Felipe Mellado, chief marketing officer, Sun Chemical, said that 2008 presented another challenging business year to the graphic arts and printing industry.
“In that kind of environment, Sun Chemical’s focus was on helping our customers grow their businesses and succeed,” Mr. Mellado said. “That means working for our customers everyday to further improve our performance on the essentials of our business such as reliable, on time delivery, consistent product quality and investment in research and development. In 2008, we launched innovative new products that can help customers find new revenue opportunities and address their environmental performance.”
Among Sun Chemical’s new products are Platinum White, a UV flexo white ink which received a 2008 PIA/GATF InterTech Technology Award; Triumph sheetfed inks, Kohl & Madden’s newest low-VOC ink technology; Earth inks, another new Kohl & Madden offering, which have extremely low VOCs and high levels of renewable raw materials such as linseed, soybean and other vegetable oils; and SunCure Advantage, which uses 30 percent sustainable materials – a first for a UV curing ink.
SunJet, the inkjet ink division of Sun Chemical, introduced three new inkjet ink solutions earlier this year. During drupa, SunJet first announced the development of a new and novel ink chemistry specifically designed for curing under exposure to UV light from LED sources. They also announced a new ink chemistry designed to support and deliver conductive films using nano-particles of silver. Additionally, they introduced UV cured inks for printing on thermo-formable media designed specifically for use with Durst digital presses.
“Given the difficult economic conditions our industry is facing, we are satisfied with our progress we made in 2008,” said Dr. Eva Freudenthaler, vice president, strategic marketing and communications at Flint Group. “We leveraged our capabilities within our organization in order to create added value for our customers and take cost out of our processes. We also realized synergies between our offset inks, press room chemicals and printing blanket activities. Being able to offer high quality products in all those segments is only one differentiating aspect for us. We are committed to drive performance further by leveraging the knowledge of our technical experts beyond the point of improving each of those products separately and focusing on their interaction on the press to further optimize the printing process."
Flint Group was active in 2008, as it established the new business unit Flexographic Products combining the flexo sleeves business of its Day International division with the photopolymer printing plates business unit, and introduced the new Novavit F 950 PLUS BIO and Novavit F 550 PLUS sheetfed ink ranges. Flint Group acquired Siegwerk’s packaging business in Australia and the European based press room chemicals manufacturers HDP and Russell-Webb.
“For INX, 2008 was both a year of accomplishment and one of unprecedented market challenges,” said Bryce Kristo, chief financial officer and senior vice president of INX International Ink Co. Mr. Kristo noted INX’s investment into two more digital partners, Megaink Digital a.s., Prague, Czech Republic, and Anteprima SRL, Milano, Italy., and its new $15 million water-based liquid manufacturing facility in Homewood, IL, as highlights.
“The timing of these investments could not have been better in light of the unprecedented market changes in both the cost of raw material and the instability of global financial markets,” Mr. Kristo added.
Aviv Haruta, general manager, corporate communications department for Toyo Ink Manufacturing Co., Ltd., said that the operating environment that confronted the Toyo Ink Group and the industry was very difficult in 2008.
“Overall negative economic conditions, including the on-going price hikes of raw materials and global turmoil in financial markets triggered by the U.S. subprime mortgage crisis, have led to slowed economic growth,” Mr. Haruta said. “In addition, demand for products manufactured in Japan and sold abroad has lagged due to a strong yen, cutting into our bottom line.”
Mr. Haruta said that highlights included sales growth in Southeast Asia and North America, where UV/EB sales were strong, as well as in solvent-based inks. Toyo Ink Mfg. America also opened a 55,000 square foot facility in Bryan, TX, which will serve as the production hub for Toyo Ink packaging inks, adhesives and coatings serving predominantly the North America market.
In 2008, there were some bright spots for the Toyo Ink Group. The group had a strong showing at drupa in Germany, marking Toyo Ink’s second appearance at the international graphic arts exhibition. At drupa, Toyo Ink featured its manufacturing and development capabilities with the introduction of a variety of high performance materials, environmentally harmonized products and next-generation materials, such as Rexalpha conductive silver paste inks, Dynacal series of outdoor marking films and the FD LED series of LED-curing process inks. The FD LED series, which uses ultraviolet rays produced by light emitting diodes to cure inks, sparked a great deal of attention from the media and visitors alike for its environmental and energy-saving advantages.
Enno Urbienz, Siegwerk company spokesperson, said that in spite of the weak economy, Siegwerk enjoyed some highlights: the company had a successful drupa and grew in the U.S., Asia and South America, where the company will open a new facility in Buenos Aires.
