The Raw Material Report

By Dave Savastano, Editor | 11.15.13

Raw material prices have stabilized during the past year, although costs remain at high levels. However, stricter environmental mandates are impacting the availability of some key ingredients.

For purchasing executives at ink companies, raw materials have been a challenge in recent years. Costs have skyrocketed for many key ingredients, while availability has been erratic. The good news is that there seems to have been some stabilizing in terms of cost and supply for many of these key raw materials, albeit at a higher price than previous years.

Ed Pruitt, chief procurement officer, Sun Chemical, said that 2013 has been a year of improved stability for raw materials.

“We have experienced pricing pressures in some areas due to rising crude oil or other feedstock values, but in general, raw materials are displaying less volatility in price levels than three to four years ago,” Mr. Pruitt said. “At a macro view level, the main contributor to this period of relative stability is the current weakness in global economic conditions. The flat to low growth behavior of the U.S., European and Japanese economies together with a pronounced slowing in developing economies such as China has put a strong damper on demand and compelled suppliers to focus on managing their capacities and their costs.

Photo by Jessica Carlin.
“Although we are spending less time in 2013 chasing down the supply of key raw materials than we did two or three years ago, the continuing tautness of the raw material supply chain remains a serious concern to Sun Chemical,” Mr. Pruitt added. “In the aftermath of the recent financial crisis, suppliers are cautious about adding capacity, and they continue to closely manage their inventory, which leaves their customers vulnerable to potential stock outs in the event of supply problems or a spike in demand. The graphic arts industry has also faced increasing competition from other industries such as adhesives, tires and coatings for the support and strategic commitment of our suppliers.”

“Raw material supplies and pricing have both been fairly stable for over the last year, although with higher price tags,” said John Copeland, president and chief operating officer at Toyo Ink America, LLC. “We are concerned with any products that are oil-based, napthal red pigments and packaging materials containing plastic or cardboard. Key factors impacting pricing seem to be world politics, freight and demand.”

“There are no more systemic shortages,” said Robert Doerffel, corporate communications Europe for MHM Holding GmbH. “Although smaller bottlenecks still occur (especially pigments), they are isolated cases, each with a very specific reason. Suppliers have continued to work on solutions and fixed capacity constraints. The weak economic growth (at least in comparison to the exceptionally strong economic recovery in 2010) contributes to the absence of bottlenecks.”

Diane Parisi, vice president supply chain management for Flint Group, said that the availability of raw materials in general has improved, whereas a few years ago many materials were short. However, stricter environmental mandates are impacting certain key ingredients.

“This does not, however, mean that all materials are now widely available,” Ms. Parisi added. “One of the key challenges for the industry is the increasing pressure on the environment and production pollution for some of the intermediates that the whole chemical industry is using and which are solely produced in Asian countries. As governments are rightly so more strict on pollution control and enforcement of the associated laws, a number of producers are not willing or are unable to upgrade their processes and are forced to exit the markets. This change process is causing supply - demand unbalances with effects on security of supply (availability) and price spikes. Recently we have seen issues regarding blue pigments and UV precursors.”

“Phthalo blue and green from China and India are a concern for price and availability,” said James La Rocca, chief operating officer at Superior Printing Ink. “Environmental pressure placed on China and India seems to be the cause.”

Rick Westrom, senior vice president of strategic sourcing and senior vice president – research and development director at INX International Ink Co., also reported that environmental concerns, as well as a fire at a key nitrocellulose factory, are leading to sourcing challenges.

“The Chinese government’s policy on environmental protection has led to the temporary or permanent closure of many DCB (3,3’ Dichlorobenzidine) supplier facilities,” said Mr. Westrom. “DCB is a key amine component for Azo Yellows, such as PY 12, 13, 14, 17, 83, 126, 127, 174, 176, Pigment Orange 13, 34, and Pigment Red 38. In addition, the supply of nitrocellulose was temporarily disrupted after a fire at TNC Industrial Co. plant in the first week of August. TNC is a major nitrocellulose producer in Taiwan.”

The TNC fire has created a serious problem for the supply of nitrocellulose.

