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    Features

    The 2018 European Ink Review

    Despite economic growth, the ink industry is being challenged by price pressures, raw material costs.

    The 2018 European Ink Review
    Photo courtesy of hubergroup.
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    Sean Milmo, European Editor03.09.18
    A buoyant Europe economy, with growth in much of the region at its highest since the financial crash of 2008, has been raising confidence in the European printing sector and its inks and other suppliers.

    However, ink producers are still contending with continued downward pressure on margins from intense competition in high-volume printing segments and, above all, persistently increasing raw material costs.

    Ink makers have recently been responding to these higher raw material prices by announcing a series of increases in the prices of their own products, in the hope that at a time of stronger print demand the rises will be accepted by their customers.

    The most reluctant to assent to the price rises will be large trade printers, who have been investing in high-speed presses to provide a low-cost 24/7, next-day delivery service. They are operating on low margins and expect their suppliers to tolerate low margins as well.

    The big printers are also the ones that are most likely to have adopted digitalization technologies to become highly automated, using the gathering and analysis of data from in-line monitoring of their printing processes to drive down costs and raise efficiencies.

    The application of digitalization across the European printing sector is presenting a long-term challenge to ink producers and other suppliers to invest in similar cost-saving measures.

    Changes within the printing industry are not being applied uniformly. “The printing industry is still very much in a state of flux,” said Tony Langley, chairman of Langley Holdings, owners of Manroland Sheetfed GmbH, who reported a “roller coaster of order intake” last year with a strong quarter being followed by a weak one.

    On the other hand, there is optimism within the industry that it is on the right course in its current restructuring. “Print will change but continue to enrich our lives,” said Claus Bolza-Schuenemann, president and chief executive of Koenig & Bauer AG. “(Print’s) permanent, innovative transformation will ensure it remains attractive.”

    The Economy Appears to Slow

    As Europe’s printing sector reorganizes itself to counter the relentless expansion of digital media, it may not be able to take advantage of the economic resurgence for long.

    Already it appears to have peaked. Growth in the euro area, which makes up most of Western Europe, is projected to slow from 2.4% in 2017 to 2.1% this year and 1.9% in 2019, according to figures from the Paris-based Organisation for Economic Cooperation and Development (OECD). Germany is forecasted to grow 2.3% in 2018 and 1.9% in 2019 after a rise of 2.5% in 2017. A downturn in growth is also forecast in France and Italy.

    In the UK, a growth slowdown is expected to continue through 2018, says the OECD. This is due to continuing uncertainty over the outcome of its negotiations to leave the European Union and the impact of higher inflation on household expenditure.

    Last year’s advertising expenditure, which remains an indicator of levels of activity in key printing markets like publishing and parts of the commercial printing sector, continued to expand only slightly in Western Europe. Ad spend went up by 0.2% last year after rising by the same amount in 2016, says the Global Ad Trends report of the advertising consultancy WARC.

    This sluggish performance was offset by a sharp rise in Central and Eastern Europe, which at 14.5% recorded the biggest growth in the world last year.

    In 2018, WARC is expecting a recovery in Western Europe with an expenditure rise of 2.6% with a slowdown to 8.4% in the neighboring Central and Eastern Europe. Much of the growth in ad spend in Europe will be generated by the continued popularity of digital media among advertisers.

    In the UK, which is one of Europe’s largest digital advertising markets, there is likely to be a continued switch in expenditure to mobile advertising. In the third quarter of last year, mobile advertising accounted for almost a quarter of total ad spend.

    “Total mobile ad investment during the quarter was higher than that for TV for the first time – though the two channels serve different roles for advertisers,” said James McDonald, WARC’s data editor.

    The main publishing sectors in Europe – newspapers and magazines – are still suffering from the rise of digital media. The demise of publishing and parts of the commercial print market in the face of massive electronic competition is continuing to shrink total print sales despite growth in packaging, high-end commercial segments and industrial markets.

    There are signs that the decline of the publishing market could be leveling off. Some print industry leaders remain hopeful that traditional print sectors, with the help of new technologies and marketing strategies, will soon be growing again.

    In Germany, Europe’s largest print market, the country’s association for coatings and printing inks (VdL) is forecasting a “slight decline” in demand for printing inks this year, with a rise in sales of packaging inks failing to completely offset a decline in publication inks. But it will be a better performance than in 2017, when preliminary VdL figures showed a 3.5% drop in total ink sales.

    In the UK, the country’s national news brands, consisting of newspapers and magazines with online outlets, achieved a 21.5% year-on-year rise in digital revenues in last year’s third quarter, according to WARC. While this was not enough to offset print losses during the quarter, the total market contraction of 5.1% was the best recorded in three years.

