David Savastano, Ink World Editor09.20.10
For the past few years, raw material costs and supply for printing inks have been, in a word, volatile. There were skyrocketing crude oil prices, followed by shortages. Pigment prices, which had remained relatively stable, were impacted by the elimination of the value addded tax and a new emphasis on environmental issues in China. Then the global recession hit, and hit hard.
Meanwhile, the printing industry haas come under heavy pressure from a varety of outside sources, not the least of which is the growth of the Internet.
Since the middle of 2009, the global economy has seen some improvement, and one might think that bodes well for raw materials as well. However, with all of the consolidation and plant closures that have taken place in recent years, as well as destocking, supply of key material from acrylic acid and resins to the feedstocks that are critical to essentially all ink ingredients have come under further pressure. There has also been increased demand from emerging markets from other industries using the same raw materials.
As a result, ink manufacturers are getting even more price increases coming over to them; Sun Chemical officials said that an overall average increase of 10% in raw material cost has been passed on to ink manufacturers this year. As a result, ink companies are now passing along what they can to the beleagured printing industry.
Flint Group officials noted that in some cases, raw materials have risen by more than 50% in the last six months, and the outlook offers no sign of relief in the short term. Siegwerk’s raw materials rose on average 30%.
Ed Pruitt, Sun Chemical’s chief procurement officer, said that 2010 has been an extraordinary year in terms of raw material challenges.
“Arguably, the chemical industry has not seen a year of similar supply shortages and tightness in over two decades,” Mr. Pruitt said. “Among the many products under varying degrees of pressure, we would highlight rosin resin, specialty pigments, energy cure resins, acrylic resins, titanium dioxide, nitrocellulose and some additive resins.
Mr. Pruitt said that the factors driving these supply issues fall largely into three areas.
“First, we have seen our suppliers experience a large number of unexpected feedstock issues,” Mr. Pruitt noted. “An example would be the global shortage of acrylic acid for energy cure and acrylic resin producers. The second factor would be a surge in demand that occurred largely in the first and second quarter as businesses refilled their pipelines and addressed sharply higher demand from the developing regions. The third factor would be the general tautness in supply that resulted from the many cost and working capital actions taken by the chemical industry last year during the height of the recession.”
Ansgar Nonn, Siegwerk board member and president NAFTA, said that following the economic downturn in 2008, many raw material suppliers reduced operating capacity and personnel. For example, commodities like TiO2 and carbon blacks are also in very tight supply as a consequence of plant closures and significant increases in demand in other related industries.
“In some instances, suppliers permanently shut down plants to accommodate the economic downturn,” Mr. Nonn said. “Inventories were reduced dramatically over 2009. Due to the increase in demand at the end of 2009 and early 2010, many industries were not positioned to adequately supply and service their customers. In addition, many suppliers were not sufficiently convinced of the sustainability of the increases, and have consequently hesitated in restarting previously idled production capacity.
“Compounding the problem, numerous cases of force majeure, closures due to environmental reasons, and labor strikes exacerbated an already tight market which has led to serious reductions in supply and product allocations,” Mr. Nonn added.
For example, Mr. Nonn noted that a large portion of Siegwerk’s organic pigments is sourced from Asia, where a surge in Asian domestic demand has put limitations on material available for export. In addition, several intermediate suppliers are short of raw material feedstocks, while others have curtailed operations or have been shutdown due to environmental reasons.
With resins, Mr. Nonn said that acrylic resins have been particularly hard hit due to acrylic acid force majeure during the second quarter of 2010. Many other specialty resins, such as polyurethanes, polyamides, vinyls, etc., are in short supply due to plant capacity constraints and shutdowns, as well as, increases in demand in other related industries. Problems with the harvest of gum rosin in Southern China has put major stress on the entire supply chain of refined and derivative hard resin products with material shortages, with prices doubling in some cases. Global shortages of cotton linters and wood pulp are being experienced, which affects the manufacturing of nitrocellulose.
Ben Price, director of purchasing at Wikoff Color, said that the raw materials of most concern to Wikoff Color are the monomers and oligomers used in its energy cure products, along with the acrylic resins used in its water-based products.
“While several factors have reportedly contributed to tight supply of these raw materials, the most significant factor is a shortage of acrylic acid that resulted from multiple unexpected production problems,” Mr. Price said. “Epoxy resin, another material used in our energy cure products, has also been extremely tight throughout the first half of 2010. Other areas of concern include rosin resin and titanium dioxide. Wikoff has experienced longer lead times as well as higher prices for all of these raw materials.”
