David Savastano, Editor09.20.17
For purchasing executives at leading ink manufacturers, raw material prices have been relatively stable for the past few years. That stability is a thing of the past though, as key raw materials are in short supply, prices are going up and, with Hurricane Harvey wreaking havoc on residents of Texas and Louisiana as well as on the supply chain for petrochemicals and feedstocks, there is much uncertainty ahead.
The American Chemistry Council (ACC) noted that with $129 billion in shipments, Texas is the largest chemical producing state, and Louisiana (with $51 billion in shipments) is the fourth largest chemical producing state. Within those states, the areas directly affected by Harvey account for $155 billion in shipments, or approximately 20% of total chemical industry shipments in the US, according to the ACC.
“Hurricane Harvey is a record-breaking storm with unprecedented impacts on the people and property along US Gulf Coast due to extreme flooding,” Cal Dooley, president and CEO of the ACC, said in a statement. “The chemical industry is deeply integrated into the economies and communities of Texas and Louisiana, particularly in the areas that have been hardest hit by the storm. Our first priority is supporting industry employees and their families and helping to ensure their safety and that of the areas surrounding our plants.”
The impact of Hurricane Harvey is notable on key feedstock markets. Several feedstock suppliers have announced a force majeure and many other raw materials suppliers are reviewing allocations. These include ethylene and polyethylene suppliers such as ExxonMobil, Dow Chemical, BASF/Total, Chevron Phillips Chemical, LyondellBasell and Shell Chemicals, among others.
On Sept. 7, 2017, analyst IHS Markit reported that the percentage of total US ethylene production offline was at 54%, but “a number of units have begun restart operations,” including LyondellBasell/Equistar, Formosa, and ExxonMobil. “However, it may take weeks for the overall ethylene market to approach pre-Hurricane production levels,” according to IHS Markit.
“While initial estimates reflected nearly 60% of US PE (polyethylene) production capacity had been lost or constrained due to mechanical or logistical issues that figure has now been reduced to 41%,” IHS Markit added. “Only a small percentage (single digit) of the capacity currently offline is expected to remain offline for more than 30 days. Approximately 80% of North American production is back online, a remarkable recovery compared to only 40% as of the end of last week.”
According to the US Department of Energy, as of Sept. 6, 2017, five refineries in the Gulf Coast area remain shut down and six refineries are in the process or restarting. At least seven refineries are operating at a reduced rate.
Understandably, this is impacting key ingredients, including pigments, resins and additives.
“Our thoughts go out to all those impacted by Hurricane Harvey and the devastation caused by this storm,” said Felipe Mellado, chief marketing officer and board member, Sun Chemical, said in a statement. “The devastation from this hurricane has impacted businesses near and far and we are working closely with our supply chains to ensure minimal disruptions to our customers.”
Raw Material Market
Even before these hurricanes struck the US, crude oil prices were starting to rise. According to NASDAQ, West Texas Intermediate (WTI) prices have risen from nearly $30 a barrel in January 2016 and $40 in May 2016 to as high as $54 in January 2017. Prices currently sit slightly below $50 a barrel.
As a result, prices for certain raw materials for inks are rising.
“Average crude oil costs have increased in 2017 versus 2016. Therefore oil-based ink manufacturing costs likewise increased in the first half of 2017,” said Jan Paul van der Velde, SVP, procurement, sustainability, regulatory and IT for Flint Group. “We have seen the cost increases stabilize at that higher level.”
Jeffrey Shaw, chief supply chain, quality, and business improvement officer, Sun Chemical, noted that the raw material market in 2017 has experienced a record number of force majeure situations, causing disruption of supply in some categories.
“Many categories are under pressure as key feedstocks are higher year over year,” Shaw observed. “Generally speaking, most raw material markets are seeing moderate price increases, but reflect adequate supply/demand balances.
“However, since many global commodities are priced based on the US dollar, countries that have seen their currencies weaken over the last year have also experienced significant cost impacts for those globally priced feedstocks and raw materials,” added Shaw. “The euro has been relatively stable against the US dollar compared to last year at the same lower value; however, other significant currencies such as the UK pound and Turkish lira have been impacted by the unfavorable currency movement.”
Rob Callif, president/COO of BCM Inks, reported that some raw materials have remained steady, but some raw materials have increased in price. He added that commodities have been extremely volatile.
Titanium Dioxide and the Ink Industry
Titanium dioxide (TiO2) is one of the most critical pigments in our daily life. It is crucial in everyday items such as toothpaste, sunscreen, chewing gums and paints. When it is used as a pigment, it is a critical ingredient in white inks and coatings; for example, a layer of white ink can help colors pop on packaging.
