The Packaging Ink Market

By David Savastano, Ink World Editor | 09.20.10

The packaging ink segment showed growth in 2010, and ink manufacturers anticipate more good news ahead

For ink manufacturers, 2009 was a challenging year, but in general, the packaging side of the ink business fared better than the publication/commercial side.

Ink industry executives have seen further growth in 2010, and anticipate moderate growth in the coming year.

“There is little doubt 2010 is going to be a better year than 2009,” said Michael Impastato, vice president strategic marketing, packaging and narrow web, Flint Group. “When 2009 began, nearly everyone was struggling. Most customers started destocking their supply chains late in 2008 and continued to do so into early 2009. Everyone was cautious about inventories and squeezed them down to the minimum to reduce working capital requirements as much as possible. It wasn’t until the middle of 2009 that there was some easing and volume started picking up.

“In contrast, the beginning of 2010 was more in alignment with historical norms,” Mr. Impastato added. “There was the typical pick-up in activity seen after the holiday period; and in general the market as a whole had a more positive attitude. North America appears to have recovered a good deal of the activity lost in the recession, but is still not back to the pre-recession levels. It will likely be later in 2010 or even into 2011 before those levels are reached again. Most of Western Europe is in the same position. Eastern Europe was severely impacted by the credit tightening which has slowed recovery in a number of countries. However most of the Eastern European markets are back to showing strong growth compared to the previous years low levels. Asia and India are back to seeing robust growth.”

“Overall, the packaging market has seen some growth in 2010, although it was very moderate and tempered by the economic recession, and we expect to see similar moderate growth in 2011 despite the talk of a ‘double dip’ recession,” Michelle Hearn, director of marketing, packaging, North American Inks, Sun Chemical, said.

“Package printing has rebounded some over the last 12 months, but still is nowhere near where we expected 2010 to be,” said Dr. Don Duncan, director of R&D at Wikoff Color. “During the depth of the recession, package printing (flexible packaging and folding carton) was near flat. There has been small growth over the last year, and printers of these products are reporting improved profitability.”

“We have experienced a recovery in packaging demand that began in the second quarter of 2009 and has continued through the first half of 2010,” said Bryce Kristo, chief financial officer, senior vice president general affairs for INX International Ink Co. “For the most part, our packaging customers are back on track.”

“In the U.S., packaging and packaging ink has been okay, not robust, but just okay,” said George Sickinger, president and CEO of Color Resolutions International. “The first quarter showed some growth, but it has waned a bit in the second quarter. Business has been stronger in Mexico and Latin America; I’m not sure why, but it appears that they were not affected as much as the U.S. in the recession.”

“In Japan, demand for the mainstay inks for food packaging in Japan remained steady, and sales expanded for non-toluene inks and water-based inks due to rising needs among customers for eco-friendly products,” said Yu Adachi, corporate communications at Toyo Ink Mfg. Co., Ltd. “Overseas, sales volumes were down in the first half of the consolidated fiscal year, but in the second half, demand started to recover in China and Southeast Asia for inks for food packaging.”

Mr. Impastato noted that the recession had more of an impact on discretionary types of products as opposed to food and basic needs.

“The packaging industry is a broad diverse group of markets,” Mr. Impastato said. “The impact on these markets was different depending on how closely they were related to discretionary purchases. Products related to basic needs and food were less affected. Products seen as a luxury or items which could easily be delayed were more affected and the associated packaging suffered proportionately. Flexible packaging declined 2 to 4% on a global basis while corrugated declined 5 to 7%. Some high end packaging had double-digit declines in 2009. But, all of these packaging types have recovered well above the first half 2009 rates.”

Mr. Kristo said that the commercial side of the business has been particularly affected by the recession.

“The commercial printing business, most notably general commercial printers with sheetfed applications, seem to have been hurt the most by the recession, and full recovery to past demands is not expected,” Mr. Kristo said. “Some commercial groups are now venturing into the label business, so what appears to be a safe haven could result in future overcapacity as commercial printers migrate to packaging applications. We will have to see how some of the larger commercial businesses impact the packaging market segments and if they are successful with this transition.”

Still, packaging offers bright spots, as growth is being forecast in a number of segments, notably narrow web, flexible packaging and inkjet.

“I believe wide and narrow web flexible packaging is the real bright spot in the packaging market,”Mr. Sickinger said. “The consumer seems to favor this type of packaging, and it fits well in the sustainability movement. Also, corrugated has been going through a renaissance over the last couple of years. The CPCs have been demanding more and better graphics, and the industry is getting healthier since the supply and demand issues are being addressed.”

