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The European Ink Market



While there are signs of an economic upturn in the printing industry, ink manufacturers remain wary.



By Sean Milmo, Ink World European Editor



Published September 19, 2005
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Many signs seem to point to an upturn in the fortunes in the European ink sector this year, as demand for printing products begins to rise in the wake of evidence of a slow recovery in the European economy.

But like a lot of other players in the print market, ink makers are being cautious about making firm predictions for the next 12 months.

“We are seeing a rise in volume sales across most of our portfolio, but we’re not being too optimistic for the moment,” said the sales manager of one medium-size ink producer.

Economic Outlook
Europe currently presents a mix of economic performances, with countries such as the U.K. and Spain growing much faster than the two largest economies, France and Germany. The French economy grew by only 0.2 percent last year, the slowest rate for 10 years, while the Germany economy expanded at the same pace in the last three months of 2003.

In Norway, which although outside the European Union is closely tied to the EU’s economy, prices have gone down for the first time on an annual basis since 1960. In January, they registered their biggest drop since 1947.

The Frankfurt-based European Central Bank has been leaving its interest rate unchanged because consumer demand in most of the EU has been so weak.

“The ECB’s action on interest rates confirms that there are few signs at the moment of a economic revival in Western Europe,” said one business consultant.

Economists are forecasting GDP growth of 1.5 percent to 2 percent in Western Europe in 2004, approximately double the rate last year. In France, Germany and Italy, the rate is expected to accelerate to a moderate 1 percent to 1.5 percent, while in Spain and the U.K., it could be as high as 3 percent.

Few experts believe that GDP increases throughout the region will be powerful enough to deliver robust demand in manufacturing sectors, particularly since much of the growth will be in services. There are similar doubts about a global recovery.

“We believe that the worse may have been put behind us in the third quarter of last year,” said Kurt Bock, chief financial officer at BASF, one of Europe’s largest integrated ink and pigment manufacturers. “But it is too early to speak of any upturn.”

Has Printing Turned The Corner?
For many companies, there have been too many false starts over the last few years. They want to see a consistent rise in the economic indicators over the next few months before feeling confident of a long-lasting improvement.

“There are so many uncertainties in the printing sector at present because so many predictions have turned out to be wrong over the last two years,” said an official at a printing equipment manufacturer. “It is impossible to make proper forecasts. What we need is a lengthy period of stabilization.”

The latest survey by the British Printing Industries Federation (BPIF) of its members found that their margins had improved for the first time since January 2000, while there had also been a rise in orders. But the association is reluctant to make any definite predictions.

“What we are seeing is that there are green shoots of recovery showing,” said Cicely Brown, the BPIF’s corporate affairs director. “The big question is whether it will continue into the year.”

Euro vs. the Dollar
Possibly the biggest factor preventing a healthy economic resurgence in Europe is the big appreciation of its currencies, in particular the euro, U.K. pound and Swiss franc, against the U.S. dollar.

The euro, now the currency of 12 EU countries including Germany, France, Spain and Italy, has since the end of last year been hovering at a level against the dollar 20 percent to 30 percent higher than it was a year ago, and close to 40 percent higher than it was two years ago.

Ink companies exporting into the U.S. or other dollar-denominated areas in the Americas and in Asia are having to either put their prices up or suffer a considerable squeeze on their margins.

“The weak dollar is having a big impact on the earnings from our exports into the U.S. and Latin America but we are managing to price our inks in euros in some parts of Asia,” said an export manager at one ink producer.

On the other hand, the high value of the euro and other European currencies is helping to reduce the costs of some raw materials for ink makers. European pigments producers have been finding that they are facing even fiercer competition from Asian pigment exporters in their domestic market.

“The competition in pigments for color process inks is extremely intense, particularly from Chinese producers who are very aggressive in Europe,” said Hermann Angerer, executive vice president, Ciba’s coating effects segment.

“The market is very tough,” he adds. “But quality is suffering and we are hoping to have a better proposition in terms of quality for color process inks.”

A lot of the skepticism among printers and their suppliers about current economic forecasts stems from their experience of more rapid economic growth in the past which has not necessarily given them higher profits and margins.

The printing consultancy Pira International, Leatherhead, U.K., believes that over the last four years in Europe, printing output has increased outside the packaging sector by 1.5 percent in terms of volume. However, total revenue from print sales has decreased.

“What has happened is that the link in Europe between levels of GDP growth and growth in the printing sector has been broken,” said John Birkenshaw, Pira’s printing sector business manager. “This break occurred in the U.S. in the mid-1990s, and now it has taken place in Europe as well.”

“Commercial printing has been losing its share of total graphics output,” he continued. “Companies now do a lot of their own printing with desktop printers. More advertising is appearing in media other than print and there is increased competition from alternative means of providing information.

“With the improvement in the European economy, printing demand will pick up by volume,” Mr Birkenshaw added. “But the big question is how much extra revenue printers will be able to derive from this. It will clearly continue to be difficult for them to put up their prices.”

