Argentina's Markets May Stabilize at Last

By Charles Thurston, Ink World Correspondent | 09.09.05

The Argentine ink market finally may see renewed growth late this year, following the recent tumultuous changes in the nation.

The Argentine ink market finally may see renewed growth late this year, following the recent tumultuous changes in the nation’s political leadership and monetary policy. For smaller and mid-sized ink manufacturers and ink consumers, the past three years of recession already may have spelled bankruptcy, local analysts say. For larger ink manufacturers, including Flint and Sun, the challenge will be to accelerate the collection of credit extended to customers, they add. Yet for the industry as a whole, expectations of recovery are guardedly optimistic.

“So many things have changed, we are comfortable that the country will find a base in this mess,” said Charles de la Rock, the Latin America sales director for Kerley Ink. “As bad as things are in Argentina, customers are still buying,” he said.

After Brazil and Mexico, Argentina is traditionally the next most important Latin American economy.

The hope for recovery by the third or fourth quarter this year does not diminish the expectation that the first and second quarters may be painful.

“It will get worse before it gets better,” said Dominique Marchand, the director of marketing in Latin America for Flint Ink in Buenos Aires.

Others are less sanguine about recovery: given “the uncertainty of the near future, business wise, it would be inappropriate to forecast or try to identify the ink market’s behavior for the time being or for the following months,” said Juan Carlos Salaberry, managing director for South America at SICPA Argentina S.A. in Buenos Aires.

In early January, Eduardo Duhalde, Argentina’s new president, took office in the midst of political chaos and officially devalued the peso by a third, relative to the dollar, after a decade of dollar parity. The move will help the country increase exports, although imports will be more costly. At the same time, Argentina is likely to increase its overall trade with Brazil, its largest trading partner, and other members of the Common Market of the South, or Mercosul, which also includes Bolivia, Chile, Paraguay and Uruguay.

The number of ink players participating in the recovery may be smaller than just a few years ago, however. Among foreign ink producers that have taken advantage of the recession-fueled consolidation trend in the Argentine industry is SICPA, which recent acquired the Argentine operations of Brazilian-based Cromos. Sun Chemical Ink S.A., purchased Coates Lorilluex Argentina, a French-U.S. company, and Grafiprisma, a Spanish-Argentine ink producer. Sun moved simultaneously to augment the quality of its Argentine units, adding ISO 9001 accreditation. Flint, too, invested in domestic manufacturing in its acquisition of Polychem S.A., the largest Argentine ink manufacturer, a few years ago. The purchase provided Flint with an opening into the domestically-controlled packaging segment, complementing Flint’s imported news ink business, said Rita Conrad, Flint Ink’s director of corporate communications. “We gained both a broader product base and a local operating network,” she said.

While overall Argentine industrial production was down 18.3 percent during December 2001, compared with the year-earlier period, the chemical sector was one of the best performers, according to economic analyst Diego Corallini, at Joaquin Ledesma Asociados. His company provides market analysis for the national graphics industry trade association, Federacion Argentina de la Industria Grafica y Afines, or FAIGA, in Buenos Aires.

The aggregate ink market in Argentina was estimated at $119 million in 2001, when the economy retracted by 2.7 percent, according to statistics from Flint and FAIGA. Economists at UBS Warburg, led by Michael Gavin, project that the contraction of the $275 billion Argentine economy will slow to 2 percent this year. Of the total ink market, imports rose in 2001 to $56.7 million from $50.8 million in 2000, demonstrating the trend of market share gain by multinational companies. In printing and publishing, foreign companies control 90 percent of the market, according to Ms. Marchand. Flint now holds 21 percent to 22 percent of the total Argentine ink market as the largest player in the industry, she added.

Recovery in the ink market will be affected by the lack of credit for companies in Argentina now; the new government has instituted a wide set of price controls and frozen dollar-based deposits. Following $48 billion in rescue loans by the International Monetary Fund over the past year, Argentina defaulted on its $155 billion foreign debt, the largest default ever to take place in the region. Consumers, however, have had their dollar-based debts converted to pesos now, up to a ceiling of $100,000, which may help revive consumer spending and new orders for businesses. Unfortunately, these new measures have translated into immediate losses of at least $6 billion for the banking community. The banks may eventually be saddled with $10 billion or more in foreign exchange losses as a result of the end of dollar parity.

“The medium-sized businesses that have survived though this (devaluation) will wait to make sure the economy is stable. If this takes six months, then it will take another three months for the ink industry to see growth,” said Mr. de la Rock.