“With three years of integration behind us, we were able to focus on improving customer satisfaction and internal efficiencies to contribute to the growth of the market in all regions worldwide,” Mr. Urbienz said. "Now, facing an already weak economy rapidly slowing down demand is decreasing and costs are still rising, especially in Europe. For Siegwerk USA 2008 was a good year in terms of sales and volume growth with very good products for packaging applications including flexible packaging, labels, tobacco, paper and board, and sheetfed UV. But even in the U.S., the days of taking costs out of our business to offset the raw material price increases are over. In Asia we are doing well, especially in India, which is a huge success story. We invested a lot in South America and will open a new facility in Buenos Aires at the end of the year. This production facility – a Center of Excellence – will be equipped with state-of-the-art technology.”
Geoffrey Peters, president and COO, Wikoff Color, said that Wikoff Color continued to experience good sales growth in 2008.
“Raw material price increases, especially in the latter part of the year, eroded profitability and forced us to implement price increases to our customers,” Mr. Peters said.
Mr. Peters said that the company enjoyed significant growth in the UV and EB area, earning business through product performance and service. Recent product introductions include AccuBlend, a new set of litho blending colors; Pure-Lith, a 100% solids, very low VOC, ‘green’ PC series for commercial printers, a new series of metal deco inks, new UV inkjet inks, new UV flexo shrink film inks and new products for water gravure. adding that the company enjoyed significant growth in the UV and EB area, introduced new UV inkjet and UV flexo shrink inks, opened a new manufacturing plant in Philadelphia and began selling into China.
“All were exciting new developments for Wikoff in 2008,” Mr. Peters added.
“The economy has definitely impacted the printing industry. Even though we are not a part of the nucleus of the recent meltdown, the economy’s overall sluggishness has most certainly affected business,” said Jeff Koppelman, president of Gans Ink & Supply. “In addition, the newer non-traditional technologies continue to impact the conventional offset business sector. The greater commercial sheetfed market is declining, but companies that have added digital capabilities are doing relatively better.”
“For us, 2008 was a more volatile year, with more highs and lows than a typical year from a sales perspective,” said Jim Leitch, CEO of Braden Sutphin Ink. “These swings were almost totally based on the state of the general economy. The impact of the financial crisis has been minimal so far, and 2009 will probably show more of the impact of the financial crisis. We have seen some customers consolidate with each other and others go out of business, but that’s more a product of less demand for print. We’ve just tried to be more conservative in what we do, and we continue to emphasize our service component.”
Without a doubt, the economic downturn plaguing the U.S. has spread worldwide, leaving virtually every sector of the business world weakened, beginning with the financial segment. The resulting loss of consumer confidence has led to curtailed sales as consumers hold on to their cash. This clearly has had an impact on the printing and ink industries.
“As a manufacturer of inks and coatings, the slumping economy may pose its biggest challenges to Wikoff in the areas of sales growth and profit margin,” Mr. Peters noted. “The credit crunch will certainly threaten highly leveraged printers, ink manufacturers and vendors and may result in some companies going out of business.”
“The slumping economy has had a negative impact on demand,” Mr. Kristo said. “As a company, we have seen significant volume variances to our 2008 business plans, which we have had to adjust.”
“The Toyo Ink Group also endeavored to cut costs in all areas by streamlining production through the standardization of product lineups and a review of the distribution of production in Japan and overseas, by reviewing raw materials and stepping up global sourcing, and by reducing distribution costs through more efficient SCM,” said Mr. Haruta. “However, we were not able to offset soaring raw material prices through cost cutting alone, and so we revised appropriately the selling prices of major products.”
“The slumping economy and credit crisis has significantly impacted our orders flow, which have become more erratic and unpredictable,” John Copeland, Toyo Ink America’s president and COO, noted. “This also affects our day-to-day business flow, making it harder to make accurate decisions on operational needs for the next week, month, etc. We also see fewer customers purchasing new equipment.”
“Obviously the current economic climate created challenges for all industries, the ink industry not being excluded,” Dr. Freudenthaler noted. “We like other industries saw a considerable softening of the market demand in North America and Western Europe during this year, and even growth regions like Eastern Europe took a hit. We assume that in shrinking market segments like the North American and European newspaper industry, the economic downturn will accelerate this trend.”
Mr. Kristo noted that INX has avoided the pitfalls of the credit crunch, as the company has traditionally had a very sound balance sheet and long-term financial partners.
“Our lenders tend to be a mix of international partners,” Mr. Kristo said. “Our U.S. banking relationship is with a very strong financial institution that has assured us there will be no credit restrictions given our financial position, long-term relationship and the health of our lender. In addition, we also work with certain Japanese partners who are also healthy and cooperative. Finally, much of our expansion executed in 2008 had its roots in financial negotiations made and executed before the credit fallout. We were fortunate to have been ahead of the curve and negotiated favorable rates.”