Rick Westrom, senior vice president – strategic sourcing for INX International Ink Co., said that for a variety of reasons, some major European pigment producers are having a difficult time fulfilling orders and maintaining inventory.
“There is a worldwide shortage of Violet 23, causing prices to increase significantly due to these supply shortages of key intermediates in the crude for Violet 23,” Mr. Westrom said. “And the output for Phthalo blue and green pigments, which are from India, is confined due to tighter environmental regulations.
“Since the economic downturn, TiO2 inventories have been reduced and capacity removed from the market,” Mr. Westrom added. “Now that demand has increased, producers are unable to meet current supply requirements and replenish inventories. Acrylic acid (acrylic resins) shortages has limited the supply for most water-based polymers and energy cure monomers/oligomers. This resulting shortage of acrylic acid has forced suppliers to invoke sales control measures on the available products supplied to the market.”
George Sickinger, president and CEO of Color Resolutions International (CRI), said that acrylic acid and titanium are CRI’s biggest concerns at the moment.
“A reduction in production capacity is causing the acrylic acid problem, and it may not abate until early next year,” Mr. Sickinger added. “Titanium, as a mined material, is an on-again off-again problem with cost and supply. Plastic pails have been rising along with polyethylene prices.”
Yu Adachi, corporate communications at Toyo Ink Mfg. Co., Ltd., reported that since the beginning of the year, rosins, carbons, pigments and iron prices have been on the rise.
“This has impacted the product costs for our offset inks,” Mr. Adachi noted. “Rising crude oil prices has also had a significant effect on our gravure inks.”
Gum rosin is a case in point. On May 12, Flint Group officials reported that the availability of gum rosin and gum rosin derivatives was minimal. Teh compnay added that forecasters said that early crops in 2010 would be utilized primarily by the Chinese domestic market, where most of the global supplies originate. Prices as of May were around the $2,400 per ton level; by contrast, last fall, the price of gum rosin was at $900 per ton. That is a 170% increase.
“Gum rosin, and its derivatives, are a key raw material for publication gravure inks, so the current high pricing has a significant effect on our product cost,” said Dr Matthias Schuetz, Flint Group’s director of product management, publication gravureinks, Print Media Europe We have no economic alternatives either, since the only replacement raw materials we might consider are oil-based, which are much more expensive and also rising.”
In early June, Flint Group officials noted that acrylic acid is facing a global shortage, which started in North America after production incidents at Dow and Arkema, but has spread around the world. This has also been as a result of the prices for styrene, which is used as a co-monomer in styrene acrylic resins almost returning to the record levels of 2008.
“While acrylic resins are a key raw material for water-based inks, acrylates are the material more commonly found in UV inks and these issues are now causing significant challenges for water-based and UV-based packaging and narrow web ink markets”, explained Jens Zimmermann, director global marketing, Flint Group Packaging & Narrow Web. “To further compound this problem, the situation with the major raw materials for solvent-based inks is also worrying as solvents have also recently started to come under significant price pressure. A prominent example of this is nitro cellulose where price are driven up by high increases in wood-pulp, a key raw materials for NC.”
Flint Group noted that key raw materials such as benzene, toluene, ethylene and propylene, have faced double-digit price increases.
Price Increases and the Ink Industry
Due to the supply issues, raw material prices have also been rising.
“The broad array of supply challenges has led to an equally broad-based cost impact as suppliers have been consistently raising prices on a quarterly, or at times, monthly basis,” Mr. Pruitt said. “The large majority of our purchase categories have experienced at least some price inflation in 2010. Although it is maddening as a customer to face the dual impact of reduced supply availability and higher costs, many of these supply issues were beyond the direct control of our suppliers and our supply base has been seriously penalized by the runaway feedstock costs.”
“We decided to wait for some time to evaluate the situation, implement further cost reduction programs to mitigate the cost increase and to take measures to safeguard supply," said Hugo Noordhoek Hegt, Siegwerk board member and president packaging EMEA. "The situation, however, has worsened rapidly and there are no signs at all of a softening market.”
“As you would expect with a reduction in supply, we have experienced price increases,” Mr. Price said. “ Price increases have impacted each of our product lines, however, the most significant increases have been in the energy cure area.”
Mr. Westrom noted that the higher raw material prices led to INX International’s announcement of price increases effective Sept. 1.
