The Publication Ink Report: as raw material prices continue to rise, publication ink manufacturers will face another challenging year.
"The publication ink market, which for Sun Chemical includes primarily heatset and gravure printers, saw a decline in ink consumption estimated to be between 3 to 5 percent," said Chris Parrilli, president, Sun Chemical North America Publication Ink. "Many factors contributed to this dip, including lower catalog press runs, reduced page counts for many publications, competition from new electronic media and rising postal costs."
"Overall, the North America publication heatset market has experienced a slight increase in sales volume, mostly due to book and direct mail segments," said Mike Green, vice president, general manager, Publication and News Ink Divisions, Flint Group. "Raw material and operating costs have continued to rise and remain a serious concern. Other technologies, including on-line media, continue to challenge the industry for the placement of advertising dollars."
Publication Gravure And News Ink Markets
In North America, publication gravure consists of three major printing companies: R.R. Donnelley, Quebecor World and Quad/Graphics. According to Mr. Parrilli, publication gravure has seen some decline, at least partially due to reductions in long press runs, which have been that market's bread and butter. This has occurred especially among large retailers, who have been traditional gravure customers but who have been reducing their print requirements. Mr. Parrilli noted that in Europe, where publication gravure has a larger share of the market, some gravure printers are trying to compete with heatset on shorter runs with limited success. Another competitive factor has been the development of very high-speed web heatset presses with improved print quality.
The news inks market has experienced its own challenges, beginning with the newspaper industry itself. According to the Newspaper Association of America (NAA), daily circulation in 2004 was more than 54.6 million for the 1,457 U.S. newspapers (814 morning and 653 evening papers). By contrast, overall daily circulation in 2003 was nearly 55.2 million, or 560,000 more.
There are other challenges ahead. The New York Times recently announced that it will be cutting its page sizes from a 54-inch web width to 48 inches, and while some pages will be added, the news hole reportedly will decline 5 percent. The New York Times joins Wall Street Journal, USA Today and other publications that have taken this step.
"The North American news ink market is experiencing challenges from our customer base such as narrower newspaper web widths and decreased circulations," said Mr. Green. "Raw material and operating costs continue to rise and raise a serious concern."
Raw Material Pricing
There have been substantial price increases for many raw materials in publication inks over the last year.
According to Mr. Green, some of the most heavily impacted categories for heatset ink include resin, solvent, pigment, varnish and oil. For news ink these include naphthenic oil, resins/varnishes, solvents, pigments and carbon.
"The North American publication gravure ink market experienced a difficult year due to rising raw material and operating costs," said Mr. Green. "Some of the most heavily impacted categories for gravure ink include solvents, resonates, resins, pigments and carbon."
"These price increases have affected virtually every category of raw materials used in making ink," Mr. Green added.
"For instance, toluene and other solvents, which are a key component of publication gravure inks, have spiked over 40 percent this year," Mr. Parrilli said. "Other ingredients used in heatset inks, like carbon black, tall oil resins and distillates, have also seen substantial price increases. While shortages caused by natural disasters in 2005 have, for the most part, been overcome," he said, "some suppliers have begun selling raw materials commonly used for inks in other markets with higher profitability, creating some tightness for ink makers."
In one particularly noteworthy example that is causing serious concern in the news ink industry, there is higher demand for naphthenic oils, now mandated for use in tires in many parts of the world, with no indication that any more capacity will be coming on line. This means that ink manufacturers will be competing with tire companies for naphthenic oil.
As a result of these escalating costs and shortages in supply, ink manufacturers must raise prices. For the past several years these attempts to raise prices have been met with resistance, but there are indications that some price increases are going through.
Overall, according to the National Association of Printing Ink Manufacturers (NAPIM), publication and commercial ink volumes dropped 2.6 percent year to date as of the first six months of 2006. The good news for ink manufacturers is that sales rose 3.2 percent during the same period.
