The Year in Review

By David Savastano, Ink World Editor | 12.07.06

For the most part, ink manufacturers saw some sales growth in 2006, but consolidation, raw material prices and other concerns have industry officials cautiously optimistic about their business as they head into the new year.

Higher raw materials costs and the inability to raise its prices enough to ensure reasonablemarginshave plagued the ink industry in recent years. In 2005, some ink price increases began to appear. Facing even more pricing pressure, ink companies were forced to raise prices further in 2006.
The question is whether these increases are enough. According to the National Association of Printing Ink Manufacturers (NAPIM), U.S. ink manufacturers had a paltry earnings before interest and taxes (EBIT) of  1.4 percent.
The price increases for ink did have an effect, according to NAPIM’s volume and sales data for the first nine months of 2006 compared to the similar period in 2005. While the volume of ink sold declined 1.5 percent overall, sales rose 4.9 percent. In particular, solvent-based flexo, packaging gravure and packaging sheetfed inks posted the best results.    
However, these results don’t necessarily mean that ink companies are suddenly more profitable.

Dr. David Hill

“Whether ink companies are making enough to cover costs, I don’t know,” said NAPIM executive director Jim Coleman.
Aside from concerns over rising costs,  ink manufacturers have a lot of issues to address. The ink industry is coming off an unprecedented wave of consolidation in 2005 that changed the landscape of the industry, and is witnessing similar trends among its suppliers and customers. Meanwhile, globalization is changing the world of printing. For ink manufacturers, successfully responding to these changes will ultimately determine their future.

The Ink Industry in 2006

The ink industry faces a challenging situation, according to Dr. David Hill, president and CEO, SunChemical.  “Overall, the print market is flat in developed economies, with some sectors showing steady declines due to shifts in media use and readership,” Dr. Hill said. “This trend is aggravated in North America and Europe by a steady transfer of printing to China, India and Latin America.
“Sales volumes in developed economies are not growing,” he said.  “Sun Chemical has worked diligently to maintain our volumes in this environment. Regrettably, we have had to raise prices to offset partially the costs of raw materials and, in some cases, very difficult economic circumstances have forced us to decline unprofitable business.”
Dr. Hill explained there is overcapacity in several parts of the printing and ink industries, adding that ink makers’ raw materials costs have risen steeply in the last few years, and show little sign they will drop to former levels. Moreover, he said, printers are under enormous pressure on their margins due to extremely competitive pricing demands from their customers.

Dave Frescoln
“The only real solution is for our entire graphic arts value chain to innovate and reinvent itself,” Dr. Hill said. “New value propositions and new relationships are required to help our customers and their customers succeed and grow. We are working hard on this, making major investments of effort, money and time – demonstrating to our customers that Sun Chemical is the leader in the graphic arts industry and the partner of choice.”
Examples of industry challenges in the U.S. and worldwide include continuing raw material cost increases, exacerbated by greater competition for limited supply; ongoing consolidation of companies all along the supply chain; profitability challenges; shifts in regional demand as markets such as China and India win increased business at the expense of more mature markets; and competition with electronic and other media outlets.
“It’s been a tough year,” noted Mike Gannon, president and COO of Flint Group, “but Flint Group has fared well and the ink industry continues to do well.
“Increased literacy internationally, improved standards of living in developing nations, increased competition for brand recognition worldwide and the need to cut through media clutter – all these demands continue to provide new opportunities for print on paper in the U.S. and abroad,” Mr. Gannon

Mike Gannon
said, adding that “the environment has changed considerably over the last few years. Ink manufacturers must be smarter and leaner in order to compete effectively.”
Price increases for ink did help the industry as a whole.
“The industry-wide price increase made at the end of 2005 went a long way to stabilizing our results,” said Bryce Kristo, CFO, senior vice president general affairs for INX International Ink Co. “Raw material cost continues to increase in 2006, albeit at a slower pace. Eventually this trend will create the same dynamic we experienced last year but over a longer period of time if the industry as a whole does not respond.”
Some ink manufacturers reported a good year in 2006.
“We are finally seeing some growth in sales in most markets, although there is continued cost pressure from raw materials and from transportation,” said Daryl Collins, vice president of national sales and regional operations for Wikoff Color.
“We are slightly above last year’s sales,” said George Sickinger, chairman, president and CEO of Color Resolutions International. “As for raw material prices, we are waiting to see what happens at the end of the year. We don’t expect to see much of a shift in the next six months, although that could certainly change. We’re forecasting 5 to 7 percent growth in 2007 as well as seeing some real top-line growth.”
“Toyo Ink America had a very good year in 2006, with nice growth in sheetfed, UV and web,” said John Copeland, executive vice president and COO. “We expect 2007 to be a good year for Toyo Ink. We’re having a lot of success due to our high-performance pr
oducts, as we are finding that printers want someone they can count on.”