TiO2 has been in the news for most of 2017, due, in part, to rising prices. At the same time, there has been significant consolidation in China’s TiO2 segment, leading to higher prices, and China has also reportedly restricted production due to air quality concerns. A January 2017 fire at Huntsman’s TiO2 plant in Pori, Finland, further restricted capacity for TiO2 for graphic arts.
This has led ink manufacturers to announce price increases on inks using titanium dioxide; for example, Siegwerk issued a statement in early March announcing higher prices for all inks that have titanium dioxide.
“The TiO2 market has still not fully recovered from the incident, and we see that some grades are still in short supply,” van der Velde said. “In any supply/demand imbalance like this, costs tend to increase worldwide. It is hard to predict whether or when the costs of this raw material will return to prior levels. As Flint Group is a global player with a number of strong partner suppliers, we have been able to continue to supply our customers; however we have not escaped the higher costs of TiO2.”
“It’s supply and demand,” Callif said. “Supply is low and demand is high so prices increased and availability is low. This is why we treat our suppliers like partners. They are an extension of our business and are vital to our business and success.”
Shaw reported that TiO2 prices continue to increase quarterly. “Supply of conventional grades is improving but the landscape is much different than before the supply disruption,” he added. “Managing supply and formulating agility have been critical in meeting customer requirements. Our supply chain team has established contingencies such as safety stock management, inventory positioning and sourcing more volume from a broader global supply base.”
All of this is challenging enough, but environmental issues have now come up that could take TiO2 to another, more difficult, level. There have been concerns in Europe over the use of nanoparticles in sunscreen, toothpaste and much more. The concern, in particular, is over nanoparticles of TiO2. This led the European Chemicals Agency (ECHA) to determine that titanium dioxide could be a carcinogen if it is inhaled. This will have to go through further review by the European Commission.
Not surprisingly, the Titanium Dioxide Manufacturers’ Association (TDMA) does not agree. On its website (http://www.tdma.info/tio2-and-safety), the association writes:
“A link between TiO2 and cancer has never been established. The effect in rats relied upon by the French proposal are not reproducible in other species such as mice or hamsters. Most importantly, extensive studies conducted by both industry and independent institutions have found no evidence of effects in humans. While a small number of studies have associated TiO2 with cancer, these studies are based on exposing rats to quantities of TiO2 far above what humans, even workers, would ever be exposed to.”
Ultimately, the European Commission, the lead authority in the EU, will likely decide the fate of TiO2. For ink manufacturers, this could have some huge impacts on materials for formulating.
Other Ingredients ON the Rise
Aside from titanium dioxide, other raw materials are causing concerns for ink manufacturers.
“Any materials directly tied to crude oil, ethylene, and propylene have increased relative to feedstock escalation such as distillates, carbon black, and various solvents,” Shaw said. “We continue to see pressure on environmental compliance in China, which has impacted the cost of producing some pigment intermediates and fine chemicals.”
van der Velde said that throughout the year, many key ingredients supplied from China have been in short supply.
“MMA and other key ingredients, including UV-based materials, have been extremely short and as a result there was an increase in the cost of these raw materials,” he added. “We don’t see this imbalance changing for the foreseeable future. Also a number of key intermediates for pigment production have been short, hitting both the azo pigments (yellow and red) and the PCN pigments (blue). Also of concern is supply of bon acid, DCB (for yellow), 2B/4B acid, and arylides.
“The recently fire at Shell in Europe caused some serious supply challenges, as well as the fire at BASF in Germany,” van der Velde added. “Three major fires in 12 months (Huntsman/BASF/Shell) – this has certainly not been an ‘easy’ year in terms of supply security.”
Expectations for the Raw Material Market
Even without knowing the full impact of the destructive hurricanes on the US as well as its impacts on global supply, the coming 12 months will see challenges for ink manufacturers.
“Looking at the past three years and rating the future from today’s point of view, we wouldn’t expect the situation to significantly change,” said Robert Doerffel, corporate communications Europe for hubergroup. “The supply/demand situation will balance out here and there, and it will become more tense at another corner. The growing competition in all areas of economy wouldn’t provide any option to those fragile equilibria we are observing today.”
Shaw believes that there will most likely be some unexpected pressures that emerge due to supply disruptions if the force majeure trend continues.
“However, key raw materials are in generally good supply and the oil market is expected to be somewhat stable to slightly elevated,” he added. “There is always potential risk around speculative market behaviors and unexpected geopolitical events. The risk of suppliers realigning strategies toward more attractive alternate use values continues to be a concern as they look to maximize profitability through market segmentation initiatives.”
van der Velde said that the 2017 outlook is mixed.
“On one hand we see, finally, some economic growth in Europe,” van der Velde observed. “Many raw material suppliers have announced increased volumes in their plants, but may end up being sold to non-ink industries to offset the additional costs. In most cases, we have not heard about added capacity, so the dependency on Asia will certainly not decrease.
