The ink industry sees ongoing raw material cost increases

“It is an in(k) convenient truth” Jan Paul van der Velde, Senior Vice President and Executive Management Team member of Flint Group told the audience at the NAPIM conference last month in Miami Florida. “The cost increases we are experiencing as an industry are far larger than we experienced in 2008, when major costs were driven by the rising crude oil. If we thought it was bad then, the current increases are already double that level and there is no light at the end of tunnel yet.”

Mr. Van der Velde explained that the background to the latest increases are as a result of much more fundamental economics “Many ink companies still show a crude oil chart as their first explanation for the rising costs, and indeed while crude has been under constant inflation the last 2 years, the real background of the increases is in demand and supply imbalances.”

Both the demand and the supply side have changed significantly. On the demand side, the 2009 crisis allowed producers to finally take out their over capacity. “That was painful at the time, but does now allow producers to be more focused on which markets to serve and also to serve only those markets where they make good margin return. The ink industry is, in general, not known for its margin generation, it has been seen more as a volume filler. Furthermore, additional mergers and acquisitions have consolidated the supply market, and fewer players mean that market behaviours are now more similar.”

On the supply side, while the ink industry has seen some reasonable recovery, other industries, like coatings, the automobile industry and specific geographic regions have seen very significant growth. “Take China for example, the ink industry’s most important supply region, has a 15 year average GDP growth of over 8.5%. This obviously drives tremendous domestic consumption of materials that are not exported anymore. On top of that many raw materials, which were previously in the favoured industries in the past in China, are now viewed differently, which can mean moving from export subsidies to additional taxes. Finally, the Yuan continues to strengthen against the USD, this alone drives 2 – 3% inflation on raw material costs in Europe and North America.”

“While all material categories are in an upward swing, with no real exceptions, the Phenolic resins, driven by Gum Rosin and Crude Tall Oil increases are a major part of the industry’s cost challenges. Pigments are also an issue driven by cost challenges upstream. Further TiO2, Nitro Cellulose, Solvents, Carbon Black, metals, Cotton products, waxes, mineral oils etc show very significant inflation as well.”

Mr. Van der Velde finalised his presentation with the killing of some large myths. “Some people believe that there will always be the availability of low cost sourcing materials from Asia - Forget it! Many materials are in shortage and Asia is moving more and more to added value raw materials. Therefore, looking forward, as all buyers in the industry can tell you, shortage is a real challenge and the security of supply has increased on the agenda of many buyers, and is likely to stay there for a while. This will have consequences on the ink industry as a result.”

The presentation of Jan Paul van der Velde could be downloaded from the Flint Group Website ( http://www.flintgrp.com/en/news-information/documents/Napim_-_Raw_Material_Market_-_Reality__Risk_and_Opportunities_final_public.pdf )

Forward looking statements

This report contains a number of forward looking statements. Forward looking statements reflect our current views about future events and are based on currently available financial, economic and competitive data and therefore include a level of risk and uncertainty.

Flint Group

Flint Group is dedicated to serving the global printing and packaging industry. The company develops, manufactures and markets an extensive portfolio of printing consumables, including: a vast range of conventional and energy curable inks and coatings for most offset, flexographic and gravure applications; pressroom chemicals, printing blankets and sleeves for offset printing; photopolymer printing plates and sleeves, plate-making equipment and flexographic sleeve systems; pigments and additives for use in inks and other colourant applications. With a strong customer focus, unmatched service and support, and superior products, Flint Group strives to provide exceptional value, consistent quality and continuous innovation to customers around the world. Headquartered in Luxembourg, Flint Group employs some 7300 people. Revenues for 2009 were € 2.1 billion (US $2.9 billion). On a worldwide basis, the company is the number one or number two supplier in every major market segment it serves. For more information, please visit www.flintgrp.com