Rising Costs Affecting Raw Materials for the Print Industry
Due to rising petroleum prices, printers are seeing cost increases in finishing products, inks and substrates. “We are seeing five to seven percent increases,” said Jerry Hill, vice president of sales and marketing, Drytac Corporation. “Almost all the components used to make our overlaminate and adhesive products have risen,” agreed Angela Mohni, director of marketing, Neschen Americas. This includes base film carriers, such as PVC, polyester and polypropylene. “We have seen unprecedented and relentless increases over a period of three years in plastic substrates and adhesive. It is clear there is limited availability of some of the highly engineered components of our laminates,” explained Gideon Schlessinger, GBC vice president of marketing, product technology and development. “Simultaneously, significant increases in the cost of oil and spiking demand for all petrochemical products out of Asia have created a situation in which suppliers have more customers than capacity, and they are able to demand higher prices.”
Said Mohni, “The basic chemical infrastructure behind the adhesive and films in our sector is based on natural gas. U.S. natural gas pricing per thousand cubic feet has nearly doubled since 2000.” While petroleum-based products, such as polyester and vinyls, are among those most affected, costs of acrylates--the main components in adhesive products--have risen 18 percent to 30 percent since December 2005, according to Mohni. Another affected component in overlaminate and adhesive products is paper-based release liner. “Domestic pulp paper pricing is up 18 percent year on year through November of 2006,” she said.
Of the two percent of raw materials that don’t derive from petroleum or gas, some come from trees or crops, others from mines, and all are affected by supply and demand. In addition, the further from the original source a raw material is produced, the more steps and costs required to produce it, and the more complicated the supply-side becomes. For example, pigment feedstocks are intermediate materials which are further processed to create materials in inks. “BON acid (Beta Oxynaphtoic acid) accounts for nearly 50 percent of the material required to make most red pigments,” observed Diane Parisi, vice president of procurement for the Flint Group. “BON acid is five steps removed from its crude oil origins, and its price has jumped 20 percent since the beginning of 2006.”
Because ink manufacturers buy relatively small volumes of raw materials compared to other users, they have little leverage in a competitive environment. “If raw material suppliers decide to favor more profitable outlets, prices will continue to rise, and ink manufacturers could even find themselves without key raw materials,” Parisi continued. “Since the beginning of 2006, we have seen dramatic increases in the price of cuprous chloride and phthalic anhydrate, both raw materials based on copper. Copper prices are 60 percent higher than at the end of 2005.”
Pass It On
For now, the situation seems to have stabilized for adhesives and base films. However, Mohni pointed out, “Paper prices are much more sensitive to fuel prices, and they are still volatile. I believe we will see ongoing increases on all components.” Hill also believes the issues will continue for some time. “And, [it is] affecting general and administrative costs, as well. Passing along an increase is a tough decision, but selling and losing money is not an alternative,” he said. “The feedback I get is that print service providers are passing on some of the increases,” offered Mohni. She suggested relating the increases to everyday things customers understand, like the price of fuel for cars and home heating. “I would also offer rebates or discounts for customers who sent more or all of their printing business my way. I would offset some of the cost increases by locking my customers in for more volume.” Printers can also look for alternative raw materials that are less expensive. “But, one has to weigh any loss of quality,” stressed Hill.
“It’s still clear that printers are not able to pass on the rising costs of materials,” said Dr. Joe Webb, director, whattheythink center for economics and research. “The industry appears to be coping with this by reducing the number of employees in non-production positions. Print buyers shifting to other media can change the costs.”
“We are starting to see our best customers pass on these increases,” said Schlessinger. “We had a very long period in which costs were very stable. Some people got used to that, and anybody under 35-years old may not have dealt with significant inflation before. Our market is highly competitive, but we have all squeezed profits so hard that we must pass along these increases. Customers ultimately trust those businesspeople who consistently act with integrity.”
By Carro Ford Weston
About the Author:
The digital document industry has been a big part of Carro Ford Weston’s 20+ year career. A corporate marketer and freelance professional, her writing credentials include numerous articles in industry publications, such as Digital Publishing Solutions, Print on Demand Business, Document Processing Technology, Unisys World, MAIL magazine and the Xploration journal.
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Published March 20, 2007, at www.ondemandjournal.com, and reprinted here, in part, with permission. OnDemandJournal.com--a website serving executives seeking information about digital printing and on-demand solutions--is owned by WhatTheyThink.com, and provides free news, special reports, white papers and case studies about this dynamic and vital part of the graphic arts industry.