The volatile economic and geopolitical situation is not helping trust, which is required for a more stable economic outlook. Therefore we anticipate that 2018 will have significant raw material pricing and supply volatility. Very careful management of resources and purchase timing will be crucial.”
The American Chemistry Council (ACC) noted that with $129 billion in shipments, Texas is the largest chemical producing state, and Louisiana (with $51 billion in shipments) is the fourth largest chemical producing state. Within those states, the areas directly affected by Harvey account for $155 billion in shipments, or approximately 20% of total chemical industry shipments in the US, according to the ACC.
“Hurricane Harvey is a record-breaking storm with unprecedented impacts on the people and property along US Gulf Coast due to extreme flooding,” Cal Dooley, president and CEO of the ACC, said in a statement. “The chemical industry is deeply integrated into the economies and communities of Texas and Louisiana, particularly in the areas that have been hardest hit by the storm. Our first priority is supporting industry employees and their families and helping to ensure their safety and that of the areas surrounding our plants.”
The impact of Hurricane Harvey is notable on key feedstock markets. Several feedstock suppliers have announced a force majeure and many other raw materials suppliers are reviewing allocations. These include ethylene and polyethylene suppliers such as ExxonMobil, Dow Chemical, BASF/Total, Chevron Phillips Chemical, LyondellBasell and Shell Chemicals, among others.
On Sept. 7, 2017, analyst IHS Markit reported that the percentage of total US ethylene production offline was at 54%, but “a number of units have begun restart operations,” including LyondellBasell/Equistar, Formosa, and ExxonMobil. “However, it may take weeks for the overall ethylene market to approach pre-Hurricane production levels,” according to IHS Markit.
“While initial estimates reflected nearly 60% of US PE (polyethylene) production capacity had been lost or constrained due to mechanical or logistical issues that figure has now been reduced to 41%,” IHS Markit added. “Only a small percentage (single digit) of the capacity currently offline is expected to remain offline for more than 30 days. Approximately 80% of North American production is back online, a remarkable recovery compared to only 40% as of the end of last week.”
According to the US Department of Energy, as of Sept. 6, 2017, five refineries in the Gulf Coast area remain shut down and six refineries are in the process or restarting. At least seven refineries are operating at a reduced rate.
Understandably, this is impacting key ingredients, including pigments, resins and additives.
“Our thoughts go out to all those impacted by Hurricane Harvey and the devastation caused by this storm,” said Felipe Mellado, chief marketing officer and board member, Sun Chemical, said in a statement. “The devastation from this hurricane has impacted businesses near and far and we are working closely with our supply chains to ensure minimal disruptions to our customers.”
Raw Material Market
Even before these hurricanes struck the US, crude oil prices were starting to rise. According to NASDAQ, West Texas Intermediate (WTI) prices have risen from nearly $30 a barrel in January 2016 and $40 in May 2016 to as high as $54 in January 2017. Prices currently sit slightly below $50 a barrel.
As a result, prices for certain raw materials for inks are rising.
“Average crude oil costs have increased in 2017 versus 2016. Therefore oil-based ink manufacturing costs likewise increased in the first half of 2017,” said Jan Paul van der Velde, SVP, procurement, sustainability, regulatory and IT for Flint Group. “We have seen the cost increases stabilize at that higher level.”
Jeffrey Shaw, chief supply chain, quality, and business improvement officer, Sun Chemical, noted that the raw material market in 2017 has experienced a record number of force majeure situations, causing disruption of supply in some categories.
“Many categories are under pressure as key feedstocks are higher year over year,” Shaw observed. “Generally speaking, most raw material markets are seeing moderate price increases, but reflect adequate supply/demand balances.
“However, since many global commodities are priced based on the US dollar, countries that have seen their currencies weaken over the last year have also experienced significant cost impacts for those globally priced feedstocks and raw materials,” added Shaw. “The euro has been relatively stable against the US dollar compared to last year at the same lower value; however, other significant currencies such as the UK pound and Turkish lira have been impacted by the unfavorable currency movement.”
Rob Callif, president/COO of BCM Inks, reported that some raw materials have remained steady, but some raw materials have increased in price. He added that commodities have been extremely volatile.
Titanium Dioxide and the Ink Industry
Titanium dioxide (TiO2) is one of the most critical pigments in our daily life. It is crucial in everyday items such as toothpaste, sunscreen, chewing gums and paints. When it is used as a pigment, it is a critical ingredient in white inks and coatings; for example, a layer of white ink can help colors pop on packaging.
TiO2 has been in the news for most of 2017, due, in part, to rising prices. At the same time, there has been significant consolidation in China’s TiO2 segment, leading to higher prices, and China has also reportedly restricted production due to air quality concerns. A January 2017 fire at Huntsman’s TiO2 plant in Pori, Finland, further restricted capacity for TiO2 for graphic arts.
