Europe’s print sector has entered 2016 with key economic indicators - slow GDP growth, sluggish consumer demand and weak manufacturing output - showing that the year ahead will be difficult for the printing industry and its suppliers.

Yet despite this gloomy picture, printers are surprisingly hopeful, particularly about the longer term outlook for print as it continues to confront the competition from electronic media.

There are signs that the decline of print in some key sectors may even be leveling out, as people increasingly show a preference for retaining print within the mix of communications and visual impact systems they experience in their daily lives.

Printers have become more optimistic about the future as new growth markets for print begin to emerge. For ink makers, the challenge is to respond to the expanding demand in these sectors before their competitors.

Surveys Show Confidence in Printing’s Future

Surveys commissioned by the international print exhibition drupa of the opinions of a representative sample of 750 printers demonstrate that confidence in the future is a global phenomenon. It is not just confined to the developed markets of Europe and North America.

The latest survey, the final one of three before the drupa show in Dusseldorf, Germany, from late May to early June, 2016, displays an even greater level of optimism than in the previous year. Every region is more hopeful about 2016 than 2015, with 50% worldwide expecting their economic conditions to improve this year while only 6% think it will deteriorate.

In Europe, the extra confidence is more surprising because its print industry has been suffering some of the steepest declines in print demand. But on the other hand, it has begun to find ways of responding effectively to the electronic revolution often by working with it rather than against it.

In the UK, printing output rose to its highest level for two years at the end of 2015.

“The prices and margins climate doesn’t appear to be clearing in the near future but firms are backing themselves with investment in innovation, training and – as one might expect in drupa year – plant and machinery,” said Charles Jarrold, chief executive of the British Printing Industries Federation (BPIF).

Among some of the growing existing print sectors are those which complement consumer or business information originating on the internet. One of these is direct mail in the form of letters, flyers, brochures and postcards, which are used to strengthen the impact of internet promotions.

Direct mail has shown itself to be an efficient means of prompting consumers to make both online and retail purchases, according to a study last year by InfoTrends’ Consulting Group, which carries out marketing surveys in Europe and North America.

There has been a resurgence in the use of print catalogs, often triggered by the rise of online shopping. InfoTrends found that in Western Europe, print catalogs, usually smaller and more carefully targeted than the traditional large catalogs, have been becoming popular with younger people.

“Sixty two percent of consumers receiving catalogs who made a purchase within the last three months were influenced by the catalog,” said Barb Pellow, Infotrends’ group director. In fact two-thirds of all direct mail is looked at, with more than 40% of consumers making a purchase in the last three months because of a piece of direct mail they have received.

In the UK, which has one of Europe’s largest internet advertising markets, the country’s Advertising Association was predicting that final figures for last year will show growth in direct mail expenditure – although by only a few percentage points – which would reverse a trend of decline. Furthermore, with the sign and display segment, it would be the only graphics sector to have recorded an increase in spending.

In a separate study published last year on the impact of mobile devices – such as smart phones and tablets – on printing in Europe, InfoTrends concluded that printing originating from mobile equipment has “a strong potential to add to total print  volume.”

However, a major barrier in Europe to realizing this potential has been lack of access, even in homes and workplaces, to printers that are compatible to mobile devices.

“Public transit locations – such as airports, bus stations, and train terminals – are particularly important print locations for mobile device users,” said John Shane, director of InfoTrends’ communications supplies consulting service. “Given the nature of travel and the reasons why people are there, these places could potentially charge a premium for printing services.”

There has been pent-up demand for prints of photos taken on smart phones, which tend to have to be printed in plants with a high throughput to be economical. However some supermarket chains in northern Europe are beginning to offer photo-book printing services for consumers, which are provided through large printing centers.

Another area of increasing interaction between print and the electronic media is through the application of augmented reality (AR) codes on direct mail literature or in particular packaging. These codes open up apps on smart phones and tablets, providing consumers with video, audio or graphics messages.

Packaging, Inkjet on the Rise in Europe

Packaging continues to be the largest growth sector in print in Europe in value and volume terms.

Demand for packaging has been boosted by the falling price of raw materials – paper and board, metals and in particular plastics, whose prices have decreased by well over a third since the dramatic decline in crude oil prices started in mid-2014.

Sections of the packaging market, particularly for higher-end products, have been expanding much faster than GDP growth rates. The demand for some types of paper packaging has been so strong, paper makers have been converting mills producing newsprint and magazine papers to packaging grades.

Probably the fastest growing print sector in Europe is that for functional or industrial printing. A report commissioned by InPrint, which held its second industrial print exhibition in Munich last year, has forecast a 36% cumulative average increase of industrial digital and inkjet between 2014 and 2020.

“The report also shows that there are significant challenges which digital and inkjet must overcome within various manufacturing sectors in order to become accepted as future technologies,” warned Frazer Chesterman, InPrint’s co-founder.