“The increased demand imbalance on specific global raw materials and chemical feedstock markets left us no choice but to increase prices for solvent-based white inks and water-based white inks 4 to 6%,” Mr. Westrom noted. “We were able to keep the increase for water-based inks, bases, clears and blends to 2 to 4% percent, but inks containing Violet 23 and water coatings will hike 8% and UV inks and coatings will rise 8 to 10% percent.”
“Several raw material suppliers have already implemented two price increases this year and a third round of announcements is expected shortly,” Felipe Mellado, chief marketing officer for Sun Chemical, commented. “Various materials have also been placed under sales control, which restricts access to the necessary product ingredients. The weakening euro has also had a significant impact on raw material prices.”
“Flint Group is conscious of the fact that its customers are not having an easy time at the moment and that many raw materials together with energy and transport will continue to rise. However, Flint Group is not exempt from this phenomenon, and even though our technical team is constantly searching for ways to mitigate these effects, we ourselves are incurring tremendous increases despite our ongoing cost containment programs,” said Mr. Zimmermann. He concludes: “The cost increases have now proved too large and the need to pass on these higher costs to our customers is necessary. Flint Group is regretfully forced to advise a price increase of 5 - 8% for Narrow Web Inks with effect as of 1st July 2010. The price increase will enable the Flint Group to maintain our ability to deliver exceptional value, consistent quality, and continuous innovation to customers around the world.”
One of the challenges in the market is the consolidation of suppliers.
“The chemical industry has been in a state of transformation over the last decade as evidenced by a number of major trends,” Mr. Pruitt noted. “We have seen a growing constraint on oil and commodity chemical supply due to surging demand in developing regions and reduced appetite for risk by major oil and chemical producers. We have seen increasing supplier consolidations and the growing role of private equity and sovereign nations in the ownership of strategic chemical assets. We have also experienced a changing focus for commercial relationships, where short term pricing agreements, escalating volatility and more selective selling have become the new norm. As a leader in our industry, it has been Sun Chemical’s focus to anticipate and understand these trends, and to adapt our way of doing business in procurement to succeed in the new market realities. We do not intend to allow the growing challenges of sourcing raw materials to impact our ability to serve our customers. At the same time Sun Chemical does intend to be a strong and consistent advocate for the future of the graphic arts industry and for the value chain to our customers.”
“There has been consolidation in the resin industry, which has caused us to seek out new suppliers and alternate materials, most notably plant-based resins,” said Mr. Sickinger. “In general, our purchasing efforts have become increasingly more global in order to better control our raw material costs.”
“What is impacting our ability to procure raw materials is the reduction of capacity in the marketplace,” Mr. Westrom said. “This is the result of either consolidation, product rationalization, plant closures or some unforeseen shutdowns such as industrial accidents.”
In order to cope with these issues, ink manufacturers are rethinking how they are maintaining their inventory levels.
“The recent raw material supply challenges have forced Wikoff to make significant adjustments to our order patterns and inventory levels,” Mr. Price said. “We have also had to seek out and approve alternate sources of supply to supplement what we are able to secure from our primary suppliers. Where possible, we have built up safety stocks of our most critical raw materials.”
“We are measuring our safety stock levels and working to ensure that we have viable, qualified alternatives in place so we have continuity of supply,” Mr. Westrom said.
“The future is uncertain, but prices of these raw materials are predicted to rise gradually,” Mr. Adachi noted. “To improve our procurement process, the Toyo Ink Group has actively implemented measures to further strengthen supply chain management.”
“Siegwerk is well aligned with its global suppliers to minimize supply disruptions and is continuing to focus technical efforts on finding viable, quality products to sustain customer satisfaction,” Mr. Nonn said.
"We have mobilized our technology and sourcing teams to improve recipes and to increase efficiencies," said Mr. Noordhoek Hegt. "Productivity measures to offset increasing costs are under consideration as well."
“In the fall of 2009, Sun Chemical recognized that there was a clear danger that supply issues may escalate in 2010,” Mr. Pruitt said. “We began a program of identifying vulnerabilities and taking actions to diversify supply and plan contingencies. Despite this good work, we, like most companies in our industry, have been stunned by the magnitude of supply issues that have arisen and continue to occur on an almost daily basis. There is no magic in handling these crises. It has required a true cross-functional approach within Sun Chemical as we have worked closely with our incumbent suppliers, identified and implemented alternative sources, broadened our geographic reach, evaluated alternative materials, and sharpened our supply chain planning skills.
