Pigment Manufacturers Struggle With Costs in Europe
Demand for printing ink pigments in Europe has been falling in many sectors over the past year, particularly in the traditional commodity segments.
At the same time, the raw materials costs of pigments producers have been going up. They have been attempting to pass these on through higher sale prices to ink makers, who are themselves under financial pressures from weak sales and rising production costs.
As a result, many pigment manufacturers, many of them Chinese or Indian producers or Western pigment companies with production plants in low-cost areas in Asia, are struggling to cope with a combination of both falling prices and declining demand in Europe.
They are searching for ways of reducing costs while differentiating their products sufficiently to make higher prices acceptable to their customers.
Geographically, demand for pigments has been hit the most in southern Europe, where the economies of countries like Greece, Spain, Portugal and Italy have been suffering acutely from the effects of the crisis in the euro, the European Union currency.
By sector, sales have been plummeting in the market for publications inks, which have been affected badly by recession and slow growth in many European countries and by a switch of advertising into the Internet.
“There’s been a double-digit drop in demand for pigments in the publications market, where there seems to be a lot of confusion about what to do about the rising power of the Internet,” said Phillip Myles, operations director at Union Colours, Stockport, England, the European product development and marketing subsidiary of the Chinese pigments producer Longyu.
Pigment sales have been much stronger in the upper end of the printing inks sector in Europe, where there continues to be a rising need for high performance pigments in segments like packaging and non-impact printing (NIP).
However, even producers of high performance pigments have not managed to escape the consequences of increasing raw material prices. These have stemmed from increases in the cost of petrochemical-derived intermediates for organic pigments and of metallic and other inorganic materials for effect pigments.
Consequently, producers of high performance and effect pigments have also been hiking up their prices. Merck KGaA, Darmstadt, Germany, a global leader in effect pigments for the printing inks and other sectors, including cosmetics, put up its prices last November for pigments and cosmetic materials by 5% to 15% in most cases. But with some individual products, the rise was as high as 30%, with the company blaming both raw material and energy costs.
With some organic pigments for inks, most of which are made in China or India, producers have been vulnerable to sudden shortages of intermediates, often due to disruptions in their manufacture.
An explosion in April at the site of Mitsui Chemicals at Iwakuni-Ohtake, Japan, which killed one worker, aroused anxieties in the printing ink pigments sector in Europe because the company is a producer for key benzene-derived intermediates for yellow and red pigments made in China. It raised fears of another scarcity of an important intermediate like that of carbazole, which triggered recently steep rises in the price of pigment violet 23.
“It’s unclear what will be the effect of the accident at Mitsui,” said a commercial manager at an organic pigments company in Europe. “But the incident will be enough to make producers or distributors keep one or two intermediates off the market in the hope this will precipitate a sharp rise in prices.”
Difficulties in Passing Along Higher Prices
Most pigment producers are having difficulties passing on increases in raw material prices because of the depressed state of many segments of the European printing inks sector.
But the big exception is manufacturers of the white pigment titanium dioxide (TiO2). These are mostly multinational players like DuPont, Huntsman and Cristal Global, which have enough economic clout to take full advantage of a worldwide dearth in TiO2 production capacity and also scarcities in rutile and ilmenite, major raw materials for the pigment.
TiO2 prices have soared in Europe by at least 75% during the last few years, and are set to continue to rise in 2012 and probably for the next few years. Some analysts believe they will have to rise even further to justify investment in new capacity, because they are still below the price levels of around 25 years ago in real terms after taking inflation into account.
Chinese companies have even been exporting cut-price TiO2 to Europe to exploit their position as producers of titanium dioxide through the sulphate process rather than the chloride route, which provides a higher quality pigment but at a higher cost.
Continued Growth of China, India
The rise in TiO2 supplies in Europe from China further strengthens the Chinese position in the pigments market in the region, where they are also well established in the provision of dyes.
Chinese and Indian producers now dominate the world’s colorants sector. In the ink sector in Europe, this is becoming significant because of the growing overlap and switching between pigments and dyes in the expanding inkjet ink segment.
The Asian expansion in the European pigments sector is being led by the larger producers. In the face of weak demand and squeezed margins, the smaller Asian producers, which have to rely on the marketing channels of traders and distributors, have been pulling out of the market.
“The margins have been less lucrative so some exporters active in the market have given up and have looked elsewhere, including the domestic Chinese market, which is still growing rapidly,“ said Mr. Myles.
The larger Chinese players have the economies of scale to push down their costs while also preserving quality.
“(In many printing ink segments), the cost of pigments is now the major concern among European ink producers, while pigment quality and performance is no longer the most important consideration,” said Robert Paul Wielinga, managing director of Trust Chem Europe, Deventer, The Netherlands, the European subsidiary of Trust Chem, one of China’s largest pigment producers.
“Trust Chem is developing low-cost pigments to meet customers’ requirements,” he added. “But we will make a balance between price and quality and performance.”
The Indian pigment producers Meghmani Group and Sudarshan Chemical Industries have been making bigger inroads into the European printing inks and other markets.
Meghmani, which has a large capacity for the production of phthalocyanine blue and green pigments and pigment violet 23, achieves 75% of its sales through exports, with Europe accounting for 25%. It is aiming for a 25% share of the European blue and green pigments segment.
Sudarshan, which is planning to raise exports over the next two years from 55% to around two-thirds of its sales revenue, took over the Finnish-based natural mica pearlescent pigments business earlier this year of Eckart, part of Germany’s Altana Group.
Europe’s multinational pigment producers are increasingly shifting the focus of their operations into the upper end of the market, often by upgrading in their European facilities the properties of base pigments imported from their own plants in China and India.
The big attraction of high performance and effect pigments is their higher prices and wider margins. Prices for high performance pigments can be three to five times higher than commodity pigments, whereas with some complex effect pigments, the multiple can be even bigger.
One segment offering many opportunities for added-value products is the NIP segment, particularly inkjet, in which there is a demand for innovative pigment applications requiring complex processing, especially to achieve the right particle surface, size and shape.
Clariant, the Swiss-based specialty chemicals company which is a leader in higher-end pigments, is gradually moving much of its business in printing ink pigments from the traditional to the higher end of the market, with an emphasis on inkjet ink and toner pigments.
“The traditional ink business is certainly the commodity part of (our pigments) business,” Patrick Jany, Clariant’s chief financial officer, said at an analysts conference call on the company’s annual results in February. “What we have been developing very strongly in the last years is a non-impact printing (business) for inkjet and laser jet printers, which is developing very strongly and more or less progressively replacing the traditional ink business.”
In 2011, total pigment sales went down by 6% in local currencies and by 17% in Swiss francs, while earnings before interest, tax, depreciation and amortization (EBITDA) fell by 1% in local currencies and 11% in Swiss francs. As a result the EBITDA margin for the year actually increased from 20.2% to 21.6%.
“In pigments, the overall business trend is not to develop a new chromophore or a new pigment for a paint producer,” Hariolf Kottmann, Clariant’s chief executive, told analysts. “It is just to reduce production costs to be more efficient and to provide to the customer higher convenience in applying our pigments to their processes.”
Merck, which focuses mainly on effect pigments for packaging and niches like wallpaper in printing ink, aims to help customers achieve a high level of creativity by collaboration not only with itself but other operators in the printing supply chain.
“In the printing industry, we believe that the cooperative way more than any other leads to the goal (of a perfect product),” said Peter Halas, Merck’s senior vice president pigments and cosmetics.
European Editor Sean Milmo is an Essex, UK-based writer specializing in coverage of the chemical industry.