With few exceptions, 2001 was a tough year for pigment suppliers to the ink industry. Pigment companies could only watch as the downturn of the U.S. economy caused problems further downstream for their ink customers, and wait for the inevitable call for lower prices for their products, which are the most expensive component of printing ink.
Meanwhile, offshore pigment companies continue to make gains in quality while lowering prices even further.
All of this combined to make 2001 a year worth forgetting for most major pigment manufacturers, and with 2002 starting on a similar slow pace, a turnaround may not be in store until the second half of the year at best. Much like their ink counterparts, pigment officials can only monitor the economic situation and hope to ride it out as the year progresses.
A Difficult 2001 for Pigment CompaniesAs the U.S. economy suffered through what amounted to a year-long slump, the printing industry was particularly hard-hit. In particular, the publication side, which relies on advertising, was adversely affected. Surveys conducted by trade organizations have found that many printers reported sales declines of more than 10 percent in 2001.
“2001 was a struggle for the industry and Magruder, but we believe that 2002 will be a better year,” said John Cook, executive vice president and COO for Magruder Color Corp. “One of the primary driving forces in our industry is advertising, and that itself is driven by the economy. We anticipate expenditures to increase in 2002.”
“The industry in 2001 saw a slowdown in response to the slowdown of the U.S. economy,” said Ed daPonte, product application manager for BASF. “BASF experienced the same slowdown. Even though a continued slower pace is expected for the first half of 2002, BASF is optimistic that as the U.S. economy bounces back, so will the need for increased publications.”
“General Press Colors, like the industry, felt a slowdown in 2001,” said Andy Grabacki, vice president of sales at General Press Colors. “Heatset took a sharp decline and sheetfed slowly tailed off as the year progressed. Usually sheetfed is more stable vs. heatset regarding busy and slow times, but in 2001 it has fallen off more than usual.”
Because of the recession, printers began to take a variety of cost-saving measures, including cutting back inventories of ink and seeking price decreases from suppliers. For ink companies that saw their sales declining along with printers, the cutback of inventory and prices was another serious concern.
As a result, many ink manufactures also had to reduce their inventories of raw materials, including pigments, while seeking lower prices from their own suppliers.
“As I am sure is the case with much of the overall economy, MD-Both was somewhat disappointed in 2001,” said Jay Brooks, technical manager for Wolstenholme International. “Metallic inks are used heavily in many packaging applications, so the demand for them is quickly affected if producers of the products make the decision to liquidate existing inventory.”
Add this to all of those problems faced by pigment suppliers from increasing competition from low-cost imports coming into the U.S., and it becomes extremely clear that 2001 was a difficult year at best for most pigment manufacturers.
“We have experienced a ‘price compression’ as a result of Third World imports,” said Rucker Wickline, president, CDR Pigments & Dispersions. “In addition, we have felt the effects of the fall-off in news and heatset printing volumes. Normally we experience a ramp-up in business from August through Christmas. Last year it was flat. Whether it’s a result of Sept.11 or general economic conditions is hard to say. It’s a chicken and egg situation.”
Pigment companies also supply a variety of other applications, including automotive, plastic and paint companies. Those industries also suffered from the economic downturn.
“As with the ink industry as a whole, Clariant had a disappointing 2001,” said David Dugan, marketing manager, ink pigments at Clariant Corporation. “Other pigment consuming industries also felt the effects of the economy, including paint and plastic coloration. We expect 2002 to improve in the second half and get back to levels seen in 2000.”
“2001 was very tough, especially in the second half, and it’s no better in 2002,” said Mike Wicken of Tennants Inks & Coatings Supplies Ltd.
Companies handled the adverse conditions in a variety of ways. For most large pigment manufacturers, forced over the years to be as lean an operation as possible to meet pricing demands, more cutbacks had to be implemented.
“We have been fortunate to be able to reduce our work force by 5 percent purely through attrition. In addition, we have implemented a hiring freeze,” Mr. Wickline said. “Interestingly, cost-cutting initiatives have enabled us to make up for much of the lost volume.”
Despite the economy, some companies had successful years in 2001.