“Inkjet applications are very interesting to us,”Mr. Kristo said. “We have been focusing on some innovative means for printing on very different substrates and shapes.”

“Flexible packaging is likely to continue to offer higher than GDP growth for the foreseeable future,”Mr. Impastato noted. “Flexible packaging will not only continue to grow with the population, but will also take market share away from other forms of packaging, particularly the rigid containers and folding cartons. Corrugated will continue to grow, but likely in line with or slightly below GDP. The corrugated shipping container is a fixture to the supply chain of nearly all consumer and industrial products shipped. It has been an integral part of the supply chain and this is not likely to change. But, consolidation of the industry is probable.”

Ms. Hearn sees environmentally friendly inks being a particularly strong area of interest.

“Sun Chemical will continue to see its greatest growth in the flexible packaging segment, specifically value-added packaging, as the trend in the market continues to move towards functional and sensory packaging,”Ms. Hearn said. “Source reduction, a smaller number of packaging layers, along with a decrease in packaging size, continue to be ways consumer packaged goods companies are looking for support in their sustainability efforts. Additionally, biodegradable and recyclable flexible packaging materials are currently being favored by some retailers and brand owners. Sun Chemical anticipates further growth opportunities from these key areas as companies position themselves as being ‘green.’”

Dr. Duncan noted that food packaging is a solid area, particularly when combined with improved environmentally friendly properties.

“Food packaging seems to hold the best potential, both for flexible packaging and folding carton,”Dr. Duncan noted. “In general, packaging is being hit by the environmental movement, and reduced packaging, both in weight and size, is a general trend. However, much of the sales of food products have a spontaneous component, and point-of-purchase advertising on the package is very important to sales growth. Some evidence of this desire to keep high-graphics food packaging viable is the intense and broad-based interest in the safety of these products. Large food companies such as Nestle, as well as others, are pushing hard to make sure that food packaging is safe and available. This intense focus seems to indicate a continuing desire for high-quality, reliable food packaging.”

In the Asia-Pacific region, environmentally friendly products are growing in usage.

“Demand for gravure inks for food packaging continues to grow in China and Southeast Asia, and sales of eco-friendly inks expanded in the same manner as in Japan,” Mr. Adachi said.

To further add to the challenges faced by ink manufacturers, consolidation among converters continues. While the volume of M&A activity declined due to the recession, major deals still occurred in the past year, most notably Amcor’s $1.95 billion acquisition of Alcan Packaging Food Europe, Alcan Packaging Food Asia, as well as its global pharmaceutical and tobacco operations, from Rio Tinto, and Bemis’ $1.2 billion acquisition of Alcan Packaging Food Americas.

For ink manufacturers, M&A activity among customers offers opportunities.

“In packaging, customer consolidation is an integral part of the market dynamics since the degree of consolidation in this market is still low with exception of very few segments,” Mr. Impastato said. “This will not change short term. The major impact this has on ink suppliers is the changing landscape of ownership and picking and choosing who will be the winners and the losers. Aligning strategically with the winners is key to success.”

“We see some definitive consolidation of the market in the works,” Mr. Kristo said. “We also are encouraged there is a strong group of packaging leaders emerging that are financially sound and are in the business for the long term. At INX we are focused on these leaders because together, we can bring long term prosperity to each other through technology. This makes sense rather than short term cost cutting that focuses on adding value quickly for a subsequent sale of the business. A short term situation often ends with the disruption of ownership, costs and uncertainty.”

“Packaging has not yet seen the level of consolidation that took place in commercial printing, but there has been enough to keep everyone on their toes,” Mr. Collins said. “The implications of consolidation are still rippling through the industry and to some degree not fully understood. Consolidation does, however, keep life exciting and can be a time of opportunity or uncertainty for ink suppliers.”

“We see big and small acquisitions occurring; the strong are buying the weaker companies,” Mr. Sickinger reported. “Strong companies will come out of this recession even stronger.”

New Ink Technologies

In terms of new technologies, packaging printers are enjoying new opportunities, whether it is in conventional printing or in digital.

“Digital continues to grow and get better and faster,” Mr. Sickinger said. “This will be an ever increasing threat to traditional ink companies in the future. Flexographic equipment continues to make steady incremental improvements, allowing the converter to make quicker job changes and still run at design speeds. The lack of trained skilled operators is forcing more and more automation in the printing process. Offset and gravure appear stagnant at best.”

Ink manufacturers are also developing new products to give their customers an edge.

“Wikoff recently announced the first G7-certified set of EB lithographic inks.” Mr. Collins said. “These inks are being used both in flexible packaging and folding carton for food packaging in order to allow printers to achieve better and more consistent color quality on demanding packaging jobs.”