“In the near term, we believe that today’s supply issues will remain largely invisible to our customers as we effectively manage through the many planning challenges,” Mr. Pruitt added. “Longer term, the experiences of this year will compel Sun Chemical to look harder and longer at how we develop our sourcing strategies and what the preferred raw materials will be for the future.”
“We are conscious that our customers are not having an easy time at the moment and many raw materials together with energy and transport will continue to rise,” Mr. Zimmermann concluded. “We at Flint Group are not exempt from this phenomenon, and even though our technical team is constantly searching for ways to mitigate these effects, we ourselves are incurring tremendous increases despite our ongoing cost containment programs. We intend to continue closely monitoring the situation, keeping our customers fully informed of developments.”
Expectations for the Coming Year
Expectations for the coming year are somewhat optimistic, although realistic.
“In 2011, we expect the second half of the year to improve for acrylic acid-based raw materials,” Mr. Westrom said. “The supply of TiO2 will remain tight into next year until suppliers can rebuild their inventories. Pigments will likely be a challenge as there are problems with various supplies of pigment intermediates.”
“I expect that many of the raw material supply challenges we are currently facing will begin to gradually improve as we approach the fourth quarter of 2010,” Mr. Price said. “Our suppliers are telling us that the acrylic acid shortage should start to improve in the September/October timeframe. This should improve the availability of the raw materials impacting our energy cure and water-based product lines. As supply improves, I expect downward pressure on raw material prices.”
“For 2011, we expect that the magnitude of supply issues will decline, but not go away,” Mr. Pruitt said. “Some of the basic feedstock shortages, acrylic acid for example, should dissipate by the beginning of the year. Capacities for some chemicals should increase as shuttered plants or product lines are restarted. And we would also anticipate from a demand perspective that usage will not surge under the scenario of a modestly improving global economy. However, where there are still fundamental imbalances in supply and demand, we would expect to see continued tightness and potential shortages again next year.
“From a cost perspective, although some of the feedstocks will decline and result in a retracement in raw material pricing, there will also be continued risk of inflation in the less well supplied product areas, such as nitrocellulose or titanium dioxide,” Mr. Pruitt added. “As an industry, we will also be carrying over the impact of the continually rising prices this year, which means that on average costs should be up significantly in 2011 versus the average of 2010.”
Meanwhile, the printing industry haas come under heavy pressure from a varety of outside sources, not the least of which is the growth of the Internet.
Since the middle of 2009, the global economy has seen some improvement, and one might think that bodes well for raw materials as well. However, with all of the consolidation and plant closures that have taken place in recent years, as well as destocking, supply of key material from acrylic acid and resins to the feedstocks that are critical to essentially all ink ingredients have come under further pressure. There has also been increased demand from emerging markets from other industries using the same raw materials.
As a result, ink manufacturers are getting even more price increases coming over to them; Sun Chemical officials said that an overall average increase of 10% in raw material cost has been passed on to ink manufacturers this year. As a result, ink companies are now passing along what they can to the beleagured printing industry.
Flint Group officials noted that in some cases, raw materials have risen by more than 50% in the last six months, and the outlook offers no sign of relief in the short term. Siegwerk’s raw materials rose on average 30%.
Ed Pruitt, Sun Chemical’s chief procurement officer, said that 2010 has been an extraordinary year in terms of raw material challenges.
“Arguably, the chemical industry has not seen a year of similar supply shortages and tightness in over two decades,” Mr. Pruitt said. “Among the many products under varying degrees of pressure, we would highlight rosin resin, specialty pigments, energy cure resins, acrylic resins, titanium dioxide, nitrocellulose and some additive resins.
Mr. Pruitt said that the factors driving these supply issues fall largely into three areas.
“First, we have seen our suppliers experience a large number of unexpected feedstock issues,” Mr. Pruitt noted. “An example would be the global shortage of acrylic acid for energy cure and acrylic resin producers. The second factor would be a surge in demand that occurred largely in the first and second quarter as businesses refilled their pipelines and addressed sharply higher demand from the developing regions. The third factor would be the general tautness in supply that resulted from the many cost and working capital actions taken by the chemical industry last year during the height of the recession.”
Ansgar Nonn, Siegwerk board member and president NAFTA, said that following the economic downturn in 2008, many raw material suppliers reduced operating capacity and personnel. For example, commodities like TiO2 and carbon blacks are also in very tight supply as a consequence of plant closures and significant increases in demand in other related industries.