The biggest difficulties could be dealing with a shift from large-scale production to the making of highly customized products with the emphasis on printing as a manufacturing process.
Last year’s InPrint show in November attracted a third more visitors and exhibitors than the previous year’s.

“(This year’s) show was of a higher quality and more complete with new people looking at new industrial solutions from the manufacturing world,” said Friedrich Goldner, director new business development at Marabu, a German screen, digital and pad ink maker.

A growing number of European printers are moving into industrial niches involving printing with screen, digital and inkjet processes on metal, plastics, foil, glass, ceramics, wood and other substrates. In addition, they are investigating the potential of three-dimensional decorative and 3D additive printing.

In the textile printing segment, one of the largest in industrial printing, an imminent battle between dye sublimation and pigment inks will provide openings for smaller printers.

“Sublimation and pigment inks allow for new printers to enter the market with a low initial capital expenditure,” said Simon Daplyn, product manager for textile inks at Sensient Imaging Technologies, which last year took over UK digital print specialist Xennia.

The amounts of fabric printed digitally via dye sublimation is forecast to grow at a compound annual growth rate (CAGR) of 18% over the next five years, according to a report by the UK consultancy Smithers Pira. Garments will account for 75% of the applications, with the remainder being divided between household products, signage and displays and technical textiles.

“What is driving the market in very basic terms is the increasing demand for rapid customization to create beautiful, unique clothing or household products,” said JD Hayward, author of the report.
Currently, annual revenues from dye sublimation inks at €259 million ($280 million) are close to those for dye sublimation machines at €279 million, said the report.

The introduction of pigment inks into the market will further highlight the importance of differences in quality and performance between inks, particularly in the high-end and fast-moving fashion markets.

“Certainly the fashion industry is pushing for highly complex and vibrant prints to be delivered against very short lead times,” said Daplyn.

The fast expansion of the industrial print sector has been yet another impetus behind the continued increase in the use of digital printing processes. Digital presses have the capacity to adjust to different substrates and to the need for customization – two key characteristics of the industrial print market.

The requirements for short runs and more effective targeting of specific demographic groups is also helping digital processes make even deeper inroads into the packaging printing sector.

At the same time, the performance of digital printing technologies have improved to such an extent that they are able to compete on the basis of speed, volumes and color quality with conventional processes in packaging.

Ink makers and raw material suppliers, such as dye and pigment manufacturers, are now focusing on gaining a stronger presence in both inkjet inks and electrophotographic toners.

Sun Chemical was presenting an extended range of inkjet inks at the FESPA Digital 2016 exhibition in Amsterdam in early March. These included dye sublimation inks and a direct print dispersed dye ink for flag and banner applications. In addition it was showing a water-based range of inkjet inks for the wide format graphics sector.

Acquisitions in he Past Year

A big leap into the digital segment was taken by Flint Group, Europe’s second largest ink producer after Sun Chemical, when it announced late last year the acquisition of a majority shareholding in Xeikon, the Netherland-based manufacturer of electrophotographic presses mainly for labels and packaging applications, but also for document and commercial printing.

The deal represented a major diversification for Flint Group, which gained more financial clout after itself being taken over in 2014 by Goldman Sachs Merchant Banking Division and Koch Equity Development. For the first time it will become a printing press manufacturer.

The company is already a manufacturer of both plates and, in the flexographic segment, plate-making machinery, while it is also involved in pigment manufacture.

Flint Group, headquartered in Luxembourg, also for the first time becomes a maker of toner, since Xeikon produces its own toners. Xeikon is also itself a manufacturer of both plates and plate-making equipment.

The acquisition will broaden Flint Group’s position of being able to offer in Europe, North America and elsewhere equipment, consumables and services. It fits well with “our long-term vision for our business,” according to Flint’s chief executive Antoine Fady.

Other diversification moves may now be made by some of Flint’s ink-making competitors. Sun revealed late last year that, with its parent company DIC of Japan, it is expanding into advanced materials, not just the printing sector, including printed electronics, but also the coatings, automotive, aerospace and plastics markets.

Flint Group has also been active in the consolidation of ink manufacture for newspaper and magazines, in which it is a leader in Europe.

At the end of February this year it was close to completing a deal to acquire the web offset business of Siegwerk Druckfarben of Germany, covering mainly newspaper and magazine inks.

“To ensure the lasting success of our company, we need to clearly devote our resources to serving the markets of tomorrow, (which) we will do by focusing on our core packaging printing business,” said Herbert Forker, Siegwerk’s chief executive.

The company is however retaining its publications gravure business, which makes inks for high-end magazines, catalogs and commercial products and which has a 45% share of the European sector.

Flint Group[ is expanding in the newspaper and magazine market at a time when there seems to be little sign of a reversal of its steady decline.

“This investment confirms our long-term commitment to customers in these key market segments (of cold and heatset inks) and reinforces our unique offering to the market of inks, press room chemical and transfer media products,” said Fady.