Bryce Kristo
The printing industry is undergoing numerous changes.
“There is a lot of rationalizing occurring in the corrugated market, and the independents are redefining themselves by placing more emphasis on graphics,” Mr. Sickinger said.
“The commercial sheetfed market continues to shrink – not by drastic amounts, but instead, by a slow erosion,” said Jeff Koppelman, president of Gans Ink & Supply. “Raw material prices continue to rise, and it appears to me that our suppliers are attempting to once again create larger profit margins (or profit, period). I don’t see much of a change coming in 2007 on all fronts. The commercial sheetfed market will continue to shrink, but their will be new opportunities emerging in other markets to balance those losses.”

The Impact of Consolidation

In 2005, three huge acquisitions changed the ink industry. The merger of Flint Ink and XSYS Print Solutions into Flint Group formed the second-largest ink manufacturer. Siegwerk Group’s purchase of SICPA’s packaging ink division increased Siegwerk’s global presence. The acquisition of Micro Inks gave Huber Group access to India and Asia as well as an internal supply of key raw materials.
For ink suppliers, streamlining operations through consolidation helps offset, at least to some extent, the increased cost of doing business in this current climate. It also helps solidify relationships with customers who benefit from the greater value a larger, stronger supplier can offer.            

Ink manufacturer consolidation has benefited suppliers and customers alike, said Bill Miller, president of Flint Group’s North American ink operations.
“Manufacturing and delivery of printing inks and coatings have become more cost-effective and

Bill Miller
streamlined,” Mr. Miller said. “Combined resources let customers benefit from best practices and the ability to reach more markets with the same trusted supplier. Stronger product portfolios provide newer, better alternatives for many customers, and often enable printers to streamline their product selections for easier ordering and tracking.”
Still, personalized service, high quality products and on-time delivery continue to form the foundation for all successful business partnerships, regardless of consolidation activity.
“Done right, consolidations continue to enable personalized, trusted, local service while offering a bridge to new regions and products,” Mr. Miller said.
Mr. Gannon said that Flint Group is a successful case study of global consolidation on a new scale.
“It gave Flint Group a broader reach worldwide than ever before, stronger vertical integration, a more impressive product portfolio and the ability to consistently provide robust, high performing products to customers,” Mr. Gannon said. “Worldwide, the industry is only beginning to see the benefits that have resulted from the meeting of these manufacturers. This relatively new union still has a lot to offer in terms of new products and services that will fill industry gaps and maximize new technologies.”            

Consolidation is not just occurring in the ink industry; printers and suppliers are also merging their operations.
“In this environment we are seeing consolidation up and down our industry,” Dr. Hill said. “Printers and converters are merging. Ink producers are merging. The smaller manufacturers are exiting in North America and Europe.  However, there remains a significant overcapacity globally in pigment, ink and printing.
“Sun Chemical is weathering this storm well,” Dr. Hill added. “We are committed to change and success in the evolving market for color. We are committed to investing in and with our customers, for our mutual long-term success and for the success of our industry.”

George Sickinger
To accelerate innovation and improve efficiency, Sun Chemical and Dainippon Ink & Chemicals (DIC) are coordinating R&D. “We are utilizing the best practices between the two groups and believe this will allow the businesses to bring new products to the global market much more quickly. It also helps us focus on introducing products that have more universal appeal,” Dr. Hill said.
“Our largest customers are shifting their work around the globe,” Dr. Hill added. “Latin America, Eastern Europe, Russia and China have become attractive manufacturing locations. We are working to support our customers wherever they go.” To that end, Sun Chemical and DIC are investing to provide strong support in China, and complementing their strong customer support across Europe and the Americas. Sun Chemical and DIC are also using its combined leverage to ensure that they have access to raw materials, even those in short supply.
With its acquisition of SICPA’s packaging ink division, Siegwerk became the third-largest international ink manufacturer. The acquisition allowed Siegwerk to broaden both its portfolio and its global presence.
“Siegwerk is now able to offer a globally consistent product quality to international and local customers,” said Dr. Peter Heimerzheim, Siegwerk Group’s director of corporate communications.
There have been other key mergers and joint ventures. In early 2006, INX International Ink Co. formed a joint venture with inkjet ink specialist Triangle Digital, creating Triangle Digital INX.                    

