Signs are looking good at the moment for the European printing industry and its suppliers.
Economies throughout Europe suffered a downturn during the second half of last year, which had a severe impact on parts of the printing and ink sectors. In the fourth quarter there was so much inventory reduction that a record number of production plants were at a standstill by December.
In January, however, manufacturers of pigments, resins and other raw materials were reporting distinct signs of a revival as ink makers started to rebuild their inventories.
“We had a surprisingly good start to the year in the market for printing ink pigments, especially in the U.S. but also in Europe as well with the strongest demand coming from the packaging sector,” said Hermann Angerer, who is the head of coating effects at Ciba Specialty Chemicals, the global market leader in printing ink pigments.
Forefront of RecoveryIt appears that the ink segment could be at the forefront of a recovery because of its position at the beginning of the printing industry’s supply chain.
“It’s what we have been expecting because ink is traditionally the first to benefit from an upswing in demand,” said a senior executive at one European ink producer.
But some pundits are warning that the resurgence could be short-lived. The sales curve could soon turn to a “W” shape. After ink producers build up stock, they could start running them down again in the wake of weak demand.
Nonetheless, the economic indicators in Europe are beginning to point in the right direction. Economic indicators in the European Union are showing a stepping-up of growth in the first quarter which will quicken further in the second quarter an annual equivalent of almost 2 percent.
The European Chemical Industry Council (CEFIC), to which the European organization representing paints and printing ink producers (CEPE) is affiliated, is, however, forecasting a relatively sluggish opening to the year. It is predicting that chemicals output in the first quarter will show a decrease compared with a year ago, although the fall will not be as sharp as in the last quarter of 2001.
In the second quarter, however, production will accelerate so that by the tail-end of 2002, growth will be substantially higher than at the end of last year.
“For both the U.S. and Europe, chemical volumes are currently at the bottom of the cycle,” Malcolm Mitchell, chief economist at BP Chemicals and a member of CEFIC’s forecasting panel, told a chemicals business outlook conference in London in January.
“Our assumption is that industrial customer activity picks up and as the year unwinds, momentum builds progressively,” he explained. “By the year end, quarter-on-quarter growth in Europe could be around 4 percent for the chemical industry as a whole.”
The pattern of increased production will vary across Europe, with slow growth in Germany and slightly faster expansion in France and Italy. The rise in output in the U.K. will be only 1 percent compared to approximately 3 percent in 2001.
In the printing industry, observers are also expecting to see similar variations between countries and also between sectors, as there were last year.
Magazines and NewspapersDifferences have been particularly evident in publishing and other printing segments dependent on advertising revenue. Across Europe, advertising expenditure fell last year by nearly 4 percent but will be static this year, according to Zenith Optimedia, the London-based media planning company.
But in some sectors, advertising spending has been falling faster than in others, while in some key markets it has been rising. Cuts in expenditures have been the most severe in consumer magazines and newspapers, leading to excess supplies of heatset and coldset inks.
“It has been an extremely difficult market because everyone wants the same share of the cake while demand has contracted considerably,” said a marketing manager at one heatset ink manufacturer.
There have been few signs among consumers of a major swing away from the reading of magazines or newspapers. In fact, the latest information shows that some circulation figures have been rising. In the U.K., the total circulation of women’s lifestyle magazines went up by 30 percent in the second half of 2001, and by 25 percent in the full year.
But the slowdown in the growth of consumer spending in many countries has prompted reductions in advertising spending in the print media, and hence a drop in total pagination.
The circulation of many newspapers rose in the second half of last year because people wanted to read about news of the aftermath of the Sept. 11 attacks and of the war in Afghanistan. But companies have been reluctant to buy advertising space, especially in supplements and weekend sections.
“There has been continued healthy demand for black newspaper inks,” said Bertil Ahlberg, marketing coordinator at Akzo Nobel Inks in Sweden. “But the lack of advertising has affected sales of newspaper color inks. Also, the drop in ad money has caused some free newspapers to disappear.”
The Growing Impact Of Direct MarketingThe sudden decrease in advertising in magazines and newspaper as well in the broadcast media could indicate an underlying change in promotional tactics among companies selling consumer products and services.
In the U.K. and other key European countries such as France, there has been divergence between economic growth and advertising spending. Although GDP has slowed down, it has continued to grow. Yet advertising expenditure has declined steeply.
As a result, some pundits are predicting growth rates in total advertising expenditure, particularly in the mass print and broadcast media, could take a long time to return to their pre-2001 levels.
Media analysts at the London-based equities arm of ABN Amro, the Dutch-owned investment bank, are forecasting that a full recovery in advertising spending could take as much as four years.
Although a large number of companies have been trimming their marketing budgets, they are also boosting some promotional activities at the expense of others. A survey at the turn of the year by the Institute of Practitioners in Advertising (IPA), representing U.K. advertising agencies, found that while big cutbacks have been made in media expenditure, money for direct marketing has been increased.
The main objective of marketing planners, according to the IPA, is the retention of existing customers rather than the discovery of new ones and protecting of the status of existing brands.