    In the same quarter, direct mail in the UK reported its strongest quarter in six and a half years, with expenditure rising by almost 6% to reverse a prolonged downturn.

    Publishers across Europe are hoping that advertisers, particularly consumer brand owners, will shift significant quantities of their advertising back to print because of disenchantment with the way social media has been penetrated by extremist groups and fake news. There are also doubts about the reliability of social media’s advertising response data.

    In mid-February 2018, Keith Weed, chief marketing officer of consumer products conglomerate Unilever, the second biggest marketing spender globally, warned that his company would only prioritize expenditure in “responsible” media.

    “Fake news, racism, sexism, terrorists spreading messages of hate, toxic content directed at children – parts of the internet we have ended up with (which are) a million miles from where we thought it would take us,” he said.

    The print sector’s strategy in Europe is to emphasize not just the greater quality of its information but its tactile and visual attributes. Studies show that direct mail has a greater impact on its readers than promotion by email.

    The print industry also wants to develop ways of working with electronic media rather than against it. Catalogs are undergoing a revival in Europe because they can support both online and retail shopping. Marketing information on packaging and point-of-sale material in retail stores are being synchronized with online promotional messages.

    Whether they are competing or collaborating with the online sector, printers have had to drastically reduce their costs. This is being done by increased consolidation of printing facilities, particularly in high-volume markets. For a growing number of smaller printers, it has been cheaper to outsource some of their higher-volume work to these larger operations than to do it themselves.

    Printers are having to decide whether they want to concentrate on a highly competitive commodity market in which printed products are largely sold on price, or to focus on sectors providing added-value print, which are mostly out of the reach of online competition.

    “Both models can provide a basis for extremely successful printing businesses,” Timon Colegrove, chief executive at Hunts, a UK commercial printer, told a seminar at last year’s IPEX printing exhibition at Birmingham, England. “The danger area is being in the middle.”

    The Packaging Market

    Ink producers will have to make similar choices, especially in the planning of their longer-term strategies. For SME ink companies, possibly the only option will be making specialty, high-margin inks. But it is also becoming the preferred alternative for larger producers as well.

    A strong presence in packaging has become a priority for ink makers of all sizes. It is a sector which is continuing to grow at rates above those of GDP across Europe, with some niches expanding at double digit levels.

    Commodity printers have been gaining share in the markets for long-run and low-cost packaging. But the opportunities for the profitable high-value work lie in short-run jobs, which meet an increasing need for more personalized and carefully targeted packaging aimed at a specific group of consumers.

    These are areas where high growth in demand is continuing to boost sales of digital printing equipment, particularly for inkjet presses, whose versatility is able to meet requirements for greater customization.

    They also comprise segments where ink producers need to build up close relationships with their customers in order to understand and respond to their individual needs.

    Packaging is also increasingly becoming a sector where printed features on the packaging are linked to IT systems, particularly to enable effective tracking and tracing of products and to combat counterfeiting.

    The EU is currently in the midst of introducing a mandatory scheme for individual pack identification in pharmaceuticals that is so complex that it will have taken approximately eight years to bring fully into operation by a deadline of early next year.

    It involves the use of unique identifier barcodes and anti-tamper devices for single pack medicines within an ‘end-to-end’ system under which the serialization and other data on each pack can be verified by a pharmacist with a scanner at a dispensing point connected to a central data bank.

    If the FMD scheme is successful, similar strict regulatory tracking and tracing systems could be introduced in other areas like the food sector. For inks, a key requirement will be high resolution to ensure readability and durability since some products can be in the supply chain for up to five years.

    Increasing numbers of consumer product brand owners are also wanting to strengthen the counterfeiting elements on their packaging with new technologies.

    As a result, security inks have become an attractive area of expansion for ink producers, not only because of their potential in packaging but also in other segments.

    Sun Chemical announced in February 2018 that in conjunction with its parent company DIC Corporation, it was taking over Luminescence Holdings Ltd., a UK-based manufacturer of inks for brand protection and printing of currency, tax stamps, passports, ID cards and secure documents.

    The acquisition would create an “enormous growth platform” for Sun Chemical in the $2.7 billion security ink market, according to the company.

    In January 2018, Sun Chemical acquired C.T.LAY, Modena, Italy, which makes security elements like overlays, holograms and laminates.

    There are a growing number of functional and industrial printing segments that are opening up new prospects for specialty ink producers. Among equipment manufacturers, demand for inkjet presses is likely to benefit the most from this trend because of the ability of the machines to print on different substrates.

    The décor sector is now among the biggest industrial printing sectors, covering printed decorations for wood laminates, glass, metal surfaces, walls coverings, furniture and a range of textiles.

