As anyone connected with the ink industry knows, the past 12 months will most likely be remembered for soaring raw material costs. This surge has led to price increases for key feedstocks and other essential ingredients ranging from acrylic acid and nitrocellulose to titanium dioxide and many other pigments. Of even more concern is that there doesn’t appear to be any end in sight for price increases for many of these ingredients.
Two articles in this issue support this concern. The Resin Report, beginning on page 25, details the price increases that have resulted from skyrocketing oil and feedstock prices and short supply. The European Pigment Report, beginning on page 18, looks at how the pigment industry has been impacted by the same economic forces.
Raising prices has typically come as a last resort for suppliers, as there are only so much savings that can be taken out of manufacturing. By the time that these price increases do occur, the higher costs often cut further into suppliers’ margins.
With the prices of key ingredients rising rapidly, along with the cost of transportation and other general business expenditures, the pricing pressure on ink companies has been ratcheted up, and the leading ink manufacturers are responding with price increases of their own. Flint Ink North America announced wide-ranging price increases in April, its second such increase in the past six months. In May, Sun Chemical announced its own North American price increases, averaging from 6 percent to 9 percent.
As is the case for price increases for key raw materials, these announcements by Flint Ink and Sun Chemical are clearly justified. There is simply no way for ink companies to take that much cost out of their systems to make up for the higher prices.
Meanwhile, profitability has suffered. The National Association of Printing Ink Manufacturers (NAPIM) reported that in 2004, earnings before interest and taxes dropped from 4.5 percent in 2003 to 3.3 percent, the lowest level in more than a decade. Meanwhile, return on net assets dropped to 7.4 percent, less that half of what it was in 2002.
Raw material costs are rising, and ink companies are finding themselves in a tight spot. The most reasonable approach is to continue to issue their own price increases when it becomes necessary, and to clearly make the case for these higher prices to their customers.