Another impact of the economic slump can be found in receivables, as ink companies are finding that some customers are taking more time to pay bills. “Receivables have certainly slowed down,” Mr. Koppelman noted.
“While we are fortunate to currently find very few of our customers in danger due to the financial crisis, we are monitoring the situation closely,” Mr. Peters said. “We will stay on top of any delinquent accounts to avoid large losses from business failures which may ultimately occur. To date, the vast majority of our customers continue to pay their bills within terms.”
As the economy deteriorated, some companies ran into financial trouble, and printers were no exception.
“The credit risk of our customer base is of concern,” Mr. Kristo said. “Companies with syndicated bank loans likely pose the greatest risk depending upon who their syndication partners are and how eager they may be to continue supporting loans where they are not the lead lender and the borrower is struggling. This could cause some disturbance with our bad debt experience as to whether refinancing will be made available under these situations.”
“With any economic downturn, we expect the number of bankruptcies to go up, with the printing industry not being an exception,” said Dr. Freudenthaler.
Expectations for The Coming Year
With all that has occurred in the financial and consumer markets as well as in raw materials, it is understandable that industry leaders have some concerns about 2009.
“I am continually hopeful that the coming year will be better financially, not just for our industry but for our nation as well,” Mr. Koppelman said.
“We expect to increase our market share in 2009 for sheetfed, UV and heatset printing inks in a very positive way,” Mr. Copeland said. “Earnings are a different issue, and maintaining profit targets will be difficult.”
Mr. Peters said that there is such uncertainty in the marketplace, it is difficult to make significant predictions about the coming year. “As for expectations, we unfortunately believe there will be a period of time before raw material prices return to justifiable levels, but competitive market forces will ultimately work to force raw materials and finished ink pricing closer to where they should be,” Mr. Peters said.
Dr. Freudenthaler said that Flint Group’s leaders believe that 2009 will be a difficult year for all industry participants, adding that taking out further cost out of processes as well as working together with customers in order to help them to become more cost efficient will be critical success factors.
“With our global coverage of the industry and the widespread product portfolio, we think we are positioned well to manage through 2009 successfully,” Dr. Freudenthaler noted.
Even with all of these challenges, there are opportunities, and ink manufacturers see potential for growth.
“We expect further growth in the Asian and South American markets,” Mr. Urbienz said. “The NAFTA region will depend on future economic developments. This is unpredictable at the moment. In Western Europe we do not expect any market growth.”
“Our expectation for 2009 is one of cautious optimism,” Mr. Kristo said. “Cautious in the sense that we do not feel the market will rebound quickly and we will continue to be faced with some material cost volatility and lower overall demand. We are optimistic in that we made several great strides in 2008. We improved our core water-based liquid ink manufacturing capabilities, have continued to reduce our company footprint while creating greater capabilities and have begun the global integration of our digital investments, giving us a new core competency in digital ink to grow from. At this point in time, INX has modern manufacturing facilities supporting all of its core business, a global sales and distribution network to work from and the ability to not only sell and service the digital ink market but integrate digital technologies into traditional analog printers.”
Mr. Leitch noted that Braden Sutphin’s longtime strength in environmentally friendly products, such as its EcoPride and EcoSet inks, is paying off as the interest in green products grows.
“On a positive note, customers are interested in ecological products, which we have had since the mid-1990s,” Mr. Leitch noted. “Our flexo business continues to grow as we become better known in the market.”
Mr. Mellado said that 2009 will continue to be a challenging year for Sun Chemical and the ink industry as a whole. He believes the cost of raw materials will likely continue to increase; however, Sun Chemical has taken steps to better meet the needs of its customers and offset these costs.
“Sun Chemical’s North American Inks now uses a new business structure that unites all the previous packaging, commercial and publication small business ink units in a way that will provide a greater focus on the needs of customers and improve business efficiencies,” Mr. Mellado said. “Sun Chemical wants to be the long-term trusted supplier – the company that truly works for its customers. To be able to achieve this, our customers have to know that we are here to help them with their problems. In the current challenging market conditions, our solutions are designed to help customers operate more efficiently without sacrificing quality or service to their customers.”
Mr. Peters anticipates that demand for energy-curable and water-based products will grow.
“We expect continued growth in the energy curable area, as new, dedicated presses are installed, provided that sufficient credit is available for press purchases,” Mr. Peters said. “We expect that growth will continue in water-based inks, both flexo and gravure. We expect that the sustainability discussion will reignite in a serious way, after the recent period of knee-jerk reactions to appear ‘green.’ We also expect an increased demand for inks based on vegetable content.
