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The resin report: major concerns over pricing and availability of key raw materials continue to impact resin manufacturers.

Raw material price and availability concerns are impacting virtually every part of the ink industry, and resin manufacturers are definitely seeing more than their share of rising costs. Key ingredients such as gum rosin, tall oil, acrylate monomers and feedstocks are skyrocketing and supply remains volatile, to say the least.

In spite of these concerns, the resin industry did enjoy some growth in 2010, as the economy showed some improvement.

"The resin industry has experienced a recovery, but as many in our industry know, the recovery has been anything but pleasant," said Chris Halvorsen, global marketing manager, Lawter, Inc. "We face the same issues as many industries today, very tight manufacturing capacity and a low inventory level of raw materials throughout the supply chain."

"The resin industry in general fared well during 2010, as viewed from reports of resin shortages and high prices for resins," said John Smith, vice president Americas at Arez International. "This is in contrast with what several of our ink customers said about limited or no growth in their businesses."

"There has been nominal volume growth with a partial recovery in the graphic arts segment, but rap-icily increasing raw material prices and shortages in monomers and associated other chemicals has hindered a full recovery," said David Seline, Americas marketing manager-graphic arts, Lubrizol Advanced Materials.

However, with an improved economy came supply concerns, as some raw materials were scarce.

"Dramatically increased demand during Q2, Q3 and Q4 -- on the heels of recessionary softness in Ql and the prior year (2009) -- created supply issues," said Rick Krause, Printing & Packaging business director, resins, for BASF in North America. "Volumes returned to their post-recessionary levels, but limited availability of some raw materials combined with rising material costs created challenges for everyone in the industry."

"The second half of 2010 was stronger than normal from a demand perspective, so we have seen a significant growth in volumes," said Patrick Powers, commercial development manager, graphic arts for DSM NeoResins. "However, in most of our product lines, profitability is getting to unsustainable levels because of the consistent and relentless increases in raw materials, which started in the beginning of last year combined with insufficient recovery of those costs from our customers."


Terry Chomniak, graphic arts business manager at Hydrite Chemical Co., said that 2010 was a very difficult year for Hydrite Chemical and the resin industry as a whole.

"Shortages of a crylate monomers accompanied by several price increases throughout the year proved to be challenging," said Mr. Chomniak. "In 2011, the year has begun the same way that 2010 finished, as acrylate monomers continue to be tight and prices continue to rise."

Raw Material Issues

For resin manufacturers, raw material costs and availability are the major concerns, beginning with rosin resin.

"Rosin resin producers were mainly faced with not so much lack of rosin as a raw material, but with its very high price," Mr. Smith said."And, although most companies focused on rosin as a major cost factor, alky phenol costs rapidly advanced to high levels. This was due to shortage of cumene and rapid increases in propylene leading to nonene shortages.

"Regarding future costs, we see that the U.S. rosin suppliers have pretty much tied their pricing structure to that of imported gum rosin, which will certainly lead to resin price increases," Mr. Smith added. "The Chinese gum rosin producers are showing no inclination toward lower prices at this time. When the new crop begins in May there may be sufficient pressure of excess supply to force some lowering. This remains to be seen. The alkyl phenol producers say little relief is expected until late in the year"

"Noteworthy for the ink industry is the huge increase in the cost of rosin, both gum rosin and tall oil," Mr. Halvorsen said. "While the material is in tight supply the real challenge is dealing with the unprecedented cost increases. We do our best to communicate these market conditions with our customers so they can understand the dynamics in the rosin market."

Rosin resin is just the beginning, though. Mr. Chomniak used acrylate monomers as an example of what is occurring in the supply chain.

"In terms of raw materials, Hydrite believes that the acrylate monomers will continue to be tight in the market, therefore driving up finished goods costs" Mr. Chomniak said."Raw materials such as propylene, ethylene and acetone continue to drive acrylate monomer pricing up. Hydrite continues to work with our suppliers to minimize the increases."

Mr. Krause noted that most raw material categories appear to be struggling with either supply or feedstock issues, although the situation is not as difficult as it was in early 2010.

"In general, acrylic acid and acrylates face a tightening propylene supply and capacity limitations in North America," Mr. Krause said."Methacrylates arc also in short supply globally As a result, the ink industry is competing for raw materials versus other industries and end-uses.

"We are still seeing periodic declarations of force majeure for critical feedstocks. Even when you are able to get supplies of some materials, you are most certainly paying a higher price for them," Mr. Krause noted. "We continue to see pressure on raw material costs due to the combination of rising feedstock costs and supply-demand dynamics within different raw material categories. There is a lot of geopolitical and economic uncertainty globally, and this will continue to fuel a great deal of volatility in the months ahead."

"Capacity tightness is evident on the polymer side, specifically acrylic acid, methacrylic acid and associated acid esters," Mr. Seline said. "The tightening is primarily due to increased demand and limited supply capacity."

It is unlikely that additional supply will be coming on line in these key feedstocks any time soon.

"Suppliers of specialty chemicals which are in short supply arc not necessarily going to add capacity," Mr. Halvorsen said. "Instead, they are prioritizing the business they have and determining the wisest market base to serve in a reliable manner. This is a big change for us.

