Solid Growth Continues in Latin America

By Charles Thurston, Ink World Correspondent | 07.11.07

Growth in the estimated $750 million Latin American ink market continues to be strong in 2007.

Growth in the estimated $750 million Latin American ink market continues to be strong in
2007, with demand likely expanding by approximately 4 percent by volume, with total consumption of the region estimated at 280,000 metric tons. The rise in value may occur more slowly as ink producers absorb rising costs, notably including fuel, industry executives say.
“The overall market in Latin America is doing pretty well; the question is sort of ‘When is this juggernaut going to slow down?’” said Jim Cunningham, president of Sun Chemical Latin America, the largest player in the regional ink market. “The political stability has helped; there hasn’t been a lot of turmoil.”
The regional gross domestic product growth, now running at 4.4 percent, is a mirror of last year’s growth, and GDP expansion for the next two years is also pegged at 4 percent, according to Banco Santander Centro Hispano, a major bank in the region.
In contrast, inflation is on a downward slide, dropping from 5.2 percent last year to 4.6 percent this year, and then expected to continue down to 4.3 percent and to 4.2 percent in the following two years, Santander projects.        

Other banks agree on such growth prospects but are less optimistic about inflation control: Banco UBS Pactual forecasts that inflation in the region will rise to 5.1 percent this year, from 4.9 percent in 2006; the bank’s forecast for 2008 is for 5.6 percent inflation.
Ink consumption in Latin America generally tracks GDP growth, but those segments – especially packaging – most affected by consumer spending may be additionally boosted by the slow but steady climb of per capita GDP in the region. From a regional average of $5,465 in 2006, per capita GDP in Latin America will rise to $5,806 this year and push into the $6,116 range in 2008, UBS projects.        

“In Brazil, for example, we are seeing an increase in the printing of educational school books. As there is more money available, that will continue to increase,” noted Mr. Cunningham.

Sanchez SA de CV recently completed its facility upgrades.
Growth is widely uneven by segment across the region, with expectations this year ranging from a few percent to double digits in different markets.
“We’re optimistic about packaging, and less optimistic about heatset and sheetfed. We also see some movement in the non-traditional printing methods,” Mr. Cunningham said.
Country by country, Mexico remains the strongest market in the region. Argentina is growing fastest, as its economy continues to recover, and growth in Chile is perennially strong. Brazil and Colombia are demonstrating solid, if moderate, growth, and even Venezuela – despite its political drama – shows some signs of ink market growth.

Brazilian Growth Tempered
By Strong Currency

Brazil has the largest economy and population in Latin America, and is a key manufacturing center and market for the ink industry. With a GDP of $1.02 trillion and a population of 189 million, the country’s large production base means that Brazilian ink is traditionally exported to much of the region.
However, the appreciation of the national currency – the real – against the dollar has put increasing pressure on ink companies which must import substantial raw materials.
“Two years ago, the real was four to one dollar; now it’s two to one, which does not make exporting very attractive now,” said Jacques Aubry, the CEO of Cromos S.A. Tintas Graficas, in Rio De Janeiro. This year the real is expected to average 2.14-to-1, and hold at 2.16-to-1 during 2008, UBS projects.
“Because of the exchange rate, it is more difficult in Brazil to compete with inks from Europe and the U.S. now. Some companies here are importing directly from Europe, mostly from Germany,” said Mr. Aubry. “Perhaps we’ll grow 2 or 3 percent in revenues this year, but we are trying to increase sales to the middle market, with different kinds of inks and more services. We need to maintain big inventories because of the threat of port strikes, so we have support contracts that go out two years now.”
Printers in Brazil also are securing mid-term service contracts. Lexmark International, for example, recently won a five-year contract from Bradesco Bank, the largest private bank in Brazil, to optimize its printing infrastructure with managed print services.
Apart from the strong real, import taxes are proving to be a barrier to the ink trade with Brazil.
“Taxes in Brazil are crazy. Taxes make it difficult for this country to grow like other rich countries,” said Fernando Ribeiro, the general manager of publications at Siegwerk Tintas Graficas, in Sao Paulo.
However, costlier imports may also encourage new printing capacity, if not ink production capacity, in Brazil. “Because of the softer dollar, companies are likely to invest in more machines,” said Mr. Ribeiro.            
Investments in Brazil also follow political stability, which the country now enjoys. “The political situation in Brazil is quite stable despite ongoing cases of government corruption, and since oil is produced nationally – along with bio-diesel from sugar cane – companies are confident now,” Mr. Ribeiro said.
Increasing technical services to customers is an inevitable component of the growth formula in Brazil and beyond, Mr. Cunningham agreed.
“We have added some people in services, and have re-tasked others to now focus on services. Customers want increasing support not only to run products but are seeking help with more sophisticated operations, like press audits,” Mr. Cunningham noted. Increased services also will be required as more U.S. and Canadian printing capacity is transferred into Brazil, he noted.
UBS predicts that the Brazilian economy will expand by 3 percent this year, up from the 2.7 percent growth rate recorded in 2006; GDP growth in 2008 is projected to hold at 3 percent. Inflation in Brazil, long a drag on economic growth, has dropped from a double-digit level in 2002 to 4.0 percent this year; in 2008 that figure is expected to rebound slightly to 4.3 percent, according to UBS.   
Packaging inks are a bright spot in the Brazilian market. Per capita GDP in Brazil will amount to $5,411

