Experts inside and outside the industry believe that the cost pressures will persist for at least another few years, if not longer.
“We are facing similar difficulties with raw materials as we confronted a year or more ago,” said Tony Mash, chief executive of the British Coatings Federation, whose members include both ink and paint manufacturers. “Our members have been hoping that the chemical sector would be able to support them in their growth ambitions following the recession. But the procurement of many materials is still a nightmare, with shortages looking likely to continue in the short to medium term at least.”
With some chemicals, ink producers are looking for alternatives which will give them security of supplies in the long term. Currently, ink producers in Europe are having problems even gaining commitments from suppliers of chemicals usually sold under annual contracts. Instead, supply deals for these chemicals have been shortened in some cases to periods of only a few months.
“Some of our members are being told there will be shortages during 2012 for chemicals which would have been easily available before 2008,” said Mr. Mash. “Supplies will still be affected for a period by all the plant closures which took place during the recession. Now some chemical companies have announced plans for new capacity. Some of this is outside Europe and will not be coming on stream for two to three years.”
In a recent study on the outlook for ink raw materials in Europe, Flint Group warned about the mistake of assuming that after the recent raw material cost increases of late 2010 and early 2011, the worst was over.
“The material cost increases in Q2 and Q3 2011 have been quite serious, and although we now foresee a slowdown of the speed of the increase, the outlook for the next 18 months is still upwards,” said Jan Paul van der Velde, Flint Group’s senior vice president for procurement, in a presentation on the study.
Flint Group’s survey highlighted the threat of permanent shortages because some raw materials would no longer be sourced from the by-products of bulk chemical manufacture.
“With the increased focus on yield and efficiency in upstream production, less by-product will be available,” said Mr. van der Velde.
Passing on Higher Costs
Meanwhile, ink producers in Europe will have the hard task of passing on increases in raw material costs when many segments of the region’s printing industry will be achieving at best only a slow growth in sales. Others will be in decline because of intense competition from the Internet.
Some of the leading ink producers in Europe, including Flint Group, Sun Chemical and Siegwerk, have managed to push through relatively big price hikes for their products. Earlier this year, Flint Group raised its prices for packaging inks in Europe by an average of 8 percent, with some increases being as high as 30 percent.
“These big jumps in raw materials costs are particularly tough for ink makers,” said a senior executive of one European raw materials supplier. “There have been periods of steep rises in raw materials prices before, which the ink sector seems to have been able handle without too much difficult. Now their margins are so slim because of the present state of the printing market they have little room in which to maneuver.”
Another problem for the ink sector is that some suppliers are no longer giving it the same preference as in previous years, when its relatively high volume demand for some chemicals was an attraction. “The ink industry is certainly not a favorite industry anymore to sell to,” said Mr. van der Velde. “Other industries pay more for the relatively low-added value raw materials we require.”
The main industries competing for the same raw materials are the coatings and adhesives sectors. But they also include diverse sectors like tire manufacturing, construction and oil exploration.
Sharp Rise in Base Chemical Prices
The major impetus behind the hikes in raw material costs in Europe this year has come from steep increases in the prices of base chemicals, mainly petrochemicals, which themselves have stemmed from higher crude oil prices. During the first half of 2011, some petrochemical producers benefited from prices increasing as high as 20 percent.
During the first quarter of the year, benzene and propylene prices in Europe soared to levels around four times higher than they were two years ago, while toluene prices were almost three times higher. Base chemical prices rocketed to similar levels in Asia as well.
“Recently there have been some first signs of weakness (in base chemical prices), but despite the drop, prices remain at very high levels,” said Mr. van der Velde. “Pricing of products produced from these base chemicals is in many cases still increasing due to the lagging effect of costs coming through value chains.”
High base chemical prices have impacted the costs of starting materials and intermediates for organic pigments made in China, which account for a large proportion of the ink pigments sold on the European market.
Prices of raw materials for resins have also spiraled. The costs of glacial acrylic acid (GAA), a raw material for acrylic resins derived from benzene and propylene, has gone up by more than 33 percent since 2010. The price increases for GAA have been aggravated by competition from other large sectors, such as super absorbent diapers and water treatment chemicals.
Raw materials for resins and additives from natural sources have also become far more expensive. Prices of soybean oil in Europe more than doubled in the two years to early 2011. Gum rosin prices have recently softened after peaking at record levels in the first two quarters of 2011. Prices of Chinese gum rosin doubled in around six months. Although they have dropped by about 40 percent since the spring, they are still double what they were in early 2009.
“No one knows whether gum rosin prices will continue to go down or will go back up again,” said Paul Walden, director of Langley-Smith, a London-based distributor of gum rosin. “Prices early in the year went too high so that demand dropped as gum rosin became more expensive than alternatives such as hydrocarbon materials.”
Chinese growers of pine trees, from which the gum rosin is extracted, are becoming more unpredictable. They have the option of postponing the harvesting of rosin until the price becomes attractive. Some have diversified into other crops in which they can earn higher margins.
“Normally we have no difficulties with raw materials supplies because we grow our own pine trees,” explained an export manager of one Chinese gum rosin producer at the European Coatings Show in Nurnberg, Germany, earlier this year. “We start to have problems when we have to purchase crude gum rosin off independent growers. You can’t rely on them to harvest the rosin when you want it.”
There have been similar big increases in prices of tall oil and phenolic rosins. Flint Group believes that in the total rosin sector, prices have gone up by 400 percent in one and half years.
Tall oil prices have been affected by reductions in demand for pulp and paper and also by subsidies for biofuels from tall oil in Europe. The costs of nitrocellulose have been increasing steeply because of shortages of wood pulp as well as higher prices for cotton pulp, two of its major raw materials.
beginning to look at the feasibility of synthetic substitutes in the hope they would provide greater security of supplies. As a result, resin suppliers have been busily developing alternative options for ink makers.
“Our customers are looking for synthetic alternatives which do not just provide greater price stability but also improved performance and other advantages,” said Arend-Jan Scholten, technical specialist for the graphic arts market at DSM Resins in the Netherlands.
“We are working, for example, on a synthetic alternative to nitrocellulose, which has safety concerns as well as price issues,” he continued. “So we’re aiming to replace it with something that is safer as well. It is also difficult to replace a chemical like nitrocellulose with a single alternative component for the same formulation. So you have to provide a totally different formulation. In this case, a suitable substitute could be one based on a polyurethane system.”
With some raw materials, there are no substitutes. Titanium dioxide, for example, whose European price had gone up by around 40 percent in 18 months and is continuing upwards, has a refractive index which no other pigment can provide.
One possibility is to use less TiO2 in formulations by blending it with calcium carbonate, or to use additives to improve the dispersion of the pigment without sacrificing quality.
DuPont, a major TiO2 supplier to the European market, has announced plans to build a new titanium dioxide plant in Mexico. AkzoNobel Europe’s biggest coatings manufacture, could also ease pressure on prices by moving upstream through a partnership deal with a Chinese titanium producer for the building of a TiO2 plant in China, part of whose output would be guaranteed to AkzoNobel.
For the next few years, development of new formulations to accommodate shortages and higher costs of key raw materials will be a major preoccupation of ink producers in Europe.