For resin manufacturers, their best hope lies in continuing to create cost efficiencies while developing new technologies. The challenge is to be able to make these improvements at a time when margins remain at a very low level.
2002 and Beyond
The economic difficulties worldwide made for a difficult 2002 for resin manufacturers, particularly on the publication ink side.
“2002 was a very difficult year for both Eastman Resins, Inc. and the industry in general,” said Phil Runge, product market manager, resins at Eastman Resins. “So far, 2003 has not been much better, but hopefully there will be a mild recovery in Q3/Q4.”
“2002 was a very difficult year for the chemical industry as raw material and energy costs increased substantially,” said Ken Bryan, commercial manager, UV specialties at Dow Chemical.
The packaging ink industry fared better than the publication side, and companies that specialize in that area did well in 2002.
“Most of our products are designed for the packaging ink sector and as such our business mirrored the trends in the industry of flat to modest growth during 2002,” said Holly Anderson, marketing manager, graphic arts for Rohm and Haas. “However, the commercialization of the new Lucidene 4000 PLUS technology has spurred new growth in the flexible packaging area as well as in coatings. Our expectations are for a slow and gradual recovery within the industry in 2003.”
“The overall economy in 2002 was relatively stagnant – the long awaited recovery never seemed to arrive,” said Rick Krause, marketing director for Johnson Polymer. “Commercial printing seemed to be harder hit than packaging printing as consumers kept spending on packaged goods while business scaled back on advertising and promotional spending. Johnson Polymer did well in 2002 despite the economic stagnation, and 2003 continues the steady improvement in spite of concerns around the Mideast situation and extended economic doldrums. We continue to see encouraging signs for the overall industry.”
“We are very pleased with our 2002 results despite the sluggishness in the industrial economy,” said Steve Demetriou, Noveon president and CEO. “We now have had three consecutive quarters of sales growth over the prior year. Going into 2003, we are faced with challenges and uncertainties related to the global economic and political situation. Therefore, we will continue to focus aggressively on improving our effectiveness and factors within our control. We remain focused on driving productivity improvements, generating strong free cash flow and investing in growth opportunities around the globe.”
The most obvious trend has been the search by ink manufacturers for lower prices as they in turn struggle to keep their own costs down.
“Given the overall economic conditions, Eastman Resins, Inc. is under pressure to help their customers contain costs, while at the same time trying to provide them with new technology so they can add value to their products,” Mr. Runge said.
“No one seems to be requesting or experimenting with new resin concepts while the economy is so anemic and uncertain; the current trend, if it can be called a ‘trend’ since low cost is always in demand, is for ink manufacturers to procure low-cost raw materials so that some modicum of improved profitability can be realized,” said Norm Szalkowski, Neville Chemical’s ink coatings applications chemist.
“Ongoing overcapacity, growing imports and aggressive pricing activity continue to plague ink makers,” Ms. Anderson said.
“The industry continues to look at ways to cut costs through the consolidation of plants and facilities,” Mr. Krause said. “Ink companies continue to digest the acquisitions made over the last few years through various initiatives to streamline and cut costs.”
The continuing consolidation throughout the printing chain is placing new demands on companies.
“First and foremost, the printing business is consolidating,” Mr. Demetriou said. “Printers, ink companies and suppliers to the ink industry are being reduced in number through mergers and acquisitions. The commodity nature of many segments of the printing ink industry has required companies to provide economy of scale and to be able to serve expanding customers nationwide and even globally. This will continue to put pressure on smaller companies to focus or consolidate.
“In certain ink markets, most notably packaging, capital is increasingly being invested in customer plants with in-house blending facilities,” Mr. Demetriou said. “This has required more rigorous contractual agreements to protect the interests of each party.”
One bright spot has been in the flexible packaging segment.
“The market is going more toward flexible packaging and lamination, with growth in these markets of between 4 percent to 8 percent,” said Dr. Sobhy El-Hefnawi, marketing manager, graphic arts, North America for Cognis Corp., Coatings & Inks Division. “Retort packaging requires heat resistance and very high bond strength. It’s a high demand, high growth market.”
As a result of the growth in flexible packaging and other areas, solvent-based flexo has been growing faster than water-based, although environmental issues remain important.
“We see some flexo areas moving back to solvent from water inks,” Ms. Anderson said.