“Our new Synergy III high performance adhesive lamination inks work well with a variety of solvent-based and solvent less adhesive systems,” Mr. Kristo noted. “Synergy III is an ink blending system designed for printers who are looking to improve printability and lower their ink inventory levels. We think it’s an ideal solution worth considering for many given today’s printing environment.”

Ms. Hearn said that Sun Chemical continually looks for ways it can help customers remain competitive, grow their businesses and succeed, by listening to it’s customers’ needs and analyzing market trends that provide solutions to the challenges they are facing.

“One example of this is SunStrato Velocity, a flexographic lamination ink system specifically developed for salty snack and roll fed printing on polypropylene,” Ms. Hearn said. “SunStrato Velocity prints cleanly at printing speeds of greater than 1,500 feet per minute, is designed for extrusion lamination without a primer and prints the strong color that packaging needs to get the ‘pop’ off the shelf. Another example is SunPak Diamond inks, Sun Chemical’s line of sheetfed offset inks for folding carton package printing. SunPak Diamond inks enhance productivity, print at high standards and can be used on all offset sheetfed presses, including high speed and wide format presses and provide ‘high definition’ print resolution, low misting at the highest printing speeds and fast setting properties that reduce printing waste. The fast setting properties of SunPak Diamond inks accelerate post-production and significantly reduce waste print, saving customers money and increasing uptime. SunPak Diamond inks are heat resistant and UV coatable offline. The inks can also be laminated and laser imprinted.”

Mr. Impastato said that in light of the focus on product performance, Flint Group has several new products it is launching

“We have had a strong focus on high performance laminating inks and have new PluriLam and FlexiLam systems available in Europe with improved lamination performance on OPA, PET and PVdC coated PET,” Mr. Impastato said. “In addition for very high bond strength requirements, we have developed and introduced VarioLam AB a pure polyurethane-based series in Europe suitable for critical applications like for example reclosable flexible packaging for wet-wipes. For the narrow web label market we developed a new low migration UV ink series for food packaging Flexocure ANCORA. This new system meets the very strict Nestle requirements and Swiss Ordinance legislation.”

Raw Material Prices and Supply

It should come as little surprise that raw materials price and supply issues are having a major effect on packaging ink manufacturers, and Mr. Sickinger believes this will continue into 2011.

“We are in a perfect storm at the moment,” Mr. Sickinger said. “Raw materials are rising while we are in a recession with the attending cost concerns. The paper people have been able to push through three price increases because of the paper shortages. The ink industry leaders have been announcing price increases in the trade press, but it does not appear that many are being implemented for fear of losing much needed volume. However, I do believe the ink industry will have a general price increase by year-end. I think higher raw material costs and shortages will be the main issues in 2011.”

“Raw materials and energy cost volatility continue to significantly impact the ink industry,” said Tony Renzi, vice president, product management liquid inks, North American Inks, Sun Chemical. “Non-traditional factors that began earlier this year to impact the price of major feedstocks and raw materials continues, including supply base consolidation and capacity curtailment, significant decline in refinery margins and rationalized operating rates to meet diminished demand. The combination of these factors has led to elevated fixed costs on raw material goods.”

“Many raw material prices are up substantially, well over 10%, and some critical raw materials are in short supply or are on allocation,” added Daryl Collins, vice president sales and marketing for Wikoff Color. “It is sometimes challenging to obtain a consistent supply, leading Wikoff to carry more inventory of critical products and to identify key back-up suppliers for these raw materials.”

Mr. Kristo noted that the recession forced many suppliers to cut costs and, in some cases, close facilities. “The recovery in demand has been difficult for us to fulfill because we are experiencing shortages from the reduction in supplier capacity as a result of the recession,” Mr. Kristo added. “Raw material vendors are using their cuts in capacity as a means for raising prices. In turn, we need to include these increases in our prices because of the overall sensitivity that raw material costs have on ink. This is a very difficult issue because we remain poised to fill demand when some of our suppliers are not.”

Mr. Impastato said that raw materials supply issues are more severe and problematic now than they have been in more than 25 years.

“In past years, it was not uncommon for a specific supply problem to pop up around a single or unique material,” Mr. Impastato noted. “It could have been caused by a capacity breakdown, or an unanticipated spike in demand on the other side of the world. These were serious problems and caused supply chain problems. But those problems where more isolated in scope and temporary. What we see now is broad shortages of feedstock chemicals. Many of these have been a problem for many months now and have recently gotten even tighter. We have seen more materials being put on sales allocation in the last six months than we have seen in the last 10 years. It is a very serious situation for our industry.”