“Our sales to the ink market in 2001 were positive,” said Peter Stone, market development manager at Silberline Manufacturing Co., Inc. “However, sales to the ink market were softer than we had expected, due primarily to the weakened economy. We are looking for continued positive growth in 2002 with stronger sales during the second half of the year.”
“Max Marx Color had a banner year in 2001,” said Mike Guzzo, Max Marx Color’s vice president. “A number of new products and wider acceptance in liquid and offset ink have given us a good base for growth. We are cautiously optimistic about 2002 after the World Trade Center disaster, the imminent recession and growing unemployment this country is now facing.”
“While most ink and dispersion manufacturers had a rough year in 2001, Alex Color had its best year ever,” said Joseph Alex, president of Alex Color. “Our new facility in Ashland, PA, brought on line several years ago to supplement our Shenandoah, PA plant, is now running at near full capacity. Additional milling equipment will be installed this year in order to further increase capacity to satisfy increased demand for our products.
“Our success has been due largely to an increased awareness among ink producers of the value which we have always offered our customers,” Mr. Alex said. “We anticipate an even better year in 2002.”
Pricing ConcernsThe end of 2000 and the beginning of 2001 provided ink and pigment companies alike with a brief respite from price pressures, as higher raw materia
l costs led to price increases. However, as the economy slumped through 2001, pigment producers found themselves facing enormous pressure to reduce their prices to the sagging ink industry.
“There is still enormous pressure to lower prices,” Mr. Wicken said.
“Pricing is not holding up, but we hope the bottom has been reached as margins are squeezed to a minimum,” Mr. Dugan said.
“Pricing is now at an all-time low, but we are hoping it has bottomed out,” said Mr. Guzzo. “We have no plans for announcing a price increase as we did in January 2001.”
“Pricing is holding up fairly well. However, when it gets slow there is some price cutting,” said Mr. Grabacki.
“There are continuing pressures to keep pricing down, and we continue to work with our customers to provide competitively priced products for the ink industry,” Mr. Stone said.
“As the economy has entered a recessionary phase, we see an ever-increasing cost consciousness among ink manufacturers,” Mr. Alex said. “As sales decline, companies are striving to maintain profits by cutting costs. This trend has been advantageous for Alex Color, as we fill the need for low-cost aqueous dispersions.”
Mr. Alex said that larger pigment companies are trying to bolster their market share by meeting and lowering the prices of smaller suppliers.
“We’ve noticed that some of our larger competitors are, in some instances, and mainly to larger accounts, lowering prices in an effort to be competitive with smaller dispersion companies such as Alex Color, which have lower overhead than their larger counterparts,” Mr. Alex said. “We have been able to maintain our prices, since in many cases they are already lower than many of our competitors’ discounted prices.”
Prices for specialty areas such as metallic pigments and carbon black appear to be remaining steady.
“In the case of metallic inks and carbon dispersions, pricing is expected to be stable for 2002,” Mr. Brooks said. “Runaway energy costs forced price increases in carbon during the last half of 2000 and early in 2001. So far, carbon prices are holding steady, even though energy costs are back to ‘normal.’ This is mostly due to the impact of the rubber industry, which had strong demand in 2001. The carbon producers are responding to the downturn by reducing capacity and shuttering plants. This would indicate that the carbon producers are strongly determined to keep the prices at current levels.”
Preparing for the FutureHow can pigment companies prepare for the challenges that are ahead?
In spite of the decline in margins, companies are making capital investments. For example, BASF is improving its production facilities in West Virginia.
“BASF is committed to this industry, with investments in its alkali blue site in Huntington, WV,” Mr. daPonte said. “The alkali blue process has seen some significant improvements that have allowed for improved quality. It’s only through these commitments and innovative improvements that will ensure the survival of BASF in the ink industry.”
Successfully finding a niche also can help a company weather the economic storm.
“Max Marx Color continues to run as an independent manufacturer in a very efficient manner,” said Mr. Guzzo. “We have found a number of niche markets that we can sell into as a high quality, very responsive supplier. Customer satisfaction has been our main objective, and this philosophy will continue into the future.”