The Latin American ink market. (Ink World estimate)
this year and climb to $5,671 in 2008, UBS forecasts. 
“I have heard that packaging ink could be up 15 percent during the second half of this year,” said Mr. Aubry. Corrugated cardboard sales also rose during the first four months of this year by 5.3 percent compared with the year-earlier period, according to the Associacao Brasileira do Papelao Ondulado, the industry trade group. And Asian Pulp & Paper is setting up its first Latin American office in Sao Paulo, indicative of growing paper demand in Brazil.

Mexico a Magnet
For Capacity Transfers

Mexico is capitalizing on the North American Free Trade Agreement (NAFTA) terms of zero trade tariffs within the region, absorbing a steady flow of printing capacity from the region.
“We see a lot of printing being transferred to Mexico from the U.S. and Canada,” said Mr. Cunningham.
Color Resolutions International is among the ink producers that have followed their customer base to Mexico.
“We are looking at very significant growth in Mexico, in the west, central and  eastern areas,” said George Sickinger, chairman, president and CEO of the company, headquartered in Fairfield, OH. “In general terms, we’re looking at doubling our sales, albeit from a small base.” Color Resolutions now has three blending sites in the country, led by its Monterrey facility.
Mexico’s economic growth is largely influenced by U.S. growth, and not surprisingly is slowing to 3.6 percent this year from a 4.8 percent level in 2006. The drop should reverse in 2008, however, with growth accelerating to 3.8 percent, UBS predicts. Inflation also is slowing this year to 3.5 percent from 4.1 percent last year, and will continue to slow to 3.3 percent in 2008, predictions suggest.
“GDP is slowing in Mexico, but nevertheless we believe that the ink market will grow faster than the rest of the economy,” said Ernesto Sanchez, the general director of Sanchez S.A., in Mexico City. “With the new plant we opened last year, we doubled our offset capacity to 20,000 metric tons a year.”
As in Brazil, packaging is growing rapidly in Mexico. “There are more branded Mexican products beingproduced instead of things shipped in,” observed Mr. Sickinger. “So consumer spending probably is a stronger factor for ink sales than the growth of the general economy.”
Mexico’s GDP is the second-largest in Latin America, at $882 billion, and with a population of 109 million, is a major target for U.S.-produced inks. Per capita GDP in Mexico is also the second-highest in the region, and will have risen to $8,106 this year and hit $8,360 in 2008, UBS predicts.

Argentine Growth
Leads the Region

Argentina is recovering rapidly from years of economic collapse, and now may be the fastest growing ink market in the region.
“Argentina is going gang-busters,” said Mr. Cunningham. GDP expansion in the country is a robust 5.9 percent this year, a more sustainable level than the 8.6 percent rate experienced in 2006. Current growth is impressive, given that the economy contracted by nearly 11 percent in 2002, when the government finally ended the monetary policy that set parity for the U.S. dollar and the peso. The exchange rate this year is about 3.19-to-1, and will slip slightly next year to 3.31-to-1, UBS projects.
“The industry is optimistic, and economic expansion continues to stimulate growth in printing,” said Dominique Marchand, the director of marketing for Latin America at Flint Group, in Buenos Aires. “For flexible packaging, the (fastest) growing segment in the region, we have a strong  product line and are in constant research to find ways to  respond to market demand,” she added.
Per capita income in Argentina will have risen to $6,282 this year and continue rising to $7,167 next year, UBS suggests.
Mergers and acquisitions in the industry also are helping companies like Flint Group meet rising demand in Argentina. “The benefits of the Flint Ink/XSYS union continue to be seen, and the Day International acquisition lets us continue to expand our product lines,” said Ms. Marchand.

Chilean Economy
Expands Rapidly

The Chilean economy also is helping lead Latin American growth this year, with a GDP expansion of 5.3 percent this year, up from 4.3 percent in 2006. UBS forecasts that the expansion will accelerate to a 5.5 percent rate in 2008.
“We expect good news in Chile, which is doing fairly well,” said Mr. Cunningham. Sun Chemical has been considering new capacity in Chile, as in Brazil. “What we are doing is trying to fill our capacity. Once we fill it, with a reasonable expectation that we can fill more, we’ll add more.”       
While Cromos has no plans to expand capacity for the Chilean market, the company may launch a new brand there – and possibly in Argentina or Colombia as well – to help offset a slower market in Brazil, Mr. Aubry said.
Similarly, Sanchez is targeting Chile for increased exports: “Our exports have been doing well, and besides El Salvador and Costa Rica, we expect good news in Chile and Colombia,” Mr. Sanchez said.
As in Argentina and Mexico, Chilean demand for more sophisticated packaging is being boosted by rising income. With a GDP of $140 billion and a population of 16.6 million, per capita income is high for the region, estimated at $8,419 for this year and growing to $8,851 in 2008, per UBS calculations.