Rollercoaster Ride for Inks

For the ink industry, 2003 was something of a rollercoaster ride, looking up when economic recovery seemed promising, then dipping when the promise failed to materialize.

As one industry leader noted, it's difficult to get a true measure of the marketplace when economic momentum is erratic and unsustainable. The third quarter of 2003 was the best, led by an 8.2% rise in Gross Domestic Product (GDP); however, most gains were lost in the fourth quarter when GDP had dropped more than 50% at year end, much weaker than analysts had forecast.

This situation has cast something of a pall over the printing industry and its suppliers as 2004 began with continuing weak demand, excess capacity in both the printing and ink industries, and consequent downward price pressures. sales dropped 4% to 5% in 2003

If data collected for the first three quarters of 2003 by the National Association of Printing Ink Manufacturers extrapolates for the entire year, the ink industry will have suffered a sales decline of 4% to 5%, along with a parallel dip of 3% to 4% in volume of ink sold.

Says David Frescoln, president of Flint Ink, the second-largest manufacturer of inks in the industry, even if the overall economy were to rise in 2004, "Robust recovery in the printing and packaging sectors will trail the economy, perhaps for the full year." Despite a February report showing signs of recovery in the nation's manufacturing sector, but without job generation and some slight gains in consumer spending, Frescoln says that "the outlook for 2004 is for insufficient growth to make up for the capacity glut."

A good part of the concern among ink manufacturers lies with shrinkage within their printing industry customer base.

The Printing Industries of America reports a serious decline in the number of printing plants over the past decade, as well as the idling of many presses in plants still operating. Not only are cash-flow-hungry printers not buying as much new equipment, they often are opting not to repair presses that break down, foregoing needed maintenance until business improves. The impact of these developments on ink consumption is obvious.

These pessimistic predictions are supported by other ink industry leaders. Michael S. Murphy, president of North American ink operations for Sun Chemical, the world's biggest supplier of inks, sees across-the-board price erosion among all ink product lines as desperate printers, caught between overcapacity and intense competition, have turned to their suppliers for relief.

As a manufacturer, Murphy also notes the double-whammy imposed on domestic ink companies: foreign competition in the transfer of printing jobs overseas, and the import of inks at competitive prices.

Ink manufacturers continue to battle against the industry's economic difficulties with further cost-containment programs, although many voice the opinion that, after years of such efforts, not much leeway remains. A recent innovation aimed at bolstering revenue has been the move towards diversification into products akin to inks, such as press chemicals and other pressroom supplies. Companies like Sun Chemical and Flint Ink are incorporating these commodities into their product mix.

Meanwhile, some of the small and mid-size manufacturers such as Superior Ink are forging partnerships with suppliers of related products, thus allowing them to offer customers attractive single-source, single-billing ink/chemicals packages.

However, Superior Ink managing director Harvey Brice sounds the alarm for what he sees as some ink companies' practice in meeting printers' demands for lower prices by "commodityising" (sic) their products–-no longer selling them as specialized chemical compounds, but rather as off-the-shelf commodities.

Says Brice, this practice undercuts the concept of "value add" that the ink industry has been promoting for years to highlight to customers the important but typically free-of-charge services such as technical support, environmental counseling, color matching, and inventory control. While larger ink companies strive to maintain these services, many are being curtailed as an eroding price structure can no longer support them.

"There's cautious optimism that the printing market will grow as the economy continues to strengthen," states Kathryn P. Marx, vice president of marketing for Flint Ink. "As 2004 is both a presidential election and an olympics year, we are hopeful that we will see growth similar to that of past such years."

Any gains may help commercial printing inks, among the hardest hit, the most. However, mitigating any possible gains is the fact that magazine advertising, a major consumer of inks, ended 2003 on a down note after seven consecutive months of ad page declines, according to a year-end report from the Publishers Information Bureau (PIB). PIB estimates ad pages for all of 2003 will be at least 1% lower than for the previous and equally bad year, with immediate improvement questionable.

A further threat to print ads and direct mail lies in the shift in presidential election promotions from print to television and the Internet.

In 2003, almost every segment of the ink market fell appreciably. Among the major classes, publication gravure inks showed double-digit drops in both sales and volume. Commercial printing inks had year-over-year losses of about 5%, with the sheetfed offset market proving especially vulnerable to contraction and closures among printers.

The market for flexible packaging inks, principally solvent-based flexo inks used for foods packaging, slowed but continues to grow, and offers good prospects for 2004. On the other hand, foreign competition and domestic industry recession have seriously hurt inks for corrugated packaging and the paper bag market [see sidebar].

For environment-conscious customers requiring quick-curing, radiation-cured inks, ultraviolet (UV) and electron-beam (EB) offerings continue to do well. Sun Chemical reports new formulations for its EB adhesives that work well with conventional lamination inks.

Ink raw materials continue to pose a significant problem.

With suppliers citing higher costs for energy, raw materials, and freight, the ink industry saw price boosts early in 2003 among products such as pigments, solvents, titanium dioxide, oils, vinyl acetates, and the full range of polymer-based offerings.

Also affecting raw material costs is the price of crude oil, the base for about 90% of ink ingredients, which is expected to rise in March to about $35 per barrel (up 6%), and probably will remain in short supply for much of the year.

As noted last year, raw materials suppliers whose products are not under stress also are continuing to seek higher prices in anticipation of escalating manufacturing costs, and to improve profit margins. Jack Benson, vice president of procurement for Flint Ink, concludes that these suppliers can anticipate "a hard sell, what with flat demand and the ink industry's overcapacity."