meeting that three business models are now beginning to emerge in the digital printing market.

At the lower end of the sector are mass-market operations capable of handling many jobs per day for customers who want convenience, basic services and established prices. Companies in this sector rely on their brand names and mass marketing efforts, while their employees are generalists able to operate various pieces of equipment as well as attend to walk-in customers.

Then there are businesses which do specialized jobs for a group of regular customers, relying on references from existing customers and a direct sales force. “This type of business employs specialists who produce quality work with high productivity,” Mr. Holmes said.

In the third model, the printers deal with a relatively few but large clients who pay a premium for services like just-in-time printing, system integration and data and content management in which the actual printing is less important than with other digital work.

“Printers need to see their role beyond printing ink on paper,” said Mr. Holmes. “Perhaps they should consider that collection, management and dissemination of information through different media is a new revenue opportunity.”

Pira believes that as digital printing expands, ink jet will become much more popular than at present, rising from 5 percent of current usage to 36 percent. Usage of toner ink will fall from 93 percent to 50 percent.

Meanwhile some of the biggest technological developments in inks and their ingredients are likely to be in the short-term in ink jet and toner inks.

Leading specialty chemical companies like Clariant, Ciba and Avecia are developing dye and pigment systems to improve the quality of digital printing. One of the biggest challenges is to achieve with dyes the same qualities in reproductions of electronic photography as silver halides in those of conventional photography.

Degussa AG, the new specialty chemicals producer formed from the merger of Degussa-Huls and SKW Trostberg, is the latest company to invest resources into the development of new digital printing technologies. Through its position as the world’s biggest supplier of carbon black, it is hoping to exploit its expertise in ink pigments.

The company is working on a system which involves linking a non-impact ink formulation with specially modified paper. “Special coatings for ink jet papers have been developed (by us) using modified precipitated and fumed silicas,” said a Degussa executive. Ultimately, the digital printing sector will become a fiercer battleground not just for equipment manufacturers but also formulators of inks and their suppliers.



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