“In some instances, suppliers permanently shut down plants to accommodate the economic downturn,” Mr. Nonn said. “Inventories were reduced dramatically over 2009. Due to the increase in demand at the end of 2009 and early 2010, many industries were not positioned to adequately supply and service their customers. In addition, many suppliers were not sufficiently convinced of the sustainability of the increases, and have consequently hesitated in restarting previously idled production capacity.
“Compounding the problem, numerous cases of force majeure, closures due to environmental reasons, and labor strikes exacerbated an already tight market which has led to serious reductions in supply and product allocations,” Mr. Nonn added.
For example, Mr. Nonn noted that a large portion of Siegwerk’s organic pigments is sourced from Asia, where a surge in Asian domestic demand has put limitations on material available for export. In addition, several intermediate suppliers are short of raw material feedstocks, while others have curtailed operations or have been shutdown due to environmental reasons.
With resins, Mr. Nonn said that acrylic resins have been particularly hard hit due to acrylic acid force majeure during the second quarter of 2010. Many other specialty resins, such as polyurethanes, polyamides, vinyls, etc., are in short supply due to plant capacity constraints and shutdowns, as well as, increases in demand in other related industries. Problems with the harvest of gum rosin in Southern China has put major stress on the entire supply chain of refined and derivative hard resin products with material shortages, with prices doubling in some cases. Global shortages of cotton linters and wood pulp are being experienced, which affects the manufacturing of nitrocellulose.
Ben Price, director of purchasing at Wikoff Color, said that the raw materials of most concern to Wikoff Color are the monomers and oligomers used in its energy cure products, along with the acrylic resins used in its water-based products.
“While several factors have reportedly contributed to tight supply of these raw materials, the most significant factor is a shortage of acrylic acid that resulted from multiple unexpected production problems,” Mr. Price said. “Epoxy resin, another material used in our energy cure products, has also been extremely tight throughout the first half of 2010. Other areas of concern include rosin resin and titanium dioxide. Wikoff has experienced longer lead times as well as higher prices for all of these raw materials.”
Rick Westrom, senior vice president – strategic sourcing for INX International Ink Co., said that for a variety of reasons, some major European pigment producers are having a difficult time fulfilling orders and maintaining inventory.
“There is a worldwide shortage of Violet 23, causing prices to increase significantly due to these supply shortages of key intermediates in the crude for Violet 23,” Mr. Westrom said. “And the output for Phthalo blue and green pigments, which are from India, is confined due to tighter environmental regulations.
“Since the economic downturn, TiO2 inventories have been reduced and capacity removed from the market,” Mr. Westrom added. “Now that demand has increased, producers are unable to meet current supply requirements and replenish inventories. Acrylic acid (acrylic resins) shortages has limited the supply for most water-based polymers and energy cure monomers/oligomers. This resulting shortage of acrylic acid has forced suppliers to invoke sales control measures on the available products supplied to the market.”
George Sickinger, president and CEO of Color Resolutions International (CRI), said that acrylic acid and titanium are CRI’s biggest concerns at the moment.
“A reduction in production capacity is causing the acrylic acid problem, and it may not abate until early next year,” Mr. Sickinger added. “Titanium, as a mined material, is an on-again off-again problem with cost and supply. Plastic pails have been rising along with polyethylene prices.”
Yu Adachi, corporate communications at Toyo Ink Mfg. Co., Ltd., reported that since the beginning of the year, rosins, carbons, pigments and iron prices have been on the rise.
“This has impacted the product costs for our offset inks,” Mr. Adachi noted. “Rising crude oil prices has also had a significant effect on our gravure inks.”
Gum rosin is a case in point. On May 12, Flint Group officials reported that the availability of gum rosin and gum rosin derivatives was minimal. Teh compnay added that forecasters said that early crops in 2010 would be utilized primarily by the Chinese domestic market, where most of the global supplies originate. Prices as of May were around the $2,400 per ton level; by contrast, last fall, the price of gum rosin was at $900 per ton. That is a 170% increase.
“Gum rosin, and its derivatives, are a key raw material for publication gravure inks, so the current high pricing has a significant effect on our product cost,” said Dr Matthias Schuetz, Flint Group’s director of product management, publication gravureinks, Print Media Europe We have no economic alternatives either, since the only replacement raw materials we might consider are oil-based, which are much more expensive and also rising.”