Price and Cost Concerns
With printers struggling to raise their selling prices, there will be limited scope for increases in ink prices. Hence, ink producers will carry on cutting costs and taking measures to streamline their production and administration.

Sun Chemical has been making moves to raise the efficiency of its operations in the U.K., where it has 16 sites. The company told staff late last year that it is considering closing shortly a packaging and gravure ink plant at Watford, near London, as well as its offices in the town which serves as the headquarters of Sun Chemical Europe.

“Considerable investment needs to be made to bring the Watford plant up to incoming European Union rules for chemical operations, and that will likely mean Sun can assimilate the capacity elsewhere,” said a Sun spokesman in the U.K..

Flint-Schmidt, Flint Ink’s European operation, has completed a rationalization of its activities which has involved cuts in production capacity in some of its sites.

It now has main production centers for publication gravure inks at Frankfurt, for sheetfed inks at Helmond, Netherlands and at Vienna, Austria, for heatset inks at S-Gravenzande, Netherlands, and for newspaper inks at Wolverhampton, England.

The new company, formed through Flint’s takeover two years ago of Gebr. Schmidt of Germany, announced the appointment last month of Helmut Schmidt, a member of the family which founded Gebr. Schmidt approximately 130 years ago, as its chief executive in succession to Jim Mahony, former president of Flint Ink Europe.

“We are now an operation which has the backing of the resources of a large company but is of a medium size, giving us flexibility and entrepreneurship,” said a Flint-Schmidt spokesperson.

The SICPA Group revealed that it has stopped production of some security inks which it acquired from Flint last year. Under the deal, SICPA took over Flint’s security inks operation while it sold its heatset and coldset activities to Flint.

Advertising Expenditures
The European printing sector and its suppliers are hoping that predictions of a rise this year in advertising and promotional expenditure will turn out to be correct because of the knock-on effect throughout the graphics market.

Advertising expenditure in Europe is expected to rise by 3.7 percent this year, double the rate of increase in 2003, according to forecasts by the media agency ZenithOptimedia, London. In terms of constant expenditure, this year will be the first increase for a few years.

Furthermore, the agency is predicting that after a period of depressed conditions in the European advertising sector, expenditures will continue to rise in 2005 and 2006 in the region’s major markets.

However, ZenithOptimedia is expecting that in the print media, the increase in spending will be patchy. In France, it is not envisaging any significant growth in spending on newspaper and magazine advertising until 2005. Poster contractors have only been able to fully book their capacity by offering large discounts.

In the U.K., the print media is expected to see only marginal increases in ad spending this year, although recruitment and real estate advertising will be higher, according to ZenithOptimedia.

Rising advertising expenditure across Europe should also give a major boost to spending on direct marketing, which in recent years has been increasing its share of corporate promotional budgets.

The latest quarterly survey of its members by the U.K. Direct Marketing Association showed that more than half were experiencing improved business conditions, with those involved in door-to-door, inserts, mailing and financial services being particularly optimistic.

Altogether, 72 percent of direct marketing operators in the country were forecasting that in the short term business would get better.

The expansion of direct mail in Europe is likely to be helped by the gradual liberalization of postal services in the EU. This will introduce more competition in a sector currently dominated by state-owned companies, providing more opportunities for direct mail houses. This, in turn, will likely give more business for hard-pressed commercial printers, especially those in the sheetfed offset sector, many of whom have been suffering from declining sales.

The state-owned Royal Mail in the U.K., an EU country with a relatively high degree of postal liberalization, has been currently negotiating deals with rival postal organizations, including Deutsche Post, the German state-owned operator, which will give them access to its nationwide delivery network.

The packaging market has been relatively resilient against the economic slowdown of the last few years because of the large proportion of packaging sales in household essentials like food, drink, personal care and cleaning products.

Now the sector is likely to receive a boost from faster GDP growth. “But it will not be as big as the boost for other printing segments because packaging is less reliant on increases in GDP,” said one printing industry analyst.

Capital Expenditures And Digital Printing
With widespread expectations of firmer demand for printing products, there should be a greater willingness throughout the printing sector to raise capital expenditure. Printers in particular should be less dubious about investing in new equipment, which should help sales of inks by the more innovative ink producers.

A decline in capital spending by European printers has been a big setback for manufacturers of printing machinery. Heidelberg announced late last year that it was stopping making web offset presses after three years of poor results in the segment, while it also indicated it could divest its digital printing business.

The company has effectively abandoned its ambition of becoming a single-source supplier of printing equipment, and even in some cases consumables, across all printing sectors. “Our target markets will mainly be commercial printers as well as packaging and label printing,” said Bernard Schreier, Heidelberg’s chief executive.

Heidelberg reported a net loss of $921 million in the first nine months of last year. But after achieving sales in the third quarter which matched those of the same period in 2002, it is hoping that it is at last emerging from the trough in the printing business cycle.

“We believe that after three years of strongly negative trends, we are beginning to see the turnaround,” said Mr. Schreier. “Slight increases in advertising budgets give reason for hope.”

