By Sean Milmo, European Editor
As printing ink producers in Europe struggle to raise sales and profits margins amid a slow economic recovery from the recession, one of their biggest challenges is shortages of raw materials.
The scarcities have been triggering steep increases in prices of certain key chemicals in ink formulations. In some cases, the shortages are so severe that supplies are being rationed.
Some of the multinational ink producers are using the inadequacy of supplies to gain competitive advantage. They are pointing out that their global procurement networks put them in a better position to secure raw materials than the smaller, more localized ink makers.
In December, the raw materials squeeze in Europe could worsen due to the effects of the latest stage in the implementation of REACH, the European Union’s ambitious legislation on the control of chemicals through their registration, evaluation and authorization.
The first registration deadline for REACH – for substances produced or imported in annual amounts of 1,000 tons or more and for certain hazardous chemicals – is taking place at the end of this month.
Any substance covered by the deadline which is not registered on time cannot stay on the EU market. This has aroused fears among downstream users like ink and coatings producers that some chemicals will no longer be available because their suppliers, particularly importers, are not properly aware of the legislation or, more likely, because they consider registration too costly and time consuming.
Another possibility will be that the chemicals will be registered but not for use in ink formulations, which could cause problems for ink makers.
However, for ink producers in Europe, the major immediate concern is the impact of global shortages of raw materials, which has led to sharp fluctuations in prices. Trade associations are saying their printing ink members are reporting rises as high as 30 to 50 percent for some chemicals.
Sun Chemical has just announced increases in its coldset range in Europe – €0.40 ($0.55) per kilo for colored inks and €0.30 for black – because of the “serious shortage in raw materials that are essential for coldset production.” The price increases supercede previously announced rises of 5 to 10 percent.
Rosin resin prices has already risen by 75 percent this year and by 300 percent compared with the level a year ago, according to Sun Chemical. It predicted that rosin resins would continue to experience high price volatility and supply constraints.
In addition, the price of pigments in coldset inks had gone up by 4 percent this year, while a further 5 percent increase is expected in 2011.
“The whole of the printing inks industry continues to have serious external challenges and therefore it has been necessary for us to implement price increases to maintain profitability as so many others have done,” said Felipe Mellado, Sun Chemical’s chief marketing officer.
Flint Group also warned that it expects that, for the rest of this year as well as in 2011, raw material supplies will “remain a concern, resulting in further issues with extended lead times, short shipments and severe shortages, thus driving costs up further.”
It predicts that solvent prices will stay at or near all-time highs due to a combination of strong demand and limited capacity. Nitrocellulose will be scarce because of a lack of wood pulp and the withdrawal of suppliers from the market.
The European Chemical Industry Council (Cefic), the main European trade association for chemical producers, estimates that in August 2010, chemical prices had gone up by average 5.8 percent compared to August 2009. But prices of bulk petrochemical-derived chemicals rose during the year by 19.4 percent. By contrast, prices of inks, varnishes and coatings had remained virtually static.
Producers of petrochemical-based chemicals like acrylic acid and acrylates are forecasting continuing tight supplies for at least another year because of lack of sufficient production capacity.
Mainly because of capacity constraints, prices of titanium dioxide (TiO2) are 15 to 20 percent higher than they were in 2007. They could go up by a further 20 to 30 percent next year, according to some forecasts.
A number of TiO2 plants have been closed in Europe because they were considered to be unprofitable. Pressure on existing capacity is affecting prices of specialty TiO2 pigments used in printing inks.
Sachtleben GmbH of Germany, owned by Rockwood Holdings of the U.S. and one of Europe’s leading producers of TiO2 for speciality applications including packaging inks, has increased its TiO2 prices twice this year and is expecting to put them up again early in 2011.
Some downstream trade associations believe that the chemical industry should be doing more to deal with shortages, particularly since some chemical producers have been enjoying record increases in sales and profits.
