Ink's Immediate Prospects Uncertain

Much like the weekly episodes in the Saturday movie serials of old, each of the last three years for the printing ink industry has ended in an economic cliffhanger, on the brink of an uncertain future but with the hope that some resolution of its problems is in the offing.

However, despite a slight business upturn among its printer customers in the last quarter of 2002, the consensus among ink industry leaders is that economic recovery isn't likely before the latter part of this year, unless further impeded by war or political events.

"If we see no major interruption, 2003 should be a better year for the ink industry," says Michael Murphy, senior vice president of Sun Chemical Ink and former president of the National Association of Printing Ink Manufacturers.

But whatever optimism the ink manufacturing industry voices, it is tempered by the reality of an impending conflict with Iraq, a depressed domestic and world economy, a struggling stock market, and reduced consumer spending.

As a 2002 year-end report published in The New York Times points out, "The consumer is the engine for economic recovery, and he's not buying." Consumer spending is a major driver for the printing industry and its suppliers since nearly 60% of all printing is advertising-related. Says Murphy, "A return of consumer spending will draw advertisers back into the market, and that should have a positive impact upon the ink and printing industries this year."

That turnaround may still be in the offing, since the Publishers Information Bureau reported that 2002 ended with an overall 3.2% loss in magazine ad pages atop the already dismal results of 2001. Additionally, print advertising lost some of its share to other media, especially Internet advertising.

Meanwhile, catalogs and freestanding inserts for direct mail and newspapers showed good strength. Newspaper ad lineage continued downward, resulting in reductions in editorial pages, while both magazine and book publishers reported reduced production levels.

But if the long-expected turnaround comes later this year, it would be a welcome change for the ink industry since the past two years have not been kind. In 2000, sales reached a record of about $4.7 billion. But for 2001, total annual ink revenues fell 2%, partly due to September 11.

For 2002, industry leaders say that the first three quarters were an extension of the previous year, with only the last quarter showing some signs of strength. The expectation is that total 2002 domestic ink sales probably will regress to between $4.4 billion and $4.5 billion, with a parallel reduction in pounds of ink sold.

Reversing the industry's fortunes will not be easy, say its leaders.

"To remain competitive, the industry must become more efficient and proactive," Murphy states. His words are echoed by Superior Printing Ink's Harvey Brice, who says that already more intensive strategic planning throughout the industry is leading to cost savings in production, labor, and distribution.

Among larger ink companies, savings also are being affected by the reallocation of resources (e.g. consolidating branches while increasing productivity and the ability to respond to customer needs).

However, as with their printer customers, ink companies are curtailing capital expenditures on new equipment and process improvements, except when the need is pressing. As proof, last year the major printing shows reported lower attendance and disappointing sales, and in the latter case many ink industry buyers are deferring delivery until later this year when they hope their cash flows will have improved.

Three areas that continue to benefit the ink industry and its customers are quality control, value-added services, and research and development (R&D). To assure their customers that ink products meet the highest quality and performance standards, more ink companies are achieving ISO 9000 certification as affirmation of quality management.

Further, the larger companies also are implementing either or both the Six Sigma data-driven continuous improvement program or a Total Quality Management system.

Recognition of the value of added services that ink companies offer their customers finally seems to be growing. Superior Ink's Brice says that his company lost some customers in 2001 when a depressed market for printing caused printers to make price the deciding factor for ink purchases.

"But they are coming back to us because they've found that using the price criterion is a false economy," he asserts. "They tell us they've come to appreciate the value of our technical support, around-the-clock service, and high-performance products that meet all their needs."

According to Flint Ink vice president of R&D Graham Battersby, despite present market conditions, his company's continued commitment to long-term research is an example of how the industry seeks to help customers minimize costs without a decrease in product performance. Recent Flint Ink introductions include new energy-curable ink systems, including inks for narrow-web printing.

Other industry product advances in 2002 included, among others: SICPA North America's water-based label ink systems for non-porous substrates; Superior Ink's improved hybrid offset inks and its research into digital inks for wide-format printing; more diversified security inks; and Midwest Ink's "no fountain solution" inks, for which it won a GATF InterTech Technology Award, the only ink company to be so honored.

Among key segments of the ink market, energy-curable inks—both ultraviolet (UV) and electron beam (EB)—continued to show gains, with an industry survey predicting between 6% and 9% annual growth for at least the next three years.

EB inks are doing particularly well as a result of major cost reductions in process equipment and ink product improvements in keeping with new applications. Both UV and EB inks also compare favorably with conventional inks because of their health, safety, and environmental benefits.

Also doing well are inks for flexible packaging and other non-porous substrates. Ron Barry, chairman of Color Converting Industries, a major producer of these inks, claims that this niche market is virtually recession-proof. He adds, "Most of our inks go into food packaging, and, bad times or good, everybody has to eat." In particular, UV flexographic packaging inks, with improved print quality and applicability to multiple substrates, continue to score well.

Because of new presses and advanced prepress technology, sales of inks for commercial sheetfed offset remain steady, says Braden Sutphin Inks chief executive James Leitch. But Leitch adds that web heatset inks used in magazine printing have been hurt by the downturn in advertising pages.

The market for publication gravure inks remains soft, but has been relatively strong for packaging gravure inks. Corrugated inks still are an important market segment, but sales have been sluggish of late in this category.

Should the cost of oil be driven up by a war in the Middle East, the availability and price of petroleum-based ink raw materials, stable for most of 2002, may skew anticipated results for the year. Among the materials of chief concern are pigments, solvents, ink oils (news and heatset), carbon black, phthalic anhydride, ethyl acetate, ethyl alcohol, methanol, and acetic acid.

A further shortage of naphthalene may have a serious effect on pigment production, especially the classical reds and some oranges [a detailed raw materials report will appear in GAM's Ink column in May].