INKETC.: Prices Rise As China Cleans Up

Pigments are the most expensive ingredient in printing ink. In recent years, prices have been relatively stable compared to petroleum-based products, as ink manufacturers sought to find alternate, less expensive pigment sources to offset higher costs. In many cases, that meant importing pigments from companies in China, which, in addition to having lower production costs also received government subsidies in the form of up to 13% value-added tax refunds on exports.

However, a recent decision by China eliminates or significantly reduces these refunds on pigments, pigment intermediates and other key raw materials. That poses a challenge to ink companies—and it means higher prices for printers. Also, the decision by China to shut down businesses that are contributing heavily to pollution has led to plant closures, cutting into supply.

It's clear that pigment producers will have to pass along at least some, if not all, of the higher prices. The impact already is being felt, as several have increased prices. As a result, ink manufacturers, including Flint Group and Sun Chemical—already stretched thin by the higher raw materials costs of recent years—had little choice but to follow suit.

A number of key areas are affected. Diane Parisi, Flint Group's supply chain VP, points to pigments, intermediates and specialty chemicals (e.g., photo-initiators used in UV inks), as well resins, waxes and clays.

“The availability of azo reds and yellows is a concern, along with the price of all pigments produced ... with chemicals from China,” says Jyoti Gidvani, director of materials NAFTA for Siegwerk Group International, the 178-year-old German manufacturer of web and gravure publication inks as well as sheetfed and UV packaging inks.

The new policy in China affects 2,831 classifications of products, according to Ed Pruitt, Sun's chief procurement officer. Other products that may also have an impact on ink pricing include vegetable oils and organic and inorganic chemicals.

Explaining the nuances of Chinese economic policy to customers is completely different from explaining higher crude oil prices. Environmental concerns and pricing are inter-related. “Over the past few weeks, we've received notices of increases from 5% to 30% on raw materials, and a lot of that is being driven by environmental factors,” says Flint's Parisi.

Pruitt of Sun Chemical notes that the Chinese government is beginning to crack down on certain manufacturers who it believes are contributing to serious pollution. Among these are a number of pigment intermediates producers, notably of C-amine and beta naphthol.

Lake Red C is an example of a pigment that has generated substantial price increases from suppliers in China and elsewhere due to the shortage of key raw materials, Pruitt says, driven at least in part by tax and environmental policy shifts.

One problem facing ink manufacturers is that the growth of the offshore pigment industry came at the expense of domestic pigment companies, many of which have closed their doors. As China's pigment prices rise, the question becomes: where will be the next major source of low-cost pigments? India? Other parts of Asia?

There are alternative sources for a number of these products. Serious buyers, such as Sun, are taking a hard look at shifting away from sourcing in China to mitigate the cost impacts and to provide more stability in ink economics and supply.

Nonetheless, China has become an important source of many of the key raw materials for the ink business and will continue to be a highly influential region.