Ink Makers Feel the Pinch

The ink industry—given the current higher cost of crude oil (about $37 per barrel), plus an Opec-imposed limit on production—is facing a difficult year in which its profitability will be significantly affected.

On one hand, key intermediates and other selective petroleum-based raw materials are likely to go up in cost and down in availability. On the other hand, with the printing industry still facing economic doldrums, most ink manufacturers feel that they probably will not, for the immediate future, be able to pass along raw materials price rises to offset these higher costs.

However, as noted in the annual ink industry review in GAM's April issue [page 48], ink manufacturers have expectations that the national economy will improve appreciably in 2004's second half, and that the results of the presidential election will also exert a positive influence on the businesses they serve that will carry over into 2005.

In the interim, the pressure resulting from crude oil prices has affected the cost of solvents in general, although oxygenated solvents—like ethyl alcohol, isopropanol, and acetates—remain available, and acrylics are stable. A severe winter has run up the price of natural gas, a necessary fuel for processing both raw materials and inks, to the highest levels since winter 2000.

Carbon black, a vital component of all black inks, was one victim of higher natural gas prices, but it also saw a significant decrease in volume when Firestone shut down its manufacturing facilities. Prices for clays, also energy intensive, also may rise.

Other shutdowns of raw materials plants have further exacerbated supply/demand ratios. Dow/Carbide, for example, has shut down ethylene production because of excess capacity, while producers of energy-intensive products like titanium dioxide have passed their higher costs on to customers.

Additionally, Green Tree, touted two years ago as a welcome domestic source of nitrocellulose that would help curb price rises imposed by foreign producers, has closed its doors, subjecting the ink industry to limited supplies from overseas sources at prices the latter control.

Pigments, on the other hand, have remained relatively stable across the board, with prices held in check by greatly increased imports from China. Former reluctance among domestic ink manufacturers to employ Chinese pigments because of quality concerns has dissipated because of major processing improvements. A good part of these advances may be the result of technology exchanges with U.S. pigment manufacturers that have closed some domestic facilities and formed joint ventures with Chinese firms.

Gum rosins, also from China, are of good quality and readily available. Tall oil rosins, used in varnishes, are not presently in short supply. But this may be temporary as a major domestic producer, Lawter, is up for sale by Eastman Chemical, thus making future product flow uncertain.

Among other ink raw materials expected to remain stable for the rest of the year are polyamides, UV monomers, and photoinitiators.

Soy oils, whose prices spiked sharply in 2003, present a problem as the quality of imports from a major supplier, Brazil, has failed to meet industry standards. Thus, ink manufacturers are exploring reformulations whenever possible, substituting hydrocarbon-based oils. Linseed oil is in good supply.

A holdover concern from 2003 relating to raw materials costs lies with suppliers of key products seeking to raise prices in anticipation of increased costs, as well as to improve profit margins. But ink industry leaders say that this tactic will prove to be a hard sell, given flat demand and overcapacity in the industry.

Labor contracts in the ink industry are still periodically renegotiated as they expire. However, unions, which are well aware of the overall loss of jobs in the manufacturing sector, are not pressing undue demands upon employers.

Finally, among other pertinent costs, the impact of crude oil prices has affected the cost of polypropylene, a base material for the production of shipping containers and pails.

Overall transportation costs for both raw materials and ink shippers have paralleled the rise and fall of gasoline and diesel oil prices—a variable base rate and standard feature of transportation contracts. Recent sharp increases in vehicle fuel costs are not expected to recede in the near term, and may spike again during the summer months when consumption traditionally goes up.