Ed Pruitt, chief procurement officer for Sun Chemical, noted that in general, Sun Chemical has seen a slowdown of the rapid inflationary trend of the last three years this year, although there is reason for concern overall.
“However, we continue to be very concerned about several critical raw material areas,” Mr. Pruitt noted. “Perhaps the most important area is the oil- and petrochemical-derived products, such as mineral oils, solvents, carbon black, resins and intermediates. Persistent volatility in oil and feedstock costs driven by geopolitical risk and commodity investor activities make these products very difficult to predict despite relatively static supply and demand fundamentals.
“We would also highlight gum rosin and titanium dioxide (TiO2) as two other raw material categories where, due to potential limits on supply, fluctuations in demand can quickly translate into sharply higher costs,” Mr. Pruitt added. “Finally, the impact of unfavorable weather conditions, particularly this year in North America, may sharply impact the prices of crop-derived products such as ethanol and soybean oil.”
Rick Westrom, senior vice president of strategic sourcing for INX International Ink Co., also pointed to ethanol as a concern. “The pricing of ethanol is a concern due to the drought that has hammered our corn crops in North America this summer,” said Mr. Westrom. “Farmers in many states are expecting yields to be down considerably and have applied for government assistance, so this will impact our industry as well.”
“The three main concerns are carbon black, TiO2 and any raw materials or plastic containers that need crude oil,” said John Copeland, president and chief operating officer of Toyo Ink America. “Key factors include cost of oil and spot shortages of many materials.”
“Oil and copper prices are a concern and are a factor impacting price,” said George Varughese, vice president of product development at Superior Printing Ink. “Carbazole violet is still a concern regarding availability.”
Ben Price, director of purchasing for Wikoff Color, noted that while prices are stabilizing, they are generally leveling off at much higher levels than before.
“Raw material pricing rose throughout 2011, but has started to see some leveling off in 2012,” said Mr. Price. “Titanium dioxide and carbazole violet prices may have finally peaked, but current prices remain high compared to historical levels. Even after a small reduction in August, TiO2 prices are still more than 60% higher than they were just two years ago. Likewise, carbazole prices, which have also seen a small decline in 2012, are still more than 30% higher than they were in mid-2010.”
“Our customers are demanding a better value and more service,” said George Sickinger, president and CEO of Color Resolutions International (CRI). “We are asking our suppliers to do likewise, and we are constantly looking for more suppliers in the main categories to strike a better deal and to assure a reliable supply of materials.”
Availability of raw materials has generally improved, but it is by no means secure. Mr. Copeland mentioned carbon black, TiO2, pigments and some photoinitiators that are now being banned in Europe as being areas of concern in terms of availability.
“Although we have not experienced this year the widespread shortages and allocations that plagued the industry two years ago, the raw material supply chain is a continuing concern to Sun Chemical,” Mr. Pruitt said. “A sharp uptick in demand from the emerging markets or developed economies could quickly put products like titanium dioxide, nitrocellulose, carbon black and some pigments in very tight inventory positions. We also need to be mindful of the potential impact of global weather conditions on such raw materials as gum rosin, ethanol and vegetable oils.”
Mr. Sickinger noted that CRI is “okay on availability. We have worked with suppliers to assure our needs are met.”
“There have certainly been some raw material availability issues over the past few years – TiO2, carbazole violet, nitrocellulose to name a few – but at the present time, Wikoff Color is not experiencing any significant problems getting material,” Mr. Price said. “We attribute the improvement in availability primarily to weaker global demand, particularly in places like Europe and China.”
Competing for Resources
One of the major challenges the ink industry faces is that it competes with larger industries for certain important raw materials. One of the main challenges being faced by ink manufacturers is the alternate use of key raw materials. For example, carbon black is an important ingredient for tires, and the tire industry has greater purchasing power than the ink industry.
“Carbon black used in tire manufacturing has had an impact,” Mr. Copeland said. “Also, TiO2 is used in paints to increase hiding power, and then only one coat would be required.”
“We compete with the tire industry for carbon black, and I think this has driven ink makers’ costs up for carbon,” Mr. Varughese said.