“Environmental issues are still a concern,” said Mr. Demetriou. “Water-based inks have been substituting for solvent-based but this trend may be achieving its practical limit as the remaining substrates and quality requirements will require the printer to remain with solvent-based products. High solid inks, where coverage is greater per pound of solvent, are also increasing in use. Products based on soy oil have grown very rapidly and use of other vegetable oils are being examined.”
Mr. Demetriou and Mr. Bryan see opportunities in the energy-curing field.
“UV inks are growing in virtually all types of ink applications,” Mr. Demetriou said. “Reduction in prices of materials and other factors would increase growth. Flexographic UV overcoats are expected to grow very rapidly. Using UV cured inks allows for more rapid downstream converting operations.”
“World economic growth has slowed dramatically compared to the late 1990s,” said Mr. Bryan. “As growth begins to pick up again in the next few years, UV cure in the coatings industry will become even more attractive due to its high productivity and environmental friendliness.”
As expected, economic issues are the major concern for resin manufacturers. Mr. Runge points to the reduction on return on assets and its impact on developing new technologies ad reinvesting in the business.
“This industry is going to have to find a way to return to reinvestment economics if it is to survive,” Mr. Runge said. “While Eastman Resins’ ink customers have healthy ROA numbers, given the asset intensity of resin manufacturers, their operating margins have to be much higher to justify new investment. As recently presented at the National Association of Printing Ink Manufacturers’ (NAPIM) Convention, ink manufacturers have seen a 13 percent increase in ROA, while resin manufacturers have seen a 50 percent reduction.”
Mr. Szalkowski also pointed to the challenges of improving ink properties and profitability concurrently.
Ms. Anderson said that a number of factors, including overcapacity, consolidation of printers, growing imports and aggressive pricing activity by ink makers even in the face of rising energy and raw material costs have made growth tougher for suppliers.
“This has continued to make it difficult for many suppliers to pursue much-needed profitable growth strategies and for investment in longer term technology that would benefit the ink industry,” Ms. Anderson said.
Responding to Challenges
Developing new products that meet increasing demand for value while becoming more efficient are the keys to succeeding in this marketplace.
“Eastman Resins, Inc. is working hard to provide their customers with good value for their raw material dollar so that they in turn can offer value up the supply chain, and are doing this both by cost containment and aggressive new technology that will reduce the total cost of manufacture for their customers,” Mr. Runge said.
“The continuation of manufacturing improvements over the last several years have positioned us well to fund new technology that will drive our value added and profitable growth strategy over the long term,” Ms. Anderson said. “Our new Lucidene 4000 PLUS product line provides not only improved ink quality, but also much needed efficiency gains by the printers. The commercialization of this five-product series has met with tremendous market response, indicating a real demand for something different.”
“Johnson Polymer continues to aggressively resource and support its printing and packaging business,” Mr. Krause said. “We continue to develop new products that bring value to our industry. We have streamlined our organization and remain very customer focused to our most substantial and core business where cost effectiveness is essential.”
Noveon is working to increase its sales and efficiencies through mergers and acquisitions. The company recently purchased key water-based overprint coatings technology and manufacturing assets from Flint Ink as part of its strategy to expand its performance coatings graphic arts product lines. Mr. Demetriou said Noveon is also improving manufacturing efficiencies.
“Our productivity initiatives reduced manufacturing costs by $8 million from 2001, and in the fourth quarter we launched a Six Sigma program aimed at generating further productivity benefits,” Mr. Demetriou said. “Our new product pipeline is improving, sales are growing, and we are expanding many of our plants worldwide. We are actively engaged in evaluating attractive and strategic acquisitions.”
Demands in the pressroom are evolving, and Mr. Demetriou said Noveon’s R&D is keeping up with these changes.
“Noveon is working on developing new products in response to changing press requirements, substrate changes and raw material evolution,” Mr. Demetriou said. “Sales personnel are required to thoroughly understand the business and maintain good relations with pressroom staff.”
Mr. Demetriou said that understanding how ink manufacturers operate is essential in order to provide the best service.
“The supplying of ink is as much a service as a manufacturing industry,” Mr. Demetriou said. “Noveon strives to understand the customer’s operations and indeed often provides operational support at the customer’s plant. This may include troubleshooting, training of new press operators and similar functions. With consolidation of many ink companies, their customers and also suppliers, economy of scale or focus is essential.”
For resin manufacturers, success in the future depends on understanding their customers’ needs and creating products that will bring value to both buyers and sellers alike. In the present economy, this will most likely be a difficult challenge.