In particular, publication gravure prices rose 7.4 percent, while volume dropped 0.5 percent. Coldset also saw a decline in volume, 4.9 percent, while prices rose 3.8 percent. Heatset volume declined 1.9 percent, while dollar value rose 1.4 percent.
These price increases make a lot of sense, considering the rising price of raw materials, particularly solvents and other petrochemicals.
"While it is good to see prices going up, I just don't know if these increases are covering the higher raw material costs," said Jim Coleman, NAPIM's executive director.
Sun Chemical was able to push through a moderate price increase in the first quarter of 2006 and announced an additional price increase in June 2006. "But these do not match our increased costs associated with raw materials, transportation and other operational costs," Mr. Parrilli said. "We realize that printers are being squeezed by overcapacity and pressure to hold down their own prices, but at some point, we will have to recover these costs in order to maintain the viability of our business."
Between Oct. 1, 2005 and Aug. 15, Flint Group North America Publication Gravure and Heatset divisions received almost 100 raw material price increases from its supply base of approximately 30 key supplies. During the same time, Flint Group North America News Inks Division received more than 80 raw material price increases from its supply base of approximately 30 key suppliers. As a result, the Flint Group News Ink Division announced national price increases for coldset and news offset ink products on Sept. 15, effective Oct. 1, 2006. The price increases include black and color inks and vary depending on product type.
Ink companies and printers are taking measures to deal with these price increases.
"For most printers, the mantra these days seems to be 'Cheaper, Faster, Better,'" Mr. Parrilli said. "In efforts to control their costs, many have tried to move to lower basis weights or grades of paper. This has challenged ink makers to produce new ink formulas and to change other consumables to meet tough targets for quality and performance."
Mr. Parrilli also noted that printers are replacing older presses with demanding new equipment such as the MAN Roland high-speed, wide-body press that place new requirements on printing inks.
According to Mr. Parrilli, there is a continued desire to help printers drive unneeded costs out of their systems by creating more versatility in ink formulations and optimizing their performance characteristics. He said by using Six Sigma and Lean techniques, Sun Chemical can help printers improve their performance.
Flint Group has also undertaken a number of cost saving measures within its operations.
"We have communicated to our customers that limited supplies of key intermediate raw materials along with the global escalation of petroleum derivative prices and demand have had a dramatic effect on the fragile supply chain in the printing ink industry," said Mr. Green.
"We have taken extraordinary measures to reduce our costs within our manufacturing and delivery operations while ensuring a consistent supply of high quality products to our customers. However, these measures have not offset the unprecedented increases in raw material costs."
New products are also critical. Sun Chemical is working on ink formulations that have less dependence on petroleum distillates, as well as products that provide better mileage.
Flint Group has also been developing new products, including its Arrowlith UV ink system, a 2005 GATF InterTech Technology Award winner. Arrowlith UV is a UV ink system designed for coldset web applications, and is a prime example of Flint Group's advanced UV technology. This innovative ink system offers coldset web printers the ability to print on coated and supercalendered stocks, broadening their existing capabilities and increasing pressroom productivity.
Flint Group's Arroweb ink system is a robust and versatile ink series that provides excellent performance over the full range of heatset printing applications and thereby allows customers to use fewer ink sets. Designed using Six Sigma tools, it offers a significantly higher level of consistency and quality print reproduction.
Outlook for the Future
Despite efforts to offset costs with innovative products and technology, all indications are that the publication ink market will continue to face a number of obstacles.
"We expect little change for the publication ink market in 2007," Mr. Parrilli said. "There will be continued pressure on raw materials. Some major printers have announced plans to close facilities, and there is talk of further consolidation among publication printers. We are also concerned that some economic indicators point toward a slowdown, which could be very damaging to the print industry."
"We do not see the raw material situation improving in the near future," added Mr. Green. "Therefore, we expect 2007 to be a challenging year as we adapt to the volatility of raw material prices and the supply chain."
By Kerry Pianoforte
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|Date:||Oct 1, 2006|
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