Crunch Time for Raw Materials?

This is an alert! Printers and other consumers of printing ink should be prepared for price increases this year, probably in the range of 6% to 8%, but possibly more if the cost per barrel of crude oil doesn't stabilize.

Any hopes that pressures on ink manufacturers as to the cost of their raw materials lessening this year were dashed by a double whammy in March. Opec members moved to cut oil production by 4%; then there was the dire prediction that natural gas prices were due to rise anywhere from 50% to 200%.

It may seem overly repetitious to read here each year that the printing ink industry is pretty much at the mercy of the price of oil, but as long as the cost of oil remains high, it remains a given. With higher costs for energy, labor, transportation, and insurance as additional burdens, neither short- nor long-range raw materials price relief is in sight.

However, the recent economic slowdown seems to have slowed the pace of supplier requests for immediate price increases, except in those areas where energy is a major production component. But additional pressure for higher raw materials prices will continue, as evidenced by a recent NAPIM Outlook Survey in which 55% of responding suppliers reported lower profits in 2000 over 1999.

Pigments costs are a good example. The first significant increases in five years, averaging 7%, were imposed in 2000, and another appreciable uptick is expected this year.

Even sharper rises may apply to carbon black—by far the major component of all black inks—because of strong demand in 2000 and into 2001 from the automobile tire industry, which is required to replace millions of tires after the Firestone recall. Carbon black production is also energy intensive, an additional cost factor being passed on to customers.

Ink manufacturers have no choice but to pay these elevated market prices.

Titanium dioxide was in short supply for the first three quarters of 2000, but loosened at year's end as lower housing starts cut demand for paints and coatings. But the recent drop in interest rates may jump-start housing, so a mid-year rise in price should not be surprising.

Last year's rise in organic pigments price was not across the board; rather, it was color-specific. However, the full range of flush colors evidenced a 6% rise overall. Cost rises of dry pigments were restrained both by increased use of flushes and by improved quality imports from China and India. Domestic ink manufacturers' purchases of these imports have been to the detriment of both old-line U.S. and European suppliers, except for flushes that are not produced in Asia.

The highest price rises last year were for red dry pigments, but blue pigments were generally in oversupply.

Last year's shortage in alkali blue will probably be lessened this year, as PMC comes back into the market, causing BASF to lose its single-source position. PMC may try to buy back market share by offering lower prices.

Among the other colors, yellows were in balance with the market and thus pose no immediate supply problem. Phthalo green prices have declined after green, a previous fashion choice, fell out of favor among automobile buyers.

Among prices for key solvents, those for heatset offset were raised in 2000 and again in January of this year. Derivatives of petroleum, their price rises parallel those for crude oil. Also affecting availability to ink manufacturers is the fact that producers of these solvents can get higher profit margins from other industrial purchasers.

Among oxygenated solvents (ethyl alcohol, isopropyl, acetates), all were up in cost last year and may be in even tighter supply this year. The reason is that manufacturers have found it more profitable to shut down production lines as well as sell off their natural gas supplies to other industries at prices up as much as 400%.

Energy-intensive acrylics also were up significantly in price.

Nitrocellulose availability has increased somewhat, due to competitive pressures from the business slowdown. Ink manufacturers, faced last year with an anticipated loss of domestic sources, signed contracts with European manufacturers. Their major domestic source, Hercules, severely curtailed production last year and then sold its assets to Green Tree, an investment group.

Because the European contracts are long-term, Green Tree's lack of buyers has forced it to run its facilities at only 50% capacity. To regain profitability, Green Tree has been selling its product at a comparatively high price, but some ink companies are buying from the supplier this year in the hope that this domestic source will survive.

Meanwhile, the price for Chinese gum rosins has remained stable; only a minor rise affected last year because of heavy competition. Tall oil rosins are in good supply. Being a derivative of the paper industry, they always are plentiful when the paper industry does well, as it is now doing. Polyamides had a major rise in the latter half of 2000, but are expected to settle down for the best part of this year.

Among the oils derived from grains, a very good crop of flax seed last year has kept the cost of linseed oil stable, and it should remain so. The price of soy oils were flat for most of the past year and now seem to be declining, a condition abetted by both high domestic surpluses and abundant imports from Brazil.

New competitors into the ultraviolet (UV) photoinitiators market, resulting from the end of Ciba's patents, have kept prices stable. UV monomers, however, are scheduled for a 4% increase sometime during the first half of this year. The increased popularity of UV inks suggests the strong possibility that they will go up in price this year.

The cost of clays are up considerably because they require high amounts of higher-priced energy in drying them. Waxes are in good supply, rising only slightly in price last year.

Plastic pails, used to ship inks, evidenced six price rises last year and should continue to have additional increments this year. The containers are made of high-density polypropylene, a petroleum derivative for which there is no substitute.

The higher transportation cost of both raw materials to ink plants and finished products to customers has also appreciably increased overall ink costs. Relatively economical truck transportation is considerably less available, and at significantly higher rates. Several major truck carriers have been forced out of business by higher fuel and labor costs, and more may be in the offing if gasoline goes above $2 per gallon.

Where possible, ink manufacturers are using rail, but will still need to use trucks to reach customers away from railheads.

The cost of raw materials remains a Damocles sword dangling above the heads of ink manufacturers. Only reasonable price rises offer the industry a chance for relief; printers and other ink consumers should recognize that keeping the ink industry viable is in their own best interests.

Forcing ink companies out of business or into mergers with existing giants may reduce competition to the point where higher ink prices will be imposed, rather than negotiated.