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17-09-14
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Flint Group: Raw materials costs for Europe on the rise

“Since mid 2013, unfortunately several key raw materials have increased in price” says Jan Paul van der Velde, Senior Vice President Procurement, Sustainability, IT and Regulatory. “This was indicated in our Raw Material reports at the end of last year and in May of this year, and now we see that this trend has become significant”.

Materials used to manufacture products for the Heatset, Coldset (News ink),Sheetfed and Packaging sectors are all under considerable upward pressure.

“I’m sure most people have picked up the announcements from many pigment producers regarding the major increases in red and yellow pigment intermediates, which are components of inks for every application. Some of them rose by 30 – 50% over the last several months, and there is no end in sight for these increases.” The main reason behind these mounting costs is more stringent environmental regulations and their enforcement. “Many producers of, for example Bon–acid, had to shut down or invest very significantly into waste water treatment”, continues Jan Paul. “As a consequence, Bona is now in short supply and will continue to cause issues as many suppliers in China and elsewhere do not have the financial capability to invest to meet the new regulations. While Flint Group was already trading with those vendors that have enforced the most stringent requirements, we are unfortunately not immune to the normal “supply and demand” market forces.”

Gum Rosin also remains a challenging material to manage. “The market seems to have accepted that the 30 year average pricing of between $ 400 - $ 800 per metric tonne is something of the past. After the peak in 2011, when Gum Rosin was trading at over $3,500 per tonne, pricing came down, but in Q3 and Q4 of last year it started trading up again. The industry never recovered the original increases in the years running up to 2012, and the current slow but steady increase is causing a lot of pain. Alternatives also make less sense now, as crude oil derived products are also trading up.”

The tension in Libya, Iraq, Syria and more recently in the East of Europe, has started to have an impact on currency and crude oil pricing, directly affecting the cost of solvents. The backwardation of crude oil (backwardation means that crude oil in the future is cheaper than crude today) has disappeared, hence buying into the future does not protect us anymore from market forces. With the energy tension on gas from Russia, combined with the weakening Euro, Europe is now feeling the impact of the above mentioned increases in the global markets.

Also for materials used for Flexible Packaging inks we see a number of challenges. “Similar to Print Media, the same key cost drivers for packaging application pigments start to influence their costs. Further I’m sure many people have noticed the steady ongoing increases for Titanium Dioxide (TiO2) and the upward price pressure on Ethyl Acetate (ETAC).”

“I believe we will see a longer period of increased inflation levels, driven by energy challenges (crude and gas), geopolitical issues causing potential trade barriers, increased sustainability costs and generic economic growth”.

“Next to inflation driven by raw materials, we also see cost increases driven by logistics, both internal sea-freight costs (note: many materials are sourced from Asia) and also on local inbound freight and outbound distribution costs”, concludes Mr. van der Velde.

Business Managers in Flint Group are currently reviewing the most appropriate way to respond to these significant cost increase trends and will be in contact with their customers on this matter in due course.