Hence, direct marketing is increasing its share of print sales because while its spending is increasing that of printing of magazines and newspapers is going down. As a result, in many countries in Europe, companies are spending more of their marketing budgets on brochures, inserts, direct mail and catalogs, making this promotional area one of the fastest growing in print media.
This growth has been a boost to ink makers supplying small printers who are able to meet the requirements of direct marketing customers for flexibility and fast response.
“We’ve started manufacturing our own silver ink mainly for the direct marketing sector because it helps us react more quickly to local customer needs,” said Steve Mason, marketing director at Shackell Edwards & Co. of the U.K. “The direct mail market is being driven at the moment by designers, who are particularly keen on metallic effects.”
On the other hand, a rising proportion of direct marketing campaigns are large-scale operations run by leading advertising agencies on behalf of large companies. As a result, a lot more of the business is being allocated to big printers.
Nonetheless, even with campaigns that are pan-European in scale, there is a need for effective targeting, usually necessitating personalized messaging. Consequently the length of print runs is steadily decreasing, which tends to favor the involvement of smaller printers.
Large Format Advertising and Electronic InksChanges in promotional strategies have also considerably bolstered expenditures on large-format advertising in Europe. Over the last 10 years in the U.K., for example, the share of outdoor, transport and ambient promotion in total advertising expenditure has grown almost four times faster than that of direct mail.
Despite the general decline in advertising last year, parts of the outdoor advertising sector still managed to push up their sales. The Paris-based JCDecaux, Europe’s largest outdoor advertising group, reported a 7 percent increase in revenue from street furniture displays last year, accounting for nearly half of its sales.
The expansion of the large format industry has helped to strengthen demand for screen printing and sheetfed litho inks, as well as ink jet formulations as digital printing makes greater inroads into the outdoor advertising market.
A major driving force behind the growth in outdoor advertising has been the need for companies to maintain a constant exposure of their brand messages at a time when people are becoming increasingly mobile.
As a result, technological advances are being used to apply large-format advertising to a range of substrates so that it has been extended beyond its traditional sites to walls, floor coverings and building wraps.
The latest new technologies, which are likely to make their first appearance in advertising and information displays this year in Europe, are conductive polymers and electrically charged inks. They could become the next new technologies after digital printing to challenge traditional printing methods.
Electronic inks will meet the demand among advertisers for more effectively targeted billboards. Through the use of telecommunications links, these new inks will provide opportunities for constantly changing the content of displays in order to convey the right message to the right audience.
Packaging Inks and Changing TechnologiesOutside of publishing and the print media, part of the packaging sector have also been important areas of growth for ink sales in Europe. Markets like food and pharmaceuticals packaging have tended to be less affected than others by an economic downturn.
“Much of the packaging markets tends to be recession-proof because whatever the economic conditions people still need to eat and drink and take medicines,” said Carol Kluth, who is an analyst with Applied Market Information, Bristol, U.K.
However, the packaging sector is also one of constantly advancing technologies, which can pose a challenge to ink makers.
“The technologies are always changing and there are frequent switches from one system to another,” said Juergen Gartner, manager for gravure and flexo packaging inks at Gebr. Schmidt, Frankfurt, Germany. “The development of new kinds of ink systems to cope with these changes has become a normal part of the business in the packaging market.”
Keeping pace with technological progress in packaging can also provide competitive advantages. Siegwerk Druckfarben reorganized its activities last year so that it could concentrate more of its resources on its packaging ink business, where it believes that it has a technological leadership in several areas.
Packaging is also providing profitable niches to ink makers who have the right technologies and distribution networks. These create useful enclaves in which relatively high margins can be maintained while other packaging markets are being undermined by aggressive pricing.
Akzo Nobel Inks officials believe that growth in demand for ink in the narrow-web label segment in Europe halved last year to about 6 percent to 7 percent, but that was considerably higher than the increase in the graphics industry as a whole.
“The narrow-web market benefits from the trend toward shorter runs in packaging and more frequent changes in design,” said Mr Ahlberg. “The inks tend to be tailor-made for the customer so there is greater scope for pricing with the objective of retaining margins.
“In the wide-web packaging market on the other hand, there has been enormous pressure on prices because there are only a relatively few players and no one is willing to give up market share,” he added.
Opportunities for UVA lot of the technological requirements in packaging at the moment are stemming from the need for greater flexibility and variation – hence the move to shorter runs – and also for eye-catching designs. This has presented opportunities for more use of UV inks and digital printing in the packaging sector.
Demand for UV inks across all printing sectors in Europe is now estimated to be rising at approximately 6 percent to 7 percent annually, at least in volume terms, with much of the impetus coming from packaging. UV inks are helping printers differentiate their own products at a time when overcapacity in printing has worsened.
“Printers in Germany, for example, are not able to demand a good price for a standard product any more so with the help of UV inks they are looking to move into new markets,” said Marcus Ruckstaedter, sales manager for German printing inks at Zeller+Gmelin.
“With the tendency for shorter runs in packaging, printers are also making more use of flexo, where the quality level is even higher with the application of UV inks,” he said.
The UV printing ink market in Europe, however, is starting to become crowded as large numbers of ink makers of all sizes try to gain a foothold in an expanding sector.