“There are opportunities and threats to any significant marketplace changes,” Mr. Kristo said. “In general our flexible size and stability have created opportunities. Our joint venture with Triangle Digital INX has allowed us to effectively enter the digital ink market. We have had a very successful integration of our company cultures, which was our primary goal in 2006. We expect to deliver more benefit to our traditional INX customers through the collaborative efforts of Triangle, INX and our parent Sakata INX over the course of 2007.”
Wikoff Color also made a move in 2005, acquiring Frontier Printing Ink, a Canadian flexible packaging ink specialist.
“The benefits of the acquisition of Frontier are still growing,” Mr. Collins noted. “The new Wikoff Canadian plants are very strong in solvent-based flexible packaging inks and also have a good reputation for providing prompt and effective customer support and service. This made the acquisition a great culture fit and a critical technical part to add to the entire portfolio of solutions we can supply to customers. The early response from customers has been very positive.”
Mr. Collins believes the ink industry is heading toward improved profitability.

Daryl Collins

“The ink industry is no less competitive than it was in 2004,” Mr. Collins said. “Some of the consolidated companies that resulted from these mergers seem to be trying to bring some level of profitability back to the industry, mainly through cost cutting involving reductions in sites and staff and by passing through material cost increases to customers.”

Raw Material Costs

For ink manufacturers, keeping ink prices down while the price of raw materials, manufacturing and transportation has risen dramatically has led to dangerously low margins. As a result, ink companies have had no alternative but to increase their own prices.
Supply is also a major issue. Because of its overall size, the ink industry has little leverage for key ingredients such as acrylic acid (also used for diapers), organoclay (used for drilling), carbon black and naphthenic oil (key ingredients for tires), among others. Ink manufacturers must pay a higher price just to maintain supply. There is also additional worldwide demand for these materials.
Mr. Kristo pointed out that the ink industry does not have much leverage compared to much larger industries when it comes to bargaining for key raw materials.
“We continue to shop the world for high quality lower cost materials through collaborative efforts with our parent and affiliated companies,” Mr. Kristo said. “The lesson learned from 2005 is that the industry, as a whole, does not have the purchasing power of other industries demanding the same rudimentary materials our formulations require. We are confident we can offset the current impacts in the short run, but over the long run, the ink industry will need to pass on costs it cannot realistically absorb.” 
Ink manufacturers are looking for alternative sources in order to keep prices somewhat lower.
“Raw material costs account for a disproportionate part of our product costs. We are exposed to the drastic cost increases we’ve experienced over the past two years,” Dr. Hill said. “On the cost side we have worked harder than ever to find lower-cost, yet high-quality raw materials to substitute in manufacture of our pigments and inks. We have had to devote a large part of our technology investment to the qualification of alternate materials to help mitigate the cost increases we face as well as to substitute for materials no longer available in the marketplace.”

Dr. Don Duncan
“We are resisting raw material price increases by consolidating purchases of some raw materials and by sourcing some materials from Asia,” said Dr. Don Duncan, director of research for Wikoff Color. “We are also spending some capital to improve manufacturing efficiency.” 
When it comes to battling higher raw material costs, printers face similar challenges, Dr. Hill said. “Paper is the overwhelming cost for printers,” Dr. Hill noted. “Printers are looking to substitute lower-cost, lower-quality paper which creates new challenges for ink suppliers. We work closely with our customers to create new products and services that enhance their production processes and allow them to make their own cost reductions. In some instances, this has led to a decline in demand for our historical business. However, we are committed to the success of our customers.”
Flint Group has been impacted by higher costs as well. “Like all companies in this industry, Flint Group has strongly felt the effects of increased raw material costs over the past several years,” said Dave Frescoln, CEO of Flint Group.
Flint Group has responded by leveraging its global purchasing power, building on its vertical integration and continuing its productivity improvement programs in order to reduce costs within its manufacturing and delivery operations and ensure a consistent supply of high-quality products to customers.
Raw materials make up the bulk of the cost of an ink, making it hard to offset years’ worth of cost increases through internal cost-cutting alone. Some customers believe the cost of raw materials used in ink is directly tied to the cost of petroleum-based products, such as gasoline. But the cost of refining and processing those materials doesn’t decrease just because crude prices decrease. Constrained capacity, increased competition for raw materials and limited supply continues to make raw material costs a challenge for ink manufacturers.      
As a last resort, Flint Group has raised prices on some product lines.
“This was not a decision we arrived at lightly, but for any business to survive in any industry, reasonable margins are necessary,” Mr. Frescoln said. “We don’t foresee the cost of raw materials for printing inks relaxing in the near future.”

Growth Areas

Major ink manufacturers noted that they saw some growth, most notably in packaging. According to Dr.