    The demand for inkjet textile printing tripled globally between 2012 and 2017, according to a recent report on functional and industrial print by Smithers Pira. It expects the growth to moderate in the five years to 2022 but the increase will still be at a high annual average of 14.3%, with continued strong growth in Europe

    Press manufacturers have been helping to broaden the textiles digital printing market in Europe by introducing small inkjet printers for use in schools and colleges.

    There is also a rising interest in Europe in customized wall décor to compensate for the decline in traditional volume-printed wallpaper, with the decoration of wall papers and covering being printable on short runs. This has led to a resurgence in the wallpaper market in some parts of Europe.

    Another cause of rising demand for added value in inks has been a continued tightening-up of safety regulations, particularly in packaging.

    The European Commission has been considering bringing in a system under which approved certification bodies would check the compliance of food contact materials, like inks, with safety rules such as those already applied by a Good Manufacturing Practice regulation. The rules would be those covering aspects like prevention of migration of chemicals, risk assessment and quality control standards.

    Approval of the Commssion’s proposed system may, however, be delayed by the EU Council of Ministers, representing member states, and by the European Parliament because of opposition from EU governments. Since member states have a right to make final decisions on public health matters, they may want to be allowed to vet assessments done by the certification bodies, which would make the suggested scheme even more complex.

    Meanwhile, the Swiss Ordinance on the composition of packaging inks, which with Switzerland being a non-EU country acts as a Europe-wide voluntary standard, is being widened in scope.

    Consumer brand owners are also broadening their restrictions on substances in inks and other packaging materials. The suspected endocrine disruptor bisphenol A has been banned by some companies in all their packaging.

    Innovation has become more important than ever for ink producers as they attempt to take advantage of the swing in demand for specialty and added-value products. Ink makers are both strengthening their R&D operations and also making use of open innovation by collaborating in technology development with other companies and also their own customers.

    Siegwerk, a leader in packaging inks, has a strategy of working closely with start-ups and brand owners. The company sees collaboration with start-ups as a means of gaining useful access to new ideas which may lead to innovative ink developments.

    “Start-ups are the home of trend-setting ideas and an exceptional inventive spirit,” explained Christoph Barniske, Siegwerk’s head of digital business. “As an established market player, we can support start-ups with our technical expertise to develop their ideas to product maturity and successfully launch them to the market.”

    Increasing Prices

    Ink companies rely on profits to maintain their R&D operations and supports the cost of bringing innovations to market. Currently their margins are being squeezed by a relentless rise in raw material costs that began in 2016, continued last year and looks likely to persist through 2018.

    The price increases, some in double-figure percentages, have been affecting a wide range of raw materials - titanium dioxide, organic pigments mainly imported from China, different resins and a variety of additives. Felipe Mellado, Sun Chemical’s chief marketing officer, has said the high levels of the price increases are “unprecedented.”

    The increases have been blamed on an accelerated rise in crude oil prices, closures of organic pigment and intermediates plants in China following enforcement of stricter environmental regulations, and a tighter supply/demand balance with products like TiO2 and also some petrochemical derivatives.

    Prices of major petrochemical raw materials were, in early 2018, 20% higher than a year ago, according to the Petroleum Index of ICIS, a price intelligence organization. In January alone the index went up by nearly 4%.

    The latest Raw Material Prices Survey of the British Coatings Federation (BCF), whose members include ink producers, showed that average solvent prices were 38% higher in December than a year ago.

    There were sharp increases in nine out of the 14 key solvent materials covered by the BCF survey, showing big increases year on year. TiO2 prices soared by 36% last year, with the average price per ton now 70% higher than at the start of 2016, although a fall in the value of the UK pound in that year might have exacerbated the rise.

    Of particular concern for ink producers is growing evidence that reductions in investments in crude oil refineries in Europe is leading to shortages of petrochemical derivatives for specialty chemicals used in inks and coatings formulations. In the wake of expectations of a long-term decline in demand for petrol, diesel and other fuels as countries switch to low-carbon economies, refinery owners are reluctant to put money into the upgrading or even expansions of refinery capacity.

    Ink producers – including leaders like Sun Chemical, Flint Group, Siegwerk and hubergroup - are trying to compensate for higher raw material costs by raising the prices of their own products. Flint Group has put up the prices of its publication and offset inks by 9% and Sun Chemical a range of inks by “high single digit” figures.

    Improved margins are needed in ink manufacturing not just to fund development work in ink technology innovations. They are also necessary for investment in automation and digitalization, which has becoming prevalent throughout the European print sector. Ink producers have to be careful that they do not get left behind. 

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