Inevitably an effective method of entry is to offer cheaper UV inks, which may trigger a downward spiral in UV prices.
“We are having to cope with newcomers who are undercutting prices and having a destabilizing influence,” complained an executive at one established UV ink manufacturer. “After a few years they will probably have to get out of the market because of a lack of profit but they will leave a lot of debris behind them.”
Ink Jet MarketNew UV technologies are also helping to accelerate the already fast-growing penetration of some print market sector by digital printing systems. Problems with slow drying and fixation of inks has been an obstacle to the improvement of the quality of ink jet application in digital process.
As a result, research departments of both raw material suppliers and ink producers have been working on producing chemicals and formulations which quicken the drying process of ink jet inks. “We are developing new products for UV inks in the digital sector,” said Mr. Angerer of Ciba, which is a leading maker of UV initiators.
Pira International, the U.K.-based consultants, believes that digital print sales in the European Union grew by 9.5 percent last year, which was well ahead of the total print market, which at best was static.
In 2002, digital sales in the EU will hasten to a growth rate of 12.5 percent, which will be maintained next year as well. However, it will then slow to an annual rate of approximately 10 percent through to 2005, according to Mike Hancock, managing director of Pira. Mr. Hancock discussed his findings at a recent London conference on digital printing organized by the consultancy.
The fastest growing segments will be short-run digital mono and color printing, which between them account for almost half of digital sales.
Pira believes that digital printing will continue to expand at a far faster rate than the whole European market throughout the rest of the decade. By 2010, EU digital sales will almost have tripled to well over EUR 20 billion ($18 billion) in size, while in volume terms the total print market will have grown by around a third.
Digital printing’s share will by then be 20 percent, marginally outstripping that of gravure, while litho will remain predominant with a share of 57 percent, according to Pira.
Some analysts now argue that digital printing will be the biggest printing technology by the end of the decade, on the grounds that the print market should also include copying, which with improved technology is already taking sales away from commercial printers.
Hence, Helga Zollner-Croll, managing manager for digital imaging at Zander Feinpapiere AG, Germany, predicted at the London Pira conference that by 2010 digital would have a total market share of 43 percent, against 37 percent for offset litho and only 5 percent for gravure.
The continued rapid rise of digital printing has added to the strain on both prices and costs among traditional printers and their ink suppliers. At a time of sluggish overall demand, it increases the amount of overcapacity in the whole print sector.
Concerns Over Ink Price LevelsIn the standard ink market, the smaller players have been hoping that the larger producers would use their market clout to jack up prices. But they have tended to want to concentrate on maintaining market share when sales are stagnating.
“It’s virtually impossible to put your prices up when the big ink companies are not raising theirs,” complained a commercial manager at one small ink maker. “In an extremely competitive market, it has even been difficult to justify to your customers keeping prices at their existing level rather than decreasing them.”
The internationalization of the European ink market and the arrival of the euro currency, in which 12 out of 15 EU states are participating, have led to a greater uniformity of ink prices. In countries with historically high prices, prices have been sliding even faster.
“The price battle has been especially intense in France because its prices have been higher than in neighboring countries,” said Stefan Atoumo, executive director at Brancher, a French medium-sized ink producer. “Furthermore, the higher prices have attracted more foreign ink makers into the French market, particularly when their own domestic markets are in such a poor state,” Mr. Atoumo added.
Ink companies like Brancher have been seeking to compensate for the flagging prices in Western Europe by taking advantage of stronger prices and margins in export markets, especially in Eastern Europe and Asia.
Brancher, a specialist in sheetfed offset ink, has been doing a lot of business in China, where it has been selling to printers who are themselves exporting to Europe and North America.
“Locally produced ink in countries like China tends to be low standard, so that Chinese printers serving export markets have to rely on imported ink for quality,” said Mr Atoumo. “We have even developed a high viscosity ink especially for the Chinese market.”
Cutting CostsWith margins narrowing in their domestic markets, European ink makers have had to cut costs to improve productivity and keep themselves out of the red.
Inevitably, adverse economic conditions have triggered major restructuring initiatives by managers and owners of European ink companies.
In November, Akzo Nobel sold its Akzo Nobel Inks operation to a Netherlands-based equity company for EUR 190 million. Although it is still involved in large-format commercial vehicle graphics, Akzo Nobel’s management decided it did not want to stay in the mainstream printing ink sector when it was not a leading global player.
BASF opted to broaden the scope of its printing supplies operation by combining its ink, printing plates and printing ink pigments sectors into a single activity last year.
“This strategy of providing an integrated solution to customers is beginning to pay off and we’ve managed to turn around the ink business in some markets,” said one BASF executive.
Siegwerk was the first of the medium-sized family-owned German ink producers to radically reorganize itself by selling its sheetfed inks business to Epple Druckfarben, a German competitor in the sector. At the same time it reduced its workforce by around 15 percent, and cut purchasing costs by optimizing formulations and standardizing materials.
Some small- and even medium-sized ink companies in Europe could be fighting for survival this year, particularly if the much anticipated economic recovery is delayed.