Jeff Koppelman
Hill, the packaging segment has shown the most growth in 2006, especially in flexible packaging and rigid plastic packaging. Print-on-demand continues to gain market share, Dr. Hill noted, and increasingly is displacing conventional screen and offset printing. Toner-based printing is becoming increasingly competitive with offset for targeted marketing. Meanwhile, inkjet printing continues to grow rapidly in the large-format segment. Publication and commercial printing continue to show a decline year over year.

Flint Group officials noted that worldwide, they’ve seen positive growth in most every market segment for the industry and their company.
Mr. Kristo noted that inkjet is a nice growth area for INX. “Our joint venture with Triangle Digital INX has certainly opened many opportunities in the wide and superwide digital market segments,” Mr. Kristo said, adding that “We have seen growth across the board balanced between price and volume increases, especially in our packaging segments.”

“Inks for flexible packaging had been the hottest area this year,” Mr. Collins said. “We also are seeing significant growth in UV/EB inks and coatings.  Our ink jet business, while currently a small contributor, also is growing significantly.”

New Technologies

New technologies continue to drive growth for ink manufacturers. For example, Mr. Duncan mentioned a variety of new technologies being developed by Wikoff Color, including water-based flexo inks with great chemical resistance for polyboard and that are easier to run than epoxy esters; thermoformable UV litho inks; soft-feel water-based coatings; fast-cure UV flexo inks (700 ft/min); and solvent and UV inkjet inks

Flint Group’s product development labs are continuously exploring new technologies to benefit printers.        

“Technological and product innovations differentiate Flint Group from competitors,” noted Mr. Miller, pointing to recently published advancements such as Arrowlith UV, nyloflex infinity technology for manufacturing seamless polymer sleeves, UV curable and UV screen inks for label printing, among others. 
Sun Chemical has developed a wide range of new technologies. Triton is a new set of four-color process inks for heatset web printing that utilizes unique chemistry for improved color control, reduced misting, a 15% to 20% reduction in VOCs and less dependency on petroleum derivates. Sun Chemical’s environmentally friendly Liberty inks, designed to produce outstanding print while reducing waste and dramatically shortening printers' production time, were named recipients of the 2006 PIA/GATF InterTech Technology Award. WetFlex, a patented flexo printing process for flexible packaging utilizes Sun Chemical’s UniQure inks, which are wet-trapped on a common impression cylinder press and cured instantly by an in-line electron beam. Duratort is a one-part retort ink system that gives printers the options to capitalize on the fast-growing retort packaging market. It can be used to print retort packaging either gravure or flexo, while offering high bond strengths and heat and temperature resistance. 
Sun Chemical has launched the Streamline inks in the North American after-market for wide-format digital printing. These solvent and water-based inks can be used for digital proofing, P-O-P signs, murals, banners, vehicle graphics and outdoor display applications on digital printing devices from most major manufacturers.

Toyo Ink launched a wide variety of new products, particularly Kaleido, its new 4-color process inks that  offer a larger color gamut that is closer to RGB without using fluorescent pigment. Toyo Ink’s HyPlus 100 Process Series, another popular new ink, is free of petroleum ink solvents, so it’s the environmentally friendly choice for the pressroom
“There was a lot of interest in everything we displayed, particularly our Kaleido and Hy-Plus 100 inks as well as our edible inks,” Mr. Copeland said.

The Ink Industry in 2007 and Beyond

What does the upcoming year hold for ink manufacturers? It’s hard to predict what the future has in store, but some trends are stronger than others. Flint Group officials predict that 2006 trends will likely continue, as print continues to grow in markets like China and India. Those countries aren’t the only areas of growth, however. Southeast Asia and Eastern Europe remain important areas of growth for the printing ink industry.
North America is a mature market for the printing and ink industries, Dr. Hill said. As long as the economy remains strong, he expects stability in most print market segments.
“However,” Dr. Hill said, “North American printers are being challenged by increasingly competitive offshore printers and new electronic media. Some package converting is being lost to offshore operations in countries where durable goods are being manufactured for export to the U.S. Also, some of these developing countries are seeing considerable growth in printed products due to their own increasing domestic consumption.”
All things considered, many ink manufacturers are cautiously optimistic about the upcoming year.
“We are optimistic about opportunities across the board,” Mr. Kristo said. “We feel our presence in Europe will grow with coordinated efforts from our global network.”
“The industry may be near the end of a long period of declining earnings, provided that the recently consolidated North American ink companies are able to maintain or increase pricing and that there are not any new surprises in raw material costs,” Mr. Collins noted. 
For ink manufacturers, preparing for the future during these changing times will go a long way toward success in the coming years.