But Heidelberg and other equipment makers acknowledge that they may have to wait to see the level of orders at Drupa, the global printing exhibition being held in Dusseldorf, Germany, in May, before having clear evidence of an upward curve in capital investment.

The sector which is likely to benefit the most from an increase in capital expenditure by printers is digital printing, whose rapid growth has slowed down over the last few years because of lack of funds for new equipment.

“Printers will be particularly interested in the new color digital presses which companies like Xerox have developed,” said Mr. Birkenshaw of Pira. “New technologies are giving printers a wider range of choices so that they are more likely to be able to buy digital equipment at the price they want and with the printing quality they require.”

Pira is now forecasting that in printing sectors outside of packaging, digital printing will increase its total share of the market from around 4 percent to 5 percent at present to 14 percent by 2013.

“Digital printing in packaging, which has a negligible share at the moment, will grow at a much slower pace and could take 15 years to reach a level of 14 percent to 15 percent,” said Mr. Birkenshaw.

Nonetheless, digital printing should reinforce its position this year as the fastest growing segment in European printing. This will particularly be the case as it starts to make bigger inroads into sectors dominated by small commercial printers with sheetfed offset equipment.

“We are expecting that because of the weak U.S. dollar, small printers will be attracted to digital equipment, a lot of which is made outside Europe and will have been originally priced in dollars,” said a marketing manager at one digital ink producer.

“These printers will be new customers for digital inks and will have different needs for those of existing users of digital equipment,” he added.

An expanding digital market will give greater prominence to a new breed of specialist ink maker who tends to concentrate solely on the digital printing segment, in particular that served by ink jet.

Efforts are, however, being made by the well-established large ink manufacturers to encourage niche players to become more involved in the affairs of the European printing ink industry.

Birth of EuPIA
This year will be the start of an initiative by the largest ink producers in Europe to give the industry a more influential presence in Europe through the creation of a separate trade body for printing inks.

The European Printing Industry Association (EuPIA) aims to be the voice of the industry in Europe, primarily by coordinating at the regional level the activities of national associations, most of which look after the interests of both coatings and ink manufacturers.

Another aim is to promote the value of printing inks along the whole of the graphics and packaging supply chain.

EuPIA’s inaugural meeting is taking place this month in Florence, Italy, where its rules and objectives will be approved and its chairman and other officials will be elected. It will also launch a project for the collection of statistics on the activities of the industry in Europe.

The association has been founded by the seven largest ink makers in Europe – Sun Chemical, BASF, Flint-Schmidt, Huber Group, Siegwerk, SICPA and Akzo Nobel Inks (ANI) – which together account for 90 percent of printing ink sales in the region.

However, unlike the U.S. National Association of Printing Ink Manufacturers (NAPIM), it will not be an entirely independent. Instead, it will remain under the umbrella of CEPE, the Brussels-based European association representing manufacturers of coatings, printing inks and artists colors.

In this way, its membership should embrace a large proportion of the estimated 80 to 100 independent ink producers in Europe, because their national coatings and inks associations will be linked to EuPIA through CEPE.

“We don’t want this to be an organization speaking for the top seven producers,” explained Bertil Ahlberg, marketing director at ANI. “This is an association for both the small and the big guys.”

Despite its continued ties with CEPE, which tends to be dominated by the paint manufacturers who account for 80 percent of the organization’s sales, EuPIA hopes to have a much bigger profile by being a separate entity.

“We will be able to give much more visibility to printing inks, particularly by being able to work more closely with other associations in the printing sectors like those representing printers,” said Mr. Ahlberg.

“We will also seek to improve the image of printing inks, particularly in order to help ink companies recruit people with the right skills,” he continued. “Inks are seen by too many people as being dirty and full of unattractive chemicals, whereas we want them to regarded as clean and more high tech.”

One of the more immediate tasks of EuPIA will be to establish contacts with other trade groups in the printing sector so that a common stance can be taken on subjects like regulatory matters.

A major issue confronting the European printing sector at the moment is the European Union’s proposed new regulatory framework on chemicals and their downstream uses.

The proposal, called REACH for the registration, evaluation and authorization of chemicals, covers an estimated 30,000 chemicals with an annual output of more than one metric ton. It has aroused bitter controversy among ink and coatings producers because of fears that a large number of low-volume substances they use in their formulations will be withdrawn due to high testing costs.

The European Commission, the EU executive, has watered down some of the testing requirements so that REACH may have less of an impact on the availability of chemicals of low output than previously predicted.

But worries about the project are now beginning to filter down to end-users like printers, so EuPIA should have a role to play in communicating information about REACH to customer groups.

“We know that the printers are now getting concerned about REACH because they are starting to ask printing ink producers about its implications,” said Paul Keymolen, assistant secretary general at CEPE.

EuPIA is aiming to meet members of the European Parliament to discuss the implications of REACH. Perhaps 2004 will be the year when printing ink starts to have a direct presence in the corridors of powers in Europe.



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