In early June, Flint Group officials noted that acrylic acid is facing a global shortage, which started in North America after production incidents at Dow and Arkema, but has spread around the world. This has also been as a result of the prices for styrene, which is used as a co-monomer in styrene acrylic resins almost returning to the record levels of 2008.
“While acrylic resins are a key raw material for water-based inks, acrylates are the material more commonly found in UV inks and these issues are now causing significant challenges for water-based and UV-based packaging and narrow web ink markets”, explained Jens Zimmermann, director global marketing, Flint Group Packaging & Narrow Web. “To further compound this problem, the situation with the major raw materials for solvent-based inks is also worrying as solvents have also recently started to come under significant price pressure. A prominent example of this is nitro cellulose where price are driven up by high increases in wood-pulp, a key raw materials for NC.”
Flint Group noted that key raw materials such as benzene, toluene, ethylene and propylene, have faced double-digit price increases.
Price Increases and the Ink Industry
Due to the supply issues, raw material prices have also been rising.
“The broad array of supply challenges has led to an equally broad-based cost impact as suppliers have been consistently raising prices on a quarterly, or at times, monthly basis,” Mr. Pruitt said. “The large majority of our purchase categories have experienced at least some price inflation in 2010. Although it is maddening as a customer to face the dual impact of reduced supply availability and higher costs, many of these supply issues were beyond the direct control of our suppliers and our supply base has been seriously penalized by the runaway feedstock costs.”
“We decided to wait for some time to evaluate the situation, implement further cost reduction programs to mitigate the cost increase and to take measures to safeguard supply," said Hugo Noordhoek Hegt, Siegwerk board member and president packaging EMEA. "The situation, however, has worsened rapidly and there are no signs at all of a softening market.”
“As you would expect with a reduction in supply, we have experienced price increases,” Mr. Price said. “ Price increases have impacted each of our product lines, however, the most significant increases have been in the energy cure area.”
Mr. Westrom noted that the higher raw material prices led to INX International’s announcement of price increases effective Sept. 1.
“The increased demand imbalance on specific global raw materials and chemical feedstock markets left us no choice but to increase prices for solvent-based white inks and water-based white inks 4 to 6%,” Mr. Westrom noted. “We were able to keep the increase for water-based inks, bases, clears and blends to 2 to 4% percent, but inks containing Violet 23 and water coatings will hike 8% and UV inks and coatings will rise 8 to 10% percent.”
“Several raw material suppliers have already implemented two price increases this year and a third round of announcements is expected shortly,” Felipe Mellado, chief marketing officer for Sun Chemical, commented. “Various materials have also been placed under sales control, which restricts access to the necessary product ingredients. The weakening euro has also had a significant impact on raw material prices.”
“Flint Group is conscious of the fact that its customers are not having an easy time at the moment and that many raw materials together with energy and transport will continue to rise. However, Flint Group is not exempt from this phenomenon, and even though our technical team is constantly searching for ways to mitigate these effects, we ourselves are incurring tremendous increases despite our ongoing cost containment programs,” said Mr. Zimmermann. He concludes: “The cost increases have now proved too large and the need to pass on these higher costs to our customers is necessary. Flint Group is regretfully forced to advise a price increase of 5 - 8% for Narrow Web Inks with effect as of 1st July 2010. The price increase will enable the Flint Group to maintain our ability to deliver exceptional value, consistent quality, and continuous innovation to customers around the world.”
One of the challenges in the market is the consolidation of suppliers.
“The chemical industry has been in a state of transformation over the last decade as evidenced by a number of major trends,” Mr. Pruitt noted. “We have seen a growing constraint on oil and commodity chemical supply due to surging demand in developing regions and reduced appetite for risk by major oil and chemical producers. We have seen increasing supplier consolidations and the growing role of private equity and sovereign nations in the ownership of strategic chemical assets. We have also experienced a changing focus for commercial relationships, where short term pricing agreements, escalating volatility and more selective selling have become the new norm. As a leader in our industry, it has been Sun Chemical’s focus to anticipate and understand these trends, and to adapt our way of doing business in procurement to succeed in the new market realities. We do not intend to allow the growing challenges of sourcing raw materials to impact our ability to serve our customers. At the same time Sun Chemical does intend to be a strong and consistent advocate for the future of the graphic arts industry and for the value chain to our customers.”