Mr. Pruitt noted that many of the raw materials that the ink industry consumes are also key components for other industries, such as coatings, adhesives, plastics, tires, fuels and agricultural products. “A classic example of this competition with other industries is the sourcing of rosin resin,” Mr. Pruitt said.
“This critical binder for publication inks is also used in producing adhesives, paper sizing, coatings and rubber products. At one time, there were a number of rosin resin producers that specialized in only manufacturing resins for the ink industry, but today, the typical rosin resin producer will sell a diversified range of products into multiple end use markets. Of concern to the ink maker is the fact that the attractiveness of these other markets has also increased over time due to healthier demand growth, less complex resins and sometimes a stronger value chain.”
“In addition to the ink market, rosin resin is sold into other markets, including adhesives,” Mr. Price said. “The resins used in adhesives are typically easier to make and more profitable than the resins used in inks. For these reasons, rosin resin manufacturers are diverting more of their capacity away from inks and into these more attractive markets. This has reduced supply into the ink market and caused prices to remain at elevated levels.”
“We have not seen as drastic affect on demand of commonly used ingredients that we share with other industries,” Mr. Sickinger said. “In robust economic years, demand for feedstocks used in steel manufacturing and building supplies had increased pricing and created a competition for molybdate and copper, which increased the cost of pigment pricing. With the retraction of construction growth and a slow economy, we have not experienced any availability issues.”
Coping with Challenges
In the face of these challenges, printers are asking their ink suppliers how they are maintaining the supply of key ingredients.
Mr. Pruitt said that Sun Chemical is very well positioned to meet the challenges of today’s raw material markets.
“At the heart of our purchasing process is a global procurement team that maintains in-depth knowledge of the markets we buy from, and who work closely with our technology teams and our best suppliers to identify new sourcing opportunities and better ways to use existing products,” Mr. Pruitt added.
“Due to our global reach, strong technical expertise and our vast supplier partnerships, we are able to manage today’s supply challenges,” Mr. Westrom said.
“CRI has always nurtured our supplier base, so we feel good about availability,” Mr. Sickinger said. “However, we have been pushing back on price increases, and we have sought out alternate materials or suppliers in an effort to control our costs. Overall, we have done a good job.”
“Toyo is positioned as well as can be expected as we are coordinating our worldwide purchasing and sourcing strategies,” Mr. Copeland said. “We are constantly evaluating new raw materials to see if they meet our stringent quality requirements, but yet are economically feasible or if the market will accept the new pricing.”
“Wikoff Color is positioned very well,” Mr. Price said. “We believe that strategic partnerships with key suppliers are extremely important. Wikoff has developed long-term relationships with many of our suppliers that have served us well when facing challenges such as raw material shortages or price escalation. In addition, Wikoff buys from multiple sources in each of our critical raw material areas.”
“We cope well because of our good, long term relationship with great vendors,” Mr. Varughese said. “They keep us supplied.”
Expectations for The Near Future
Looking ahead is difficult even during times of stability; still, ink industry leaders believe that prices are likely to remain steady due to the slowing world economy.
“In general, at Sun Chemical we see a continuation of the current moderation trend in the raw materials market over the next six months,” Mr. Pruitt said. “This outlook is based on the assumption that the tepid economic performance that is being seen in North America, Europe and in Asia will continue for the next two quarters. The great wild card here is the price of oil, which has recently regained strength. If prices do not retrench, it will start to drive the cost of oil and petrochemical derivatives upward.”
“The RMC forecast and demand looks stable as there is only slight growth projected in the U.S. for the rest of the year,” Mr. Westrom said. “Europe’s economy is likely to get worse before it gets better, and there likely won’t be any significant growth in Asia until 2013.”
“We are anticipating shipping costs to increase both domestically and overseas,” Mr. Copeland said. “This is due to fuel cost and ocean shipment fees.”
“Business near term is looking better because of the diversification of our product portfolio and the positive responses we are getting from printers about these products,” Mr. Varughese said.
“Given the stagnant world economy, I expect prices to be a least stable and perhaps drop to the levels of five years ago,” Mr. Sickinger said.
“Global demand is weak, and we do not expect that to change in the near-term,” Mr. Price said. “As a result, we expect continued downward pressure on price for many of our raw materials.”