European Pigment Makers Face Competition

By Sean Milmo, Ink World European Editor | 09.09.05

Although they believe the worst is over for the economy, European pigment manufacturers are concerned about the increase in imports.

Pigment producers in Europe are happier than they were a few months ago, when they were struggling to deal with declining prices with little apparent prospect of an improvement in demand.

Now, the first signs of recovery have emerged, opening up the possibility of a strong pick-up in sales later in the year.

However, pigment makers, particularly those with high volume products, are still facing the dilemma of how to cope with the longer-term pressure on their margins from lower-cost suppliers outside Europe. Chinese and Indian producers in particular are continuing to make steady inroads into the European market.

The slump in demand in the European printing market drove down pigment prices last year, but the decrease was compounded by intense competition from Asian producers.

“There has been tremendous pressure on prices at a time when there has been no growth in the market,” complained a sales manager at one European pigments producer. “Average prices fell by 5 percent to 10 percent last year, which meant that over the last five years printing ink pigments have fallen by up to 30 percent. They are not dropping so fast now but they still have not stabilized.”

Prices of pigments for ink for the publishing sector have been the weakest following a sharp fall in consumer-product advertising. Suppliers of pigments to packaging ink producers did not suffer as much since packaging demand rose in line with average GDP growth in Western Europe, at 1 percent to 2 percent. Pigment makers for food packaging ink did relatively well.

“The food industry is an important target group for printing inks,” said Glas Gripenberg, vice president, sales and marketing for titanium dioxide at Kemira. “Recession or no recession, food is eaten, come what may, and food is packed with conspicuous packaging.”


Some Positive Signs
With economic indicators demonstrating evidence of the start of a revival in demand beyond the cycle-proof segments like food and drink, pigment companies are hoping that there will soon be a recovery across the whole printing sector in Europe.

“We could have put the worst behind us in Europe,” said Alexander Sieber, head of printing ink pigments at Clariant, which, with Dainippon Ink and Chemicals (DIC), Ciba Specialty Chemicals and BASF, is one of the top four ink pigment producers in the world.

“There are sun beams on the horizon but we are not seeing anything more than that,” he continued. “We can’t be sure it is the beginning of a sustained improvement or something that is localized. We need an economic recovery and a strengthening of demand before we can even prepare for price increases.”

There have nonetheless been variations in the softness of pigment prices. Inorganic pigment makers are more optimistic than their organic pigment counterparts about their current ability to push up prices in the inks sector.

Carbon black producers at least managed to stop their falling prices, in the wake of higher feedstock costs in the second half of last year stemming from hikes in the cost of crude oil.

“Our prices for printing ink have remained more or less stable,” said Thomas Goebel, product manager for coating pigments at Degussa. “Feedstock costs are the main influence on our selling prices. Costs are down at the moment but they will probably go up in the third quarter.”

TiO2 producers in Europe have already begun pushing through price hikes of 5 percent to 8 percent for printing ink, the first increases since the economic downturn of last year.

“For TiO2 the outlook has improved significantly in March and April,” explained Mr. Gripenberg. “Our shipments are up and our inventories are down, while those of our customers are low.

“Prices of TiO2 for printing ink went down in some cases by as much as 15 percent last year and demand fell by 6 percent to 8 percent,” he added. “We are expecting that this year demand will grow by 5 percent to 8 percent so that we can begin to make up for last year’s decline and get back to average annual growth of 2.8 percent to 3 percent.”

The outlook for prices of inorganic pigments is brighter because established players in the European market for printing ink materials face less competition from imports. Asian producers of TiO2 and carbon black have difficulties meeting quality standards demanded by European ink makers, particularly in the vital area of milling and consistency of particle size.

With organic pigments, on the other hand, Chinese and Indian producers are steadily raising their technological expertise so that they are able to make pigments for the printing ink sector, whose sources were previously restricted to Europe or North America.