“There has been consolidation in the resin industry, which has caused us to seek out new suppliers and alternate materials, most notably plant-based resins,” said Mr. Sickinger. “In general, our purchasing efforts have become increasingly more global in order to better control our raw material costs.”
“What is impacting our ability to procure raw materials is the reduction of capacity in the marketplace,” Mr. Westrom said. “This is the result of either consolidation, product rationalization, plant closures or some unforeseen shutdowns such as industrial accidents.”
In order to cope with these issues, ink manufacturers are rethinking how they are maintaining their inventory levels.
“The recent raw material supply challenges have forced Wikoff to make significant adjustments to our order patterns and inventory levels,” Mr. Price said. “We have also had to seek out and approve alternate sources of supply to supplement what we are able to secure from our primary suppliers. Where possible, we have built up safety stocks of our most critical raw materials.”
“We are measuring our safety stock levels and working to ensure that we have viable, qualified alternatives in place so we have continuity of supply,” Mr. Westrom said.
“The future is uncertain, but prices of these raw materials are predicted to rise gradually,” Mr. Adachi noted. “To improve our procurement process, the Toyo Ink Group has actively implemented measures to further strengthen supply chain management.”
“Siegwerk is well aligned with its global suppliers to minimize supply disruptions and is continuing to focus technical efforts on finding viable, quality products to sustain customer satisfaction,” Mr. Nonn said.
"We have mobilized our technology and sourcing teams to improve recipes and to increase efficiencies," said Mr. Noordhoek Hegt. "Productivity measures to offset increasing costs are under consideration as well."
“In the fall of 2009, Sun Chemical recognized that there was a clear danger that supply issues may escalate in 2010,” Mr. Pruitt said. “We began a program of identifying vulnerabilities and taking actions to diversify supply and plan contingencies. Despite this good work, we, like most companies in our industry, have been stunned by the magnitude of supply issues that have arisen and continue to occur on an almost daily basis. There is no magic in handling these crises. It has required a true cross-functional approach within Sun Chemical as we have worked closely with our incumbent suppliers, identified and implemented alternative sources, broadened our geographic reach, evaluated alternative materials, and sharpened our supply chain planning skills.
“In the near term, we believe that today’s supply issues will remain largely invisible to our customers as we effectively manage through the many planning challenges,” Mr. Pruitt added. “Longer term, the experiences of this year will compel Sun Chemical to look harder and longer at how we develop our sourcing strategies and what the preferred raw materials will be for the future.”
“We are conscious that our customers are not having an easy time at the moment and many raw materials together with energy and transport will continue to rise,” Mr. Zimmermann concluded. “We at Flint Group are not exempt from this phenomenon, and even though our technical team is constantly searching for ways to mitigate these effects, we ourselves are incurring tremendous increases despite our ongoing cost containment programs. We intend to continue closely monitoring the situation, keeping our customers fully informed of developments.”
Expectations for the Coming Year
Expectations for the coming year are somewhat optimistic, although realistic.
“In 2011, we expect the second half of the year to improve for acrylic acid-based raw materials,” Mr. Westrom said. “The supply of TiO2 will remain tight into next year until suppliers can rebuild their inventories. Pigments will likely be a challenge as there are problems with various supplies of pigment intermediates.”
“I expect that many of the raw material supply challenges we are currently facing will begin to gradually improve as we approach the fourth quarter of 2010,” Mr. Price said. “Our suppliers are telling us that the acrylic acid shortage should start to improve in the September/October timeframe. This should improve the availability of the raw materials impacting our energy cure and water-based product lines. As supply improves, I expect downward pressure on raw material prices.”
“For 2011, we expect that the magnitude of supply issues will decline, but not go away,” Mr. Pruitt said. “Some of the basic feedstock shortages, acrylic acid for example, should dissipate by the beginning of the year. Capacities for some chemicals should increase as shuttered plants or product lines are restarted. And we would also anticipate from a demand perspective that usage will not surge under the scenario of a modestly improving global economy. However, where there are still fundamental imbalances in supply and demand, we would expect to see continued tightness and potential shortages again next year.
“From a cost perspective, although some of the feedstocks will decline and result in a retracement in raw material pricing, there will also be continued risk of inflation in the less well supplied product areas, such as nitrocellulose or titanium dioxide,” Mr. Pruitt added. “As an industry, we will also be carrying over the impact of the continually rising prices this year, which means that on average costs should be up significantly in 2011 versus the average of 2010.”