Since that time, there has been a war in Iraq, with U.S. and British forces ousting Saddam Hussein from power. Still, there remains instability, as sporadic attacks are still occurring in that nation.
As a result of these matters, oil prices have fluctuated. In February, crude oil was averaging more than $35 per barrel, and in March 2003, crude oil reached its highest price at $37.83 per barrel. Prices have come down since that point, but most recently, the price of a barrel of crude oil has risen again to more than $30 a barrel.
Needless to say, the impact of that increase on the already stagnant economy is of major concern.
For ink manufacturers and their suppliers, higher oil prices are a serious problem. The printing industry has yet to rebound from the economic problems of the past three years, and any price increases for ink are being met with resistance. If anything, printers are looking for lower ink prices, which considering the already low returns ink companies are making, makes for an even more difficult situation.
Ink companies are also resisting increases from their suppliers, but the higher costs for crude oil is unavoidable for manufacturers of feedstocks, impacting the prices of resins, waxes, varnishes, solvents, petroleum distillates and numerous other ingredients. The increased energy prices are also adversely affecting transportation and other associated costs.
This leaves the ink industry in a bind. It needs to raise prices to make up for its own increased costs, but printers are reluctant to go along with higher prices. This means ink companies need to go back to their suppliers and work together to hold the line on prices.
Raw Material Prices
As a result of the increase in the prices of crude oil and other ingredients, numerous raw material suppliers have announced price increases this year. However, not all of the increases have been implemented.
“A number of suppliers have reacted to the spike in crude oil prices and the year-long climb of natural gas prices with price increases of their own,” said Jack Benson, Flint Ink’s vice president, corporate procurement. “As crude prices have declined since the commencement of the conflict in Iraq, pricing pressure has eased up on a number of commodities and prices have either been rolled back to January levels or planned price increases have not been implemented. Nevertheless, suppliers are citing increased costs of basic chemical feedstocks as drivers for industry price increases. My sense is that the spike in crude oil price and uncertainty about natural gas price futures is causing a whip effect in the total chemical supply chain that is as much emotional as it is actual.”
‘The reaction of a few suppliers to market conditions in the first half of the year was disappointing as it became clear that our business was less important to them than we had been led to believe. On the other hand, a number of suppliers took the long view and have worked with us to mitigate or eliminate our cost increases.’ – Jack Benson, Flint Ink’s vice president, corporate procurement |
“Aside from negotiated price changes, overall pricing has remained stable,” said Shellie A. Spencer, purchasing manager, SICPA North America Inc. “Solvents tend to be a very volatile market sector.”
“Over the last six months, many raw material suppliers have announced price increases, saying that they need to pass along increased costs that they can no longer afford to absorb,” said Ron Zavodny, director of corporate purchasing at Wikoff Color Corporation. “In actuality, few of the increases have happened as announced. They have been reduced, delayed or dropped as suppliers attempt to maintain market share in slow economic times.”
“Sun Chemical has seen significant activity by suppliers pushing for price increases, particularly those raw materials that are derived from oil and natural gas or consume significant energy in their production,” said Greg Nelson, Sun Chemical’s corporate vice president and chief procurement officer.
Pressures on Prices
Part of the reason prices of some key raw materials have remained as stable is overcapacity in the market, as companies try to maintain or increase their market share.
“From the supply side, there have not been any major issues with availability,” Mr. Benson said. “Demand is down and everyone seems to have some capacity available.”
Downward pressure on prices is also impacting certain ingredients in more lucrative markets such as UV, as more suppliers are entering the market in search of added sales. For example, monomer prices have been on the rise in recent months.
“Generally, what we have seen lately are price decreases on certain raw materials, as there are more and more suppliers for UV products,” said Jarek Sliwinski, technical manager, narrow web and energy curable products at SICPA North America. “Some companies would like to go the opposite way, but fortunately, due to the larger number of suppliers, they have to keep prices competitive.”
Consolidation is another factor affecting raw materials.
“Availability of raw materials has been impacted by consolidation and rationalization by suppliers in the past 12 to 18 months in Europe and North America,” Mr. Nelson said. “However, raw material availability from Asia and India has been very good at very competitive prices.”
Working with offshore companies has other drawbacks, including production and transportation issues.
“Availability, particularly of foreign material, has not been an issue,” Mr. Zavodny said. “It is probably more of a cause for the relatively constant pricing. The only time foreign supply was a problem was when there were operational problems associated with the foreign facilities’ ability to produce.”
“Many off shore materials are taking longer to clear customs and we are
seeing delays in transport times as well,” Ms. Spencer noted.
Working Together With Ink Companies
In order to compete, ink companies are trying to work closely with their suppliers to keep raw material prices relatively stable.
“We have, and continue to develop, very good supplier relationships as we work toward lower pricing,” said Judy VanBooven, purchasing manager at INX International Ink Company.
“Suppliers have shown a willingness to work closely with us to help us maintain business and our market share,” Mr. Zavodny said. “They have held, and in some cases, lowered prices in order to help us stay competitive and maintain or grow share.”
“We recently had meetings with major suppliers, and based on that, we can say that we do not expect any price increases or availability problems,” Mr. Sliwinski said. “Our suppliers work with us very closely to gain more business, not in preparation for a price increase.”
While some suppliers have collaborated closely with their ink customers to try to share the burden of increasing prices, other companies have been less willing to help out.
“Some have and some haven’t,” Mr. Benson said. “The reaction of a few suppliers to market conditions in the first half of the year was disappointing as it became clear that our business was less important to them than we had been led to believe. On the other hand, a number of suppliers took the long view and have worked with us to mitigate or eliminate our cost increases.”
“As a matter of fact, suppliers have been very aggressive in keeping prices at these levels in spite of the recent decrease in natural gas and crude oil prices, and some are continuing to push for additional increases,” Mr. Nelson said. “Most are attempting to seize this opportunity to improve their profitability and recover from the margin squeeze they experienced last year.”
‘All indications are that raw material prices will stay at these levels or will decrease at a significantly slower pace than the increases we experienced in the first and second quarters.’ – Greg Nelson, Sun Chemical’s corporate vice president and chief procurement officer |
Expectations For the Coming Months
Regardless of where the price of crude oil and other ingredients are heading, suppliers are hoping to improve their relatively low margins.
“In the coming months, we expect there to be a continuing desire on the part of suppliers to raise prices,” Mr. Zavodny said. “The long supply situation for most raw materials will not allow them to get increases. If the general level of business activity picks up, there will be increased pressure from suppliers for price increases because demand will have increased, absorbing some of the excess supply.”
“I expect we will have good availability of products as requirements will reflect the industry demand,” Mr. Benson said. “There is upward pressure on pricing, some legitimate and some wishful thinking.”
Mr. Nelson said that at best, raw material prices will slowly return to earlier levels.
“All indications are that raw material prices will stay at these levels or will decrease at a significantly slower pace than the increases we experienced in the first and second quarters,” Mr. Nelson said.
Whether ink companies will be able to support any price increases is another matter.
“I don’t see large scale pricing reductions, however I do not see the practicality of significant pricing increases given the current state of our industry and the economy,” Mr. Benson said.
“Ink producers will not be willing to accept increases from suppliers until the ink producers are able to pass the increases onto their customers,” Mr. Zavodny added.
Until the time that reasonable increases in ink prices can indeed be accepted by printers, the challenges presented by rising raw material costs will remain a major concern for ink manufacturers and their suppliers alike.