In the first nine months of this year, BASF, the German-based chemicals giant, increased sales by 27 percent to €47.5 billion while earnings before interest and tax soared by 122 percent to €6.1 billion.
But even large companies like BASF have adopted a cautious economic outlook because of their own concerns about volatile raw materials markets and about the stability of banking and financial systems.
“The chemical industry has had six to nine months to adjust their production levels so that there is a better balance between supply and demand in Europe,” said Tony Mash, chief executive of the British Coatings Federation, which represents ink producers in the UK.
“After all, demand for chemicals is still below what it was in 2007/2008,” he added. “With a small amount of extra capital investment, they should be able to streamline existing plants and squeeze more out of them. Even though chemical companies are recording big increases in sales and profits, they are still reluctant to invest in new plants in Europe.”
Some analysts believe that the reliability of some chemical plants is being threatened by their owners reducing investment to a minimum in order to cut debt and increase cash flow.
“This is a typical corporate strategy at a time of recession and an economic slowdown,” said one European chemicals consultant. “Earlier in the year there seemed to be an unusually high number of force majeures, but recently these have been occurring less frequently.”
Some European chemical companies have, however, been continuing to invest in production capacity in the high-growth emerging economies like China and India, which is tending to increase Europe’s dependence on raw materials from Asia.
With the vast majority of organic pigments for inks in Europe now being made in China, ink producers have to keep a close eye on the Chinese pigments market. Interruptions to the pigments supply chain in China, such as the sudden closure of intermediates plants, can create scarcities in Europe.
Ink companies with a presence in China or elsewhere in Asia have more flexibility with the procurement of supplies of raw materials like pigments than their smaller competitors in Europe.
“With its worldwide supply and logistics operations, Flint has – with very few exceptions – been able to obtain the materials necessary to ensure continuous supply to its customers,” said Jan Paul van der Velde, senior vice president procurement and executive management team member at Flint Group, which has a pigment production operation in China.
Nonetheless, even Flint Group may have to modify inks because of shortages. “Despite this strength of a global, multinational company, the continuous lack of some key raw materials for packaging and narrow web inks may require product adaptations,” said Mr. van der Velde.
Ink producers in Europe are worried that they may have to do some additional reorganizing of raw material supplies following the expiry of the REACH deadline on the registration of higher volume chemicals and certain hazardous substance at the end of this month. Altogether, nearly 4,500 substances will have to be registered by then, with safety data by approximately 10,000 to 15,000 producers and importers.
The main goal of REACH, due to be realized completely by 2018, is that all chemicals produced and imported in Europe in annual amounts of 1 ton or more will have to have registration dossiers containing their safety profiles. Any substance missing its registration deadline will be banned under the basic rule of “No Data, No Market.”
“I am aware of several suppliers who have already made conscious decisions to withdraw from marketing substances that they must register this year because the economics (of registration) are stacked against them,” said Joanne Lloyd, director of REACHReady, a London-based consultancy. “However, in all cases I am confident that there are other suppliers who will have registered and who will be looking to fill the gap. The challenge of downstream users will be to source a new supplier rather than re-engineering a product.”
Ms. Lloyd also thinks it is probable that there will be chemical suppliers who will register their substances, but not their use in downstream sectors like ink formulations. Under REACH legislation, registration dossiers have to include not only data about a chemical’s properties but also its downstream uses, particularly in relation to the exposure of workers to it.
For a while downstream customers will not be acting illegally if they use a chemical in an application which is outside the scope of its registration. They have six months in which to notify the Helsinki-based European Chemicals Agency, which administers REACH, of the additional use of the chemical, and a year in which to register the use themselves with a full risk assessment.
“Another option is to find a supplier who had registered the chemical with the use of its application in ink formulations,” said Ms. Lloyd. “It’s an additional burden for a downstream business like an ink producer. But at least they have a reasonable amount of time to comply with the legislation.”