“MD-Both and Wolstenholme Inc. in North American are responding to these challenges by carefully tailoring our products to our customers’ requirements,” said Mr. Brooks. “As the industry gets more consolidated and volume-oriented, there are opportunities created for specialist manufacturers – a niche that we have always strived to fill. It is obvious that metallic pigments and inks are a specialty, and outsourcing those products is a well-established trend. Inventory costs for metallic inks and pigments are disproportionately high and specialized equipment is required. These are expenses that can be eliminated by outsourcing.
“It is less obvious that carbon dispersions are a specialized product because they are required by all ink makers on a daily basis,” Mr. Brooks said. Nevertheless, specialty dispersion products are required that cannot always be produced in an efficient manner on the scale that is most economic for large mother plants. Wolstenholme Inc. in the U.S. is increasing our flexibility by installing small batch capability and new manufacturing equipment to enable us to better fill that niche.”
Working closely with customers to develop new products is a tried and true method that usually pays dividends.
“We are continually evolving our ability to respond to the needs of the ink industry in areas of business development and product development on a global basis,” Mr. Stone said.
“At Engelhard, we focus on specific requirements in the ink industry by market segment,” said Stephane Rochard, manager, effect pigments and powder coatings for Engelhard Corporation. “For example, we differentiate our product line to respond to the needs within sub-segments of the ink industry, such as security printing.”
“Alex Color is responding to this challenge by continually evaluating new sources and new products, as well as extensive research and development in order to provide our customers with the very best value in aqueous dispersions,” Mr. Alex said.
TrendsAside from pricing, there are a number of clear trends in the industry. As was the case in the ink industry, consolidation within the pigment industry practically ground to a halt in 2001. While money is tight during the early part of 2002, there is the belief that some companies may have been weakened by the economy last year, which makes them targets for mergers and acquisitions.
“Among the challenges we foresee are those involved with the continued consolidation and globalization of the ink industry,” Mr. Stone said.
“With continued pricing pressure in the ink industry, the need to consolidate seems to continue,” Mr. daPonte said.
“The most recent trend in the ink industry and all industries is consolidation and vertical integration,” Mr. Guzzo said. “Companies are either being acquired or joining forces to run more efficiently pooling resources. This is great for the companies involved but it means a smaller job market and less potential customers to sell to and service.”
Keeping costs as low as possible remains an important goal for pigment producers.
“We constantly look for internal cost saving measures that will not affect the level of service and support we now give our customers,” Mr. Dugan said. “We are also maximizing efficiency of our plants by consolidating products to single plants for economies-of-scale. Additionally, we are investing to expand our own pigment manufacturing sites in India, Korea and China. These sites are all accountable to the Clariant standard for environmental and employee safety that is global in scope.”
The increase in the use of pigments from offshore companies remains a serious challenge for U.S. and European pigment manufacturers.
“Offshore supply of raw materials continues to take an important role in the industry,” Mr. DaPonte said.
“The most difficult challenge I think is foreign competition in pigments,” Mr. Grabacki said. “Their quality is getting better. It is cheaper and there seems to be a resurgence in dry colors, especially with some of the high performance pigments. We are looking at more and more foreign pigments. The presscake quality is getting better, which has been a stumbling block for us in the past. We are starting to put more of a sales effort/commitment in international markets. We are committed to make a quality product and will not sacrifice quality with a low quality cheaper pigment.”
These low prices for pigments can be partially attributed to the much lower labor costs and lack of environmental regulations, which puts U.S. and European pigment producers at a major disadvantage economically.
“A serious challenge is low-cost imported pigments from Third World countries,” Mr. Guzzo said. “There is little duty. These imports and pricing are well below market price to begin with.”
“I think the most difficult challenge is competing in a marketplace that is not a level playing field,” Mr. Dugan said. “Many offshore manufacturers are not subject to the same environmental or employee safety regulations as U.S. or European companies, and do not have the associated costs. Perhaps it’s time to think about an environmental ‘tariff’ that would somehow be used to improve conditions at these other sites.”
Environmental regulations are another concern.
“The most difficult challenges are environmentally regulations on a local and national level,” Mr. Guzzo said. “Most of our technical time and capital expenditures are for environmental compliances.”
Increasing amounts of imports and construction of larger facilities will inevitably lead to overcapacity, which is another threat to the industry as a whole.