This has led ink manufacturers to announce price increases on inks using titanium dioxide; for example, Siegwerk issued a statement in early March announcing higher prices for all inks that have titanium dioxide.
“The TiO2 market has still not fully recovered from the incident, and we see that some grades are still in short supply,” van der Velde said. “In any supply/demand imbalance like this, costs tend to increase worldwide. It is hard to predict whether or when the costs of this raw material will return to prior levels. As Flint Group is a global player with a number of strong partner suppliers, we have been able to continue to supply our customers; however we have not escaped the higher costs of TiO2.”
“It’s supply and demand,” Callif said. “Supply is low and demand is high so prices increased and availability is low. This is why we treat our suppliers like partners. They are an extension of our business and are vital to our business and success.”
Shaw reported that TiO2 prices continue to increase quarterly. “Supply of conventional grades is improving but the landscape is much different than before the supply disruption,” he added. “Managing supply and formulating agility have been critical in meeting customer requirements. Our supply chain team has established contingencies such as safety stock management, inventory positioning and sourcing more volume from a broader global supply base.”
All of this is challenging enough, but environmental issues have now come up that could take TiO2 to another, more difficult, level. There have been concerns in Europe over the use of nanoparticles in sunscreen, toothpaste and much more. The concern, in particular, is over nanoparticles of TiO2. This led the European Chemicals Agency (ECHA) to determine that titanium dioxide could be a carcinogen if it is inhaled. This will have to go through further review by the European Commission.
Not surprisingly, the Titanium Dioxide Manufacturers’ Association (TDMA) does not agree. On its website (http://www.tdma.info/tio2-and-safety), the association writes:
“A link between TiO2 and cancer has never been established. The effect in rats relied upon by the French proposal are not reproducible in other species such as mice or hamsters. Most importantly, extensive studies conducted by both industry and independent institutions have found no evidence of effects in humans. While a small number of studies have associated TiO2 with cancer, these studies are based on exposing rats to quantities of TiO2 far above what humans, even workers, would ever be exposed to.”
Ultimately, the European Commission, the lead authority in the EU, will likely decide the fate of TiO2. For ink manufacturers, this could have some huge impacts on materials for formulating.
Other Ingredients ON the Rise
Aside from titanium dioxide, other raw materials are causing concerns for ink manufacturers.
“Any materials directly tied to crude oil, ethylene, and propylene have increased relative to feedstock escalation such as distillates, carbon black, and various solvents,” Shaw said. “We continue to see pressure on environmental compliance in China, which has impacted the cost of producing some pigment intermediates and fine chemicals.”
van der Velde said that throughout the year, many key ingredients supplied from China have been in short supply.
“MMA and other key ingredients, including UV-based materials, have been extremely short and as a result there was an increase in the cost of these raw materials,” he added. “We don’t see this imbalance changing for the foreseeable future. Also a number of key intermediates for pigment production have been short, hitting both the azo pigments (yellow and red) and the PCN pigments (blue). Also of concern is supply of bon acid, DCB (for yellow), 2B/4B acid, and arylides.
“The recently fire at Shell in Europe caused some serious supply challenges, as well as the fire at BASF in Germany,” van der Velde added. “Three major fires in 12 months (Huntsman/BASF/Shell) – this has certainly not been an ‘easy’ year in terms of supply security.”
Expectations for the Raw Material Market
Even without knowing the full impact of the destructive hurricanes on the US as well as its impacts on global supply, the coming 12 months will see challenges for ink manufacturers.
“Looking at the past three years and rating the future from today’s point of view, we wouldn’t expect the situation to significantly change,” said Robert Doerffel, corporate communications Europe for hubergroup. “The supply/demand situation will balance out here and there, and it will become more tense at another corner. The growing competition in all areas of economy wouldn’t provide any option to those fragile equilibria we are observing today.”
Shaw believes that there will most likely be some unexpected pressures that emerge due to supply disruptions if the force majeure trend continues.
“However, key raw materials are in generally good supply and the oil market is expected to be somewhat stable to slightly elevated,” he added. “There is always potential risk around speculative market behaviors and unexpected geopolitical events. The risk of suppliers realigning strategies toward more attractive alternate use values continues to be a concern as they look to maximize profitability through market segmentation initiatives.”
van der Velde said that the 2017 outlook is mixed.
“On one hand we see, finally, some economic growth in Europe,” van der Velde observed. “Many raw material suppliers have announced increased volumes in their plants, but may end up being sold to non-ink industries to offset the additional costs. In most cases, we have not heard about added capacity, so the dependency on Asia will certainly not decrease.
The volatile economic and geopolitical situation is not helping trust, which is required for a more stable economic outlook. Therefore we anticipate that 2018 will have significant raw material pricing and supply volatility. Very careful management of resources and purchase timing will be crucial.”