"We are seeing a significant supply deficiency with nonylphenol and octylphenol at this time and this is not likely to see a correction for some time," Mr. Halvorsen added. "We are fortunate to have our line of phenol-free resins which can easily fill the gap."

Mr. Powers noted that the acrylate, methacrylatc, some of the specialty isocyanates and the polyols are particularly scarce, having different drivers for their lack of availability.

"Costs are rising on a continuous basis, and most raw materials have shifted to a monthly level," Mr. Powers said. "In the raw materials mentioned above, we do not see much relief in the coming months, because the fundamental capacity shortage issues have not yet been addressed by the players in their respective markets. The situation in Japan adds to the supply shortages and skyrocketing prices in parts of the raw materials value chain as well."

"Fossil fuel feedstock inflation has impacted our business significantly, but there have been supply shortages elsewhere that have also presented challenges," said Patrick Niels, director, DSM Coating Resins.."This has made it difficult for us to pass on the cost of innovation as our customers have also had to contend with higher raw material costs, but we believe, as a specialty chemicals producer, that our customers recognize the value we bring not only in terms of innovation but also in terms of security of supply we can guarantee for them.

"We see volatility in the prices of raw materials continuing into the medium term," Mr. Niels added. "This causes uncertainty right through the value chain as it makes it difficult to make accurate price forecasts. The ultimate problem this brings is that, as a supplier, we need to be able to pass on any future ingredients price rises to our customers, as the current margin erosion we are experiencing from trying to absorb these costs makes it increasingly difficult to justify our on-going investment in resins."

Part of the challenge faced by resin manufacturers is coming from consolidation, primarily as some key companies eliminated capacity.

"Consolidation has certainly taken flexibility and choice out of the market," Mr. Smith said. "Consolidation should lead to economies of scale, offering the opportunity to reduce operating costs which could boost margins and/or reduce pricing pressure."


On the resin side, BASF's acquisition of Cognis was a major move.

"We're very excited by the addition of the Cognis Versamid and Versamid PUR resins to the BASF Printing & Packaging resins and additives portfolio," Mr. Krause said. "The Versamid products allow us to provide the ink industry a broader portfolio of water-based, energy curable, and solvent-based products for liquid ink applications. Versamid and Versamid PUR products strengthen our position in flexible packaging applications."

Major Challenges for Resin Manufacturers

It is understandable that resin producers are particularly wary of raw materials. Mr. Halvorsen said that the major challenges for resin manufacturers will be on the supply side with key raw materials, as well as the markets they serve.

"No longer will the ink industry have the economic benefits from using by-product raw materials" Mr. Halvorsen noted. These materials have higher value than what we typically feel comfortable paying-From a demand side, we continue to realize that publication offset and gravure is declining in the mature markets and certain segments of commercial print market have gone away. The great challenge is to find success in the areas which have growth."

"Rosin is the greatest challenge to the rosin resin market," Mr. Smith said. "Because economic principles do work in balancing supply and demand, there will be ample rosin supply developed to meet a particular value definition. Arez has made it a goal to be less rosin dependent over our entire product line, but with the flexibility to take advantage of cost swings that promote the use of rosin."

"Global supply and demand for raw materials and the trends in printing methods will impact regional producers," Mr. Chomniak noted. "We are working to provide innovative technological solutions."

"Raw material price increases and shortages will be a challenge," Mr. Seline said. "We will also strive to push for renewable products and focus on partnering with our customers to enable their growth."

"Continued volatility in raw material costs and increased competition with other industries and regions for critical raw materials are likely to continue," Mr. Krause said. "BASF continues to diligently monitor the raw material supply chain and is dedicated to be a reliable source of high quality resins and emulsions for the printing and packaging ink market."

Expectations for the Resin Industry

Overall, resin manufacturers are cautiously optimistic about the future, although raw materials remain a real issue. For example, Mr. Seline said that Lubrizol is cautiously optimistic about the next 12 months.

"The Arez objective is to be a quality, cost effective supplier to the printing ink industry. We are doing this by new resin technology and expansion of resin production," Mr. Smith said.

"The last two years have proven to be a successful journey for Hydrite Chemical in integrating the Lucidene and Morcryl product lines and weathering the tumultuous raw material supply while maintaining a strong presence in the market," Mr. Chomniak said. "We expect to broaden our reach over the next 12 months by developing new polymers and proactively addressing customer needs."

"We anticipate the continued pressure on raw material costs," Mr. Halvorsen said. "Keeping up with rising costs will be difficult but very necessary in order to remain reliable. Our customers look to us to formulate alternatives that provide assurance that they can moderate the impact of the inflation and shortages of raw materials. Over the coming year we will see new products addressing the ever-increasing demand for more bio-renewable chemistries."

"We're optimistic that the ink industry has seen the worst of the recession and is adapting to the never-ending changes in printing, publication, packaging, and converting," Mr. Krause concluded."Growth, albeit slowly, is returning and should continue for the next 12 months, assuming no further geopolitical and economic shocks. Profitability will continue to be a challenge for everyone as we will continue to face pressure on raw material costs."



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Title Annotation:resin report
Author:Savastano, David
Publication:Ink World
Date:May 1, 2011
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