In the UK, one of Europe’s largest newspaper markets, the 30-year-old loss-making Independent, is closing as a daily paper at the end of March to concentrate on building up its news coverage online.

Despite the troubles in the sector, UK newspaper publishers are launching new papers or acquiring existing titles in an effort to reinvigorate them in the face of the relentless onslaught from online 24/7 news.

The Independent’s sister but profitable national daily paper the i has been sold for £24 million to Johnston Press, one of the UK’s leading regional and local newspaper publishers.

At the end of February, Trinity Mirror, one of Johnston’s main competitors in the regional and local newspapers markets while also having three national newspapers, launched New Day, a potential rival to i with a similar concise news format and a high income readership. Trinity expects the new publication to become profitable by the end of year

The company’s financial results for last year, also published on the day of the launch, showed, however, a 7% drop in print revenue with a 13% fall in print advertising, while its online operation recorded a 32% rise in sales, 88% of it from advertising. This is a pattern typical of other newspaper publishers as well.

Print publishers have been unable to increase advertising revenue at the same pace at which they have been gaining more viewers to their online sites. On the other hand, despite evidence that print advertisements have a bigger impact on readers than online advertising, falling levels of advertising sales are not reflecting this advantage.

Outside of the publishing sector, most customers of ink producers have been enjoying not only improved demand but also higher profits because of lower production costs and also the advantages of less expensive loans due to low interest rates.
 
Raw Material Costs and Regulations

Because of the remarkable fall in crude oil prices, ink producers have been benefiting from lower production costs.

However prices of some key raw materials have decreased less than expected. Gains from cheap oil have not been passed down the supply chain as readily as end-users might have wanted. Then there have been shortages, with production of some chemicals being halted because of plant shutdowns. Some chemicals are being produced by fewer suppliers after plant closures following the post-2008 recession. Even minor disruptions to output can turn into scarcities.

Furthermore, raw material producers are now warning of a possible rapid rise in prices once crude oil prices start going up again.

“Along supply chains we have been see a deflationary effect with buyers keeping their inventories low in the expectation that oil prices will drop even further,” explained Kurt Bock, chairman of BASF. “ But once oil prices are perceived to be rising, there could be a rush to buy, which could possibly result in steep price increases.”

He was speaking in February at the annual results press conference in Germany of BASF, a major supplier of resins and pigments and backward integrated into crude oil-derived base chemicals.

Some ink producers will also be facing the difficulties of having a higher proportion of raw materials from bio-sources, which are likely to be more costly than chemicals coming from petrochemical derivatives.

The COP21 climate change agreement reached by 196 countries in Paris late last year has prompted an increase in the numbers of brand owners and other consumer product manufacturers and retailers to adopt green marketing strategies.

Some leading ink makers have already been having their products certified so that they can carry eco-labels showing that they are environmentally friendly.

However some European brand owners want to go further. They want to be selling products that are entirely green. This could mean that the ink on the packaging materials have to contain biochemicals or to be as free as possible of fossil-derived materials.

Even when crude oil prices were in excess of $100 per barrel, prices of biochemical raw materials were at least several percentage points higher than petrochemical-based counterparts.

Now the gap has been even wider. While crude oil prices have dropped 60% to 70%, the decrease with bio raw materials has been much lower. At the end of last year, palm oil prices had only gone down since mid-2014 by around a third, while the price for soya bean oil was only slightly lower.

Another additional cost burden in Europe for ink producers is compliance with the European Union’s increasingly strict safety and environmental regulations, With issues like chemicals migration from packaging inks to foodstuffs, on which there are no EU regulations, national or voluntary standards are being applied.

Compliance with the EU’s REACH legislation for the registration, evaluation and authorization of chemicals has and will be over the next few years the biggest regulatory challenge, particularly for SMEs in the inks and other sectors.

The legislation, approved nine years ago, requires safety details of chemicals, including those used in formulations, to be registered with the Helsinki-based European Chemicals Agency (ECHA).
So far two deadlines for the registration of chemicals with annual outputs of more than 100 tons have expired. The last tranche of chemicals in the 1-100 ton range have to be registered by mid-2018.

While the previous registrations mainly involved chemicals produced or distributed by larger companies, the final registration, involving more chemicals than the previous two combined, will involve thousands of SMEs. Many of these may not be able to afford the cost of registration in terms of finance and use of human resources.

“A major fear is that a lot of these companies will decide that they do not have the resources for doing registrations,” said a REACH consultant. “Instead they could withdraw their products from the market, leaving shortages of what could be important chemicals in ink and coatings formulations.”

Ink producers will be hoping that the difficulties of compliance with regulations like REACH are not combined with a struggle to deal with the reverberations of the effects of a return to higher crude oil prices.

European Editor Sean Milmo is an Essex, UK-based writer specializing in coverage of the chemical industry.