“Looking ahead, the ink industry and the printing industry will have to cope with excess capacity and the consequent pressure on prices,” Mr. Brooks said. “One of the often overlooked facts of ever-increasing press speed is that every time a faster press goes on line, that capacity is increased correspondingly. Consolidation in the ink industry has also increased capacity as large ink makers began to implement ‘mother plants.’ Since it is uneconomic to build such a large and costly facility that can only produce one’s current needs, all of these plants represent an increase in potential production volume. Exaggerating these trends, organic pigment capacity is growing very rapidly as numerous facilities are coming on line in Asia.”
Meanwhile, ink companies are looking for a variety of products and services from pigment manufacturers. For example, Sun Chemical officials said they are facing ever-tighter specs from their customers.
“From a product standpoint, we are seeing the continued need for finer and brighter metallic pigments in higher resolution printing applications,” Mr. Stone said. “We are seeing growth in the use of vacuum metallized pigments and also in the use of stabilized pigments for radiation curable inks.”
“Clariant expects to add other new products geared to the printing ink industry in the coming months,” Mr. Dugan said. “We are working on products that provide ease in use and less dispersion energy for a variety of ink systems, including solvent and UV flexo inks.”
“In the water-flexo industry, we feel that one of the most difficult challenges for ink makers will be to remain cost-competitive,” Mr. Alex said. “As the total volume of ink production has decreased, producers who most effectively control costs will best weather this economic ‘storm.’ Many ink manufacturers are now seeking to lower costs in order to remain competitive and retain market share.”
“Today the ink industry must offer new and innovative solutions to customers at reasonable cost,” said Mr. Rochard. “At Engelhard, that translates to developing cost-effective, value-added, functional pigments. We accomplish that with a talented R&D team and a full-time in-house trends forecaster.
“We see trends towards smoothness and brightness coming from the ink industry, such as the liquid metal look that can be achieved with Black Olive, and later we expect, with bismuth,” said Mr. Rochard. “We also see trends toward using color-shifting pigments in security printing.”
Outlook for 2002Without a doubt, 2001 has been a hard year for the pigment industry, and unless the U.S. economy rebounds, it doesn’t look like 2002 will be much better.
“The most obvious trend in the industry is that business was rather sluggish in 2001,” said Mr. Brooks. “I think that just about everyone believes that part of the problems of 2001 were psychological in nature as numerous businesses went through a budgetary ‘belt tightening’ at nearly the same time they did so in response to world events. It is also clear that things were already slowing down regardless. We expect 2002 to build toward a recovery, as product inventories are finally run down and the economic mood improves.”
Most pigment companies are cautiously anticipating a flat year for sales in 2002, with the possibility for growth in the latter part of the year. That hope depends on the state of the U.S. economy.
“2002 does not look promising, at least for the first half,” Mr. Grabacki said. “ I have not seen any concrete reasons to see any kind of pick up before July. I think we will see a pickup when the U.S. economy picks up.”
“We expect a flat year in 2002; if there’s any improvement, it won’t come until our normal busy period in the third into fourth quarters,” said Mr. Wickline.
At Sun Chemical, officials also believe that 2002 will be “flat.” Sun Chemical’s officials said their company is cutting costs, improving quality and providing value-added services.
Gains being made by imports are also cutting into prices, a trend that will continue.
“Price pressure continues for both ink and raw material suppliers,” Mr. daPonte said. “Some erosion of prices from the ink side has already occurred. The colorant side has seen a significant erosion in the past with many losing supply to offshore producers.”
“Pricing on imports from China and India has taken a toll on some long-time North American producers,” Mr. Wickline said. “Competition is increasing and may be enough to drive weaker companies out of business.”
“We see ink manufacturers putting more and more price pressure on pigment suppliers as pigments represent most of their raw material dollars,” Mr. Dugan said. “Everyone is seeking more market share in a shrinking market. Increasing presence of nontraditional pigment suppliers from India, China, Korea and elsewhere makes maintaining market share a difficult proposition. Of real concern is the presence of foreign manufactured ink, which hurts ink manufacturers and suppliers of raw materials.”
With all this in mind, 2002 is most likely to be a tumultuous year for the pigment industry.