“We expect a continued growth in digital printing, especially for short-run graphics work, and that more ‘conventional’ printers will add digital capability, again as long as there is available credit,” Mr. Peters added. “We also expect the REACH implementation to be a significant administrative burden on all those shipping to the EU from the U.S. in the coming year.”
Higher Raw Material Prices, Supply Issues
Remain a Major Concern for Ink Companies
Despite the sudden decline of crude oil prices, continued pressure from higher raw material prices are clearly impacting the ink industry. Even though a barrel of crude oil has dropped from a high of $140 to less than $60 in November, ink companies are not seeing much of a rollback in prices.
“Raw material costs continued to be a huge concern, but they seems to have stabilized, albeit at a high level, in the last quarter of the year,” said Braden Sutphin Ink CEO Jim Leitch.
The cost of key ingredients from China are also rising. Greg Lawson, vice president, sales for Sun Chemical, said that while crude oil prices have recently lowered significantly, pigments, intermediates and resin markets in China continue to generate significant cost pressures for ink manufacturers because of critical raw material shortages as well as environmental constraints on manufacturing.
“As a result, we have had to pass some of these costs on in the way of price increases to our customers, Mr. Lawson said. “We have seen no cost reductions in the majority of our raw materials.”
As a result, ink companies again found themselves raising their own prices.
“Like our competitors, we are still facing problems with rising prices for raw materials. These costs have to be partially passed on to our customers. There is no alternative,” Enno Urbienz, Siegwerk company spokesperson, said.
Dr. Eva Freudenthaler, vice president, strategic marketing and communications, said that Flint Group has worked to keep price increases as low as possible, by improving efficiencies, leveraging its purchasing power and reformulating some products.
“Ever since the raw material prices started to move up, which actually already began in 2005, Flint Group has taken major actions to mitigate the impact for our customers,” Dr. Freudenthaler said. “We improved our manufacturing processes and increased the cost efficiency of our ink formulations through reformulation where possible without compromising quality, consistency or performance. At the beginning of 2008, we reorganized the procurement function, changing it from a regional to a global organization in order to leverage our purchasing power to ensure security of supply and lowest possible cost.”
Geoffrey Peters, Wikoff Color’s president and COO, noted that higher raw material costs have been unavoidable in 2008.
“In an effort to combat these higher costs, we are regularly evaluating lower-cost alternatives to materials we currently purchase,” Mr. Peters said. “In addition, we removed costs from our supply chain by consolidating purchases and eliminating some of the unnecessary expenses associated with order processing, packaging and delivery. Even with these efforts to keep costs down, our raw material price increases have been so significant that we have had no choice but to pass a portion of these increased costs on to our customers.”
Mr. Lawson said that Sun Chemical continues to work on controlling its own costs closely with supply chain partners, to improve its internal operations and to develop new value-oriented products that can help customers grow their business.
“That’s what customers told us they wanted as higher raw material costs resulted in higher prices at Sun Chemical and across the industry,” Mr. Lawson said. “We will continue to invest in those areas that provide our customers with innovative products and services allowing them to be more competitive and present the best value propositions in the market.”
Another concern is the difficult state of the conventional printing industry, which makes passing along higher costs that much more challenging.
“The increase in raw material prices was unprecedented in both amount and timing, which made price increase plans to pass on costs difficult for us,” said Bryce Kristo, chief financial officer and senior vice president of INX International Ink Co. “INX had to absorb a large portion of the costs during the year with relief coming in the late third and fourth quarters. Fortunately, our customer base understands the market pressures and has appreciated our efforts to maintain our controllable cost. However, the raw material cost increases far exceeded what we could have reasonably absorbed without permanent damage to INX’s long term well being.”
Ink manufacturers are hoping that raw material prices stabilize at reasonable levels.
“Raw material prices need to return to reasonable levels that reflect actual cost, rather than the fast-to-rise, slow-to-fall situation we now face,” Mr. Peters added. “Aggressive shopping for competitively priced raw materials is the only way to maintain a healthy business.”
Dr. Freudenthaler said she believes many of these higher costs are here to stay.
“While indeed the crude oil price, as one of the many cost drivers, has recently started to relax significantly, a number of crude oil derivatives still resist coming down in price due to basic demand and supply and other cost driver challenges,” Dr. Freudenthaler noted. “Some cost increases have not even come through yet in full, like, for example, utilities. Therefore we believe while some raw materials might come down in price over time if the crude oil price stays at the lower level, many other costs might actually never return to where they were in ‘the old days.’ Thus driving the efficiency of our processes up to compensate those cost increases will remain one of our major tasks and challenges in 2009.”
– David Savastano