After a few years of dramatic price increases and tight supply, the ink industry has seen a general stabilization of key raw materials. Pricing remains high, but at least it is holding steady, for the most part.
However, not all the news is good. There are key ingredients that remain volatile. Pigments and pigment intermediates are facing pricing pressure as China increases its regulatory efforts. Costs for certain resins and solvents are rising. Purchasing executives are carefully monitoring the economy and the markets.
Jan Paul van der Velde, senior vice president, procurement, sustainability, regulatory and IT for Flint Group, noted that, in general, after a relatively flat 2013, 2014 holds more challenges for the global raw material market.
“Phenolic resins, pigments and geopolitical issues are causing raw material pricing volatility,” van der Velde observed. “In addition, the improved economic outlook has had an impact on available transportation and the associated costs of that, as well as lead-times and availability of some raw materials. While these are already critical additional costs if this economic recovery continues, markets should not be surprised to see a return to year-after-year inflation of raw material costs.”
Ed Pruitt, chief procurement officer at Sun Chemical, said that 2014 has brought mixed results in the raw materials market.
“We have experienced sharp inflation in some resins, intermediates and solvents, but we have also experienced relative stability in a number of other key raw materials,” Pruitt said. “In general, raw material prices have remained well above the levels that were in place as recently as three years ago.”
Robert Doerffel, corporate communications Europe for MHM Holding GmbH, said that the pricing situation has stabilized for many materials. “Oscillations have flattened and the displeasing excitement has retreated for the last months,” Doerffel added. “Nonetheless, quite a number of raw materials remained at fairly high rates, and the biggest challenge is still to find the best ways to handle high raw material costs in such a competitive market environment.”
“Presently ink raw materials are stable, though at a slightly higher level,” said Ashwani Bhardwaj, management, Asia and North America for hubergroup. “On the positive side, the price of gum rosin, one of our key raw materials, has come down from its peak of early 2014. There are some concerns about the availability of a few pigment materials, but the situation is likely to ease out in the coming months. Prices of major raw materials like mineral oils and vegetable oils are stable and expected to be so, unless a major disturbance in oil producing countries happens.”
Yu Adachi, corporate communication department, Toyo Ink SC Holdings Co., Ltd. said that the prices of raw materials such as a naphtha, rosin and titanium oxide remain high.
“Naphtha prices are heavily impacted by a weak yen,” Adachi noted. “Although the actual reasons are unknown, rosin prices appear to be influenced by market speculation, the climate and other factors.”
“There will always be a degree of uncertainty in the global raw materials market due to the uncalculated amount of variables that might play a role in sourcing at any given time,” Ken Klug, Wikoff Color’s director of purchasing, said.
“Generally speaking, the state of the raw materials we purchase has been stable,” said James La Rocca, Superior Printing Ink’s COO.
Pressure on Pigments
Pigments, of course, provide the color in the ink, and make up a large part of the ink itself. In particular, public concern with pollution levels in China is leading the government to become stricter in its enforcement of environmental regulations. As a result, there have been a number of pigment and intermediate operations that have been shut down or have gone out of business.
In July, Sun Chemical Performance Pigments and Flint Group Pigments raised prices on azo pigments, and BASF increased prices as well in August 2014.
Doerffel and van der Velde both note that the need to clean up the environment is understandable, and costs will be higher as a result.
“Of course, higher effort means higher pricing, but at least human mankind has learned that those regulations are necessary to protect ourselves,” Doerffel said. “This situation doesn’t affect us, because we have always been operating on the level of the highest environmental standards. At the end of the day it affects all manufacturing in the same way and protects people and consumers. Nothing to complain about and a 100% good situation.”
“This theme has been discussed for years, but, rightly so, we now see the Chinese government take strict actions against raw material producers who violate the rules to be more competitive,” said van der Velde. “Flint Group always has been clear about working with reputable suppliers that do invest in sufficient waste water treatment systems, etc. Please note that waste water treatment can make up as much as 30% to 50% of the costs of pigment production.”
Pruitt noted that pigments and intermediates seem to be impacted by more stringent environmental regulations.
“The majority of pigment intermediates are now produced in Asia, principally in China and India. These are generally smaller to mid-size companies run by entrepreneurs who have built their businesses to support the textile industry and the growing consumer markets and infrastructure investments,” Pruitt said.
“For buyers of intermediates or finished pigments, sourcing from China or India presents two concerns,” Pruitt added. “The first is that these countries are increasingly demanding stricter compliance from manufacturers to environmental regulations, which in turn is forcing these intermediates companies to make significant treatment investments, or in some cases to relocate to less industrialized areas in order to reduce the environmental impact of their operations. The second concern is that these companies periodically experience operational problems, or experience interruptions in their feedstock supplies.
“These two factors have made costs increasingly volatile, and have added new challenges to the management of the inbound supply chain,” Pruitt concluded. “And, because these factors are largely structural in nature, we do not expect the challenges to diminish in the near term.”
“The new regulations regarding discharge and emissions will definitely impact the supply and cost of photo initiators and pigments,” Klug noted. “We are carefully watching the potential consolidation of suppliers resulting from the high cost and short timeline for completing the environmental upgrades, which has a Jan. 1, 2015 deadline.”
“We are seeing a rise in costs for pigments and intermediates in China and other regions due to the tightening of environmental regulations by governments,” Adachi added.
Thoughts on The Near Future
The raw material market is hard to predict. Much of it is predicated on the economy, which itself is dependent on the global political situation.
“The political situation is critical in many regions of this world and we would wish for peace in those places,” Doerffel said. “Unfortunately our wish is not going to change anybody’s mind, and thus it is likely that we will run into situations that might set back single raw materials in their availability. If the world is lucky, we might remain where we are now.”
If all holds steady, ink industry purchasing leaders anticipate a fairly stable market.
Pruitt said that from Sun Chemical’s perspective, the company does not anticipate any major changes in the raw material marketplace over the next six months.
“Undoubtedly there will be some unexpected pressures that emerge due to supply issues we are not aware of today,” Pruitt added. “However, key raw materials are in generally good supply, global growth continues to be at a modest pace, and new oil production should help keep the oil and feedstock costs in line.”
“Based on our indicators, we don’t anticipate any significant spikes in cost or problems with availability in the next six months,” Klug said.
“Based on our discussions with our suppliers and our own research, we don’t anticipate any serious supply issues for the next six months,” La Rocca said.
“We hope this stability stays, but our experience over the past many years tells us that the ink raw material scenario is prone to sudden volatilities and slow recoveries from such sudden spurts, therefore adversely impacting the ink producers,” said Bhardwaj.
“We expect the challenges related to pigment intermediates to accelerate, especially as governments continue to be more serious around managing this supply chain,” said van der Velde. “This will, without a doubt, have cost consequences. If world markets continue to recover, even raw materials that are not currently affected by unique cost or supply challenges will likely face increased costs at or above inflation levels. Depending on the geopolitical tensions, crude will continue to be volatile, but with an underlying upward trend.
“Furthermore, specifically in the U.S., we need to keep a close watch on logistics costs in North America,” van der Velde added. “Cost implications could come from a variety of areas, including new legislation that has further decreased driver capacity; an aging logistics workforce; and increased economic activity resulting in greater logistics needs. Shortages of available logistics have already been reported. Inbound and outbound freight, as well as road and rail, will be under serious upward cost pressure.”