“The Chinese and Indians have tended to be involved in the lower end of the market where ink pigments are made in relatively large quantities but at low margins,” said one European ink sector executive. “But they are now moving toward the upper end of the market so that a growing number of pigments that were considered to be specialties are becoming commoditized.”

Moving Production
A growing number of European pigment producers are now transferring a large proportion of their manufacturing of ink and other pigments to Asia. Heubach, the German pigments maker, started the process several years ago when it began to switch the whole of its production to India.

The three leading European producers of pigment inks – Clariant, Ciba and BASF – now all make and export substantial amounts of pigments in China, mainly through joint ventures. The Japanese pigment producers DIC and Toyo also derive some of their supplies for the European sector from plants in Asia, both inside and outside Japan.

BASF now produces more than three-quarters of its worldwide ink pigment output at a plant at Pudong, Shanghai run by BASF Colorants and Chemicals Co. (BACC).

The project was originally a joint venture with a Chinese dyestuffs company, set up in 1994 to gain a presence in the domestic market for printing ink.

However, BASF found the home market for ink pigments to be unprofitable mainly because of fierce competition. So it bought out its partner, turned BACC into a wholly owned subsidiary, its first and so far only one in China, and decided to transform the facility, with more than 1,000 employees, into a global center for ink pigments manufacture. Now the majority of its output goes to Europe.

“Obviously the relatively low salaries of the staff in relation to those in Europe and the U.S. help to make this plant competitive,” said a BASF executive based in China. “But it also has the benefits of economies of scale which makes it a world-class plant in terms of size.

“We are also planning to make it into an international competence center so that it will not just be a production location but a center of technical expertise as well,” he added.

During last year, the BASF unit at Shanghai was one of the fastest expanding organic pigment manufacturers in China, with output going up by approximately 20 percent in the first half of the year, according to Chinese statistics.

Clariant and Bohai Chemical Industry Group last year opened an expansion of their organic pigments joint venture at Tianjin, near Beijing, where most of the output comprises ink pigments. “The majority of our ink pigments are still made outside China,” Mr Sieber stressed.

China could now account for as much as a third of the total output of ink pigments worldwide, according to some estimates.

Official Chinese statistics show that organic pigment production rose by 50 percent to more than 29,000 metric tons in the first half of 2001 compared with the equivalent period in the previous year.

On the basis of that growth rate, the total output for last year would have been nearly 70,000 tons. Since the Chinese classify products like masterbatches as organic pigments, the true figure is likely to be lower so that ink pigment output would have been around 40,000 to 50,000 tons.

With the major multinational pigment makers basing so much of their production in China, a large proportion of the products supplied to the European organic ink pigment market of approximately 50,000 tons a year now comes from China. Some observers believe that there is more Chinese organic ink pigments sold in Europe than is made in Europe itself.

With Asian producers dominating the volume segments of the market, there is still plenty of room for European pigments makers to use technological innovations to maintain a competitive edge in higher-margin products.

“We have seen much less price pressure in the more sophisticated types (of pigment), such as those with heavy surface treatments to control crystal growth or flocculation,” said Dr. John Coy, Ciba Specialty Chemical’s global head, inks and imaging business line.

“There is tremendous scope for further (technological) improvements,” he explained. “There are demands for improvements in rheology for yellows for offset while maintaining good lithographic performance, for UV and for pigments for solvent packaging inks. UV inks are now at a (market) size where we can contemplate making developments for them alone, whereas up to now everybody has taken the best of what was developed for other applications.”

The smaller pigment producers are also continuing to find openings in the higher end of the European market.

“There is still room for the specialist manufacturer with the technological sophistication to produce the more complex and difficult pigments,” said Andrew Foster, managing director of the U.K.-based European arm of Magruder Color Co. of the U.S. After setting up a sales office in the region nearly two and half years ago, it has been recording rapid growth in sales by focusing on niches like pigments for water-based and solvent flexo inks.

As the organic pigment market becomes increasingly globalized, niches are being created in the European ink sector which are still enabling the innovative pigments makers to grow.

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