“When TNC will be able to supply raw material again is questionable,” Mr. Westrom said. “It is estimated that TNC supplies more than 25% of the U.S. market, but the government has taken over the facility and nothing was expected to happen until after an investigation is completed. The fire destroyed half of the facility, and TNC has told us that once the investigation is complete, they think they can run the facility at about 40% capacity within three months. TNC plans to build a new facility and said it can be completed in eight months, so optimistically that would be mid-2014.”

Ben Price, director of purchasing, Wikoff Color Corp., said that compared to 2010 and 2011, raw material prices have been relatively stable.

“There are a few areas we are watching closely, however,” Mr. Price added. “Supply of pigment intermediates, particularly those used to produce reds and yellows, is becoming more of a concern. Many of these materials are produced in China, and the Chinese government’s continued effort to clean up the environment has resulted in some factory closures, which has restricted output. As supply of these pigment intermediates tightens, upward pressure on pigment prices is a possibility.

“We have also seen a recent rise in Chinese gum rosin prices,” Mr. Price noted. “This has not yet trickled down to our rosin resin prices, but higher gum rosin prices were a major factor in the drastic rise in rosin resin prices in 2010. Lastly, higher crude oil prices are a concern. The price of crude oil in late August is more than 15% higher than it was in late June, and the situation in Syria threatens to push the price even higher. Higher crude oil prices can have a widespread impact on raw materials used in inks.”

Feedstocks, crude oil and gum rosin remain areas of concern for ink companies.

“Up until recently, the entire benzene/toluene/xylene/styrene chain has been extremely volatile and on an upward trend,” Ms. Parisi observed. “Further, in the last few months, crude oil has also been on an upward trend, specifically WTI, closing the gap with Brent crude pricing. Last but not least, it looks like gum rosin is going up again, with double-digit increases in the last six weeks, which will have an effect of phenolics resins again. The key drivers are changing the economic outlook, speculation and increasing demand or reduced supply.”

Expectations for Raw Materials

When it comes to the future cost and availability of raw materials, ink manufacturers are understandably cautious.

“At INX, our expectations are cautiously stable,” Mr. Westrom said. “There are indications of some price instability for blue and yellow pigments, and there are price increase announcements in the market for TiO2 scheduled for October, but it is uncertain if the TiO2 producers will act on them.”

“Our expectations for the next six months is a stable (in global terms) marketplace,” Mr. La Rocca said.

Ms. Parisi noted that rising environmental costs are an area to keep an eye on in the coming years.

“In principle, we expect overall flat raw material prices, based on the current best understanding,” Ms. Parisi said. “Obviously unrest in the Middle East and specific raw material challenges for a number of materials might distort this picture. Overall at industry level, the increasing environmental costs will have larger effects on raw material costing going forward. For example, for some pigments, the costs of waste water treatment is now close to the overall cost of manufacturing, while years ago these waste water treatment costs were insignificant. This trend will continue and accelerate.”

The Middle East remains an area of concern due to the impact of regional conflicts on crude oil supply.

“If the world political issues remain somewhat stable, we believe raw material cost and supply will also remain stable,” Mr. Copeland said. “If a blip occurs, we anticipate oil-based products will rise in price.”
“From Sun Chemical’s perspective, we expect to see a continuation of the general stability in raw material costs in the near term due to the subdued global economic picture,” Mr. Pruitt said. “There are some areas, however, that deserve close watching. Crude oil is arguably overpriced today from a fundamentals point of view. However, the unrest in Egypt and Syria has significantly raised the risk premium in the crude market and this condition could persist for some time.

“Another area of future concern is titanium dioxide, which has seen moderating market prices in 2013 due to softer demand, but at the same time has experienced higher costs due to feedstock pricing,” Mr. Pruitt added. “These TiO2 producers are under a good deal of pressure to find a solution to their weak or negative margins.”

“It is always difficult to predict what might happen with raw material supply as the situation can change quickly,” Mr. Price concluded. “The conflict in Syria is a wild card. If this situation further escalates and the U.S. or neighboring countries get involved, there could be a significant impact on crude oil prices which would ultimately affect raw material prices, transportation costs, etc. However, if this situation does not escalate to that level, we don’t expect a major change in raw material pricing or availability in the foreseeable future.”

For more information on the raw material market, particularly on how ink manufacturers are coping with these challenges, please see the online version at www.inkworldmagazine.com.