Ink price hike fears grow as manufacturers’ margins shrink
Monday, September 29, 2014
While there is generally a more buoyant mood in the industry at the moment, there is an increasingly insistent murmur that ink prices may be on the rise.
So far there is nothing concrete, but what had been confined to idle conversation was crystallised earlier this month when Flint Group issued a statement highlighting increases in the price of raw materials.
Since Flint released its statement other ink manufacturers, including Stehlin Hostag/Hubergroup and Sun Chemical, have confirmed that they too are facing rising costs. It’s not just that costs are expected to rise, in many instances they already have, it’s just that the ink companies have taken the hit.
“It’s three years since the last price rises and it was difficult to pass them on at the time,” says Stehlin Hostag UK managing director David Ward. “We’ve absorbed a lot of raw material prices; the trend is clearly up and needs to be addressed.”
It may be that now there are signs of a general recovery the ink firms think there’s a chance they may be able to make price rises stick. They certainly believe that the increases are necessary pretty much across the board in offset applications.
“The increases are justified in all sectors,” says Druckfarben managing director Grant Penfield. “News-papers and heatset printing being the worst sectors. Sheetfed inks are under pressure too, but not as much.”
Affected raw materials span all the major components of inks including resins, solvents, intermediates and pigments. The source of the price increases include crude oil price caused by the numerous geopolitical problems in addition to tighter environmental regulations and some shortages in supply.
“Since mid 2013, unfortunately several key raw materials have increased in price,” says Flint Group senior vice-president for procurement Jan Paul van der Velde. “This was indicated at the end of last year and in May of this year, and now we see that this trend has become significant.”
The increases he cites have been substantial.
“Some red and yellow pigment intermediates, which are components of inks for every application rose by 30%-50% over the past several months, and there is no end in sight for these increases,” says van der Velde.
Gum rosin, another key material, has also risen again. Having peaked in 2011 at $3,500 (£2,100), the price has been rising again since the second half of last year.
“We have seen a number of raw materials under sharp cost pressure in 2014,” says Sun Chemical chief procurement officer Ed Pruitt. “Rosin resin is one, due to concerted efforts by the Chinese market to extract higher values for gum rosin.”
The majority of pigments and pigment intermediates are made in China and India. Tighter environmental regulations there have led to both price pressures, as the manufacturers seek to recoup the cost of compliance, and supply shortages as they implement the necessary steps.
Flint also highlights increased transportation costs throughout the supply chain.
Despite all these upward pressures on pricing, the latest evidence from printers themselves is that ink prices have fallen recently. According to the latest BPIF Printing Outlook ink costs decreased slightly in Q2.
“Ink manufacturers have struggled for years to pass on any price increases,” says Penfield. “Those rises never really stick as someone is always prepared to supply cheaper.”
This time though it looks like it might be different as the ink firms are taking steps to improve their efficiency and align capacity with demand.
While the firms have flagged up their rising prices they are tight-lipped about the likely magnitude of the increases.
In a statement Flint said: “We are constantly monitoring the global situation in order to be able to react adequately to changing market conditions. Our main focus is to provide on-time high quality products to our customers at competitive prices, which we can only ensure if we follow closely any developments in the raw material markets. At this point in time we cannot rule out a need for price increases.”
Sun said: “We will review case by case every market segment and customer for deciding price changes. We have not taken any decision yet.”
Hubergroup, the parent of Stehlin Hostag, which is currently restructuring its European operations, was more forthcoming, at least on the timescale.
“We’re looking at our internal efficiency and only once we’ve done that will we look and see what we may need to pass onto the industry,” says David Ward. “We have an evaluation underway. Expect a decision before the end of this year.”
While there is uncertainty about the magnitude and timing of ink price increases, there are steps that printers can take to minimise their effects.
“Printers are looking beyond the unit price to look at the impact on the cost of the whole process,” says Ward. “The intelligent buyer is aware of the impact inks and consumables have on performance. Compared to the 5%-7% of costs that ink represents, the waste levels, makeready and production time can be much bigger.”
Increased ink prices may be unavoidable, but be prepared and go into partnership with your suppliers and you can minimise the pain.
Opinion: Ink manufacturers are being squeezed from both sides
Tom Bowtell, chief executive, British Coatings Federation
The print industry has gone through a tough time during the recession, and this has naturally percolated down the supply chain to the ink manufacturers. Quite rightly printers exert pressure on suppliers when times are hard, but there have been significant raw materials price increases over the past six years, which ink makers simply haven’t been able to pass on.
Recent announcements from ink manufacturers have drawn attention to the current squeeze, with price pressure from both raw materials suppliers and lower prices to printers. As the trade association for the printing ink manufacturers, we can confirm that currently raw materials prices for printing inks remain close to peak levels looking at a six-year trend, and are strongly influenced by the price of oil, which remains at over $100 per barrel. More recently, average prices for pigment yellow were up 8% last month, and black up by 7%.
At the same time, according to the latest BPIF Printing Outlook report, for the first time in seven years there was a negative balance (-5) for average ink prices.
It is hardly surprising that the combination of this, together with continued high raw materials prices is causing some concern for ink makers.
Longer term the industry is looking to the next generation of raw materials, which will take away the reliance on oil-based raw materials, but this is several years away from full commercialisation. There is also hope that with the UK government’s support for shale gas exploration, this will also eventually lead to not only cheaper energy costs for industry, but also cheaper raw material feedstocks, which will go some way to relieve some of the pressure, but again this is longer term.
In the short term, I am sure our ink manufacturing members will continue to help printers in other ways, such as reducing waste and maximising efficiency, where possible.
Reader reaction: Are you expecting ink price rises in the near future?
Anthony Thirlby, managing director, ESP
“Yes, we have been made aware of potential rises, however we always work with our key partners to ensure our cost base remains as consistent as possible. We work in partnership with Stehlin Hostag. Where price increases are required, we see if we can find smarter ways of working or develop new products to ensure the right mix of press stability and cost. There are many ways of process improvement to combat rising costs; it’s just a case of treating suppliers as partners and not just as people who supply product.”
Simon Moore, managing director, Eclipse
“We’ve not been informed by our suppliers of a rise, the only thing we’ve seen so far was the story in PrintWeek. The last rise, which was across the board from all the manufacturers, was probably two years ago. There was actually a price drop at the start of 2014. As we already have all the kit and software to minimise our ink consumption we have no way to mitigate any rises. We’d either have to take the hit on the bottom line, or if the rise was significant, pass it on to customers.”
Grant Penfield, managing director, Druckfarben
“Ink manufacturers have struggled for years to pass on any price increases. Those rises never really stick as someone is always prepared to supply cheaper. It’s not the same as the paper mills who manage to impose increases. But [from a supplier perspective] the UK needs a rise in ink price; the market hasn’t recovered from the last round of currency fluctuations, never mind this latest impact of raw material price rises.”