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Increased Prices Are a Raw Deal for Everyone

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Jan. 15, 2007 — Death, taxes, and rising prices-these are constants in life no matter where you go. While there really is not much you can do about the first two, the last is a constant source of pain and frustration both personally and professionally.

Most of the time, it is difficult to understand why prices rise at all, much less the huge amounts they rise by. Many in the print industry have seen large increases in the past few years when it comes to supplies such as inks, laminates, and media. However, there are major factors affecting those increases, and they start all the way back at the source: raw materials.

The materials you use every day in your shop have a few cousins you might be surprised to learn about. For example the PVC you see in the hardware store is also in high demand in places like China and India. Products such as shoes and packaging in those same countries are also distant relations. Don’t forget the gasoline you use in your car every day, and a long list of other products used around the world.

All of these items are by-products of crude oil and natural gas, and the various refined chemicals that come from them. These chemicals are at the core of the products found in every print shop around the world. Resins are used in items like coatings and laminates; propylene is used in varnishes and other materials; and the list of complicated names continues on.

Natural Gas and Oil Prices
Angie Mohni, director of marketing for Neschen Seal, noted that, “The biggest factor in the increases is natural gas. It is the basic chemical infrastructure behind all of the products in our sector.” She noted that the prices for natural gas, in dollars per thousand cubic feet, have increased from 3.68 in 2000 to 7.51 in November 2006. This increase has affected overlaminating films, mounting adhesives, backing films, and colored vinyl products.

Another area that has seen a major impact is coatings and inks. “You don’t have to be a chemist to understand the basics of ink raw materials. They fall into three basic categories: colorants, vehicle systems to carry the colorants, and additives,” said Diane Parisi, vice president of procurement, Flint Group North America. “Together, these materials are responsible for all of the properties of an ink: visual properties such as its color and gloss, runnability properties such as viscosity and drying, and end-use performance properties such as lightfastness. In all, there are more than 5,000 different raw materials listed in the Flint Group Raw Material Code Book.

“With so many different materials, it’s hard believe that 98 percent of them are derived from oil or natural gas that has been refined or processed in some other way,” she added.

Mark Kramer, president and CEO of Laird Plastics, noted, “Materials that are ultimately derived from oil and natural gas have fluctuated significantly [in] the last three years as the price of oil has risen from the low $30s per barrel to the mid $60s per barrel, and the price of gas per million BTUs has gone from $3-$4, to [more than] $12 at times. Most plastic materials trace their original derivation to oil and gas…Materials like acrylic and polycarbonate have seen significant increases, as have most products using propylene.”

Additionally, price increases have been announced by all major suppliers of acrylics, styrenics, and vinyl acrylates, ranging from 5-10 percent, from late August to November 2006, Ms. Mohni said. For paper-based components, she noted that domestic pulp pricing for 2006 was up 18 percent as of November.

Increased Demand
John Turner, president, Industrial and Print Finishing Group, GBC, noted that the resins used in substrate coatings have been especially volatile, with demand for products such as packaging in India and shoes in other parts of Asia decreasing the available supply and contributing to the increase in prices.

In fact, after the skyrocketing prices for oil and natural gas-derived products, the increase in demand is listed as the second biggest factor in the recent price increases.

“It’s not the change in the raw materials markets,” said Joe Webb, founding partner, Printforecast.com. “It’s the general rise in economic activity around the world. Commodities rise in the long run because of increased demand, and that’s what we’re seeing. The country that gets the most attention is China, but economic growth is very strong in many Eastern European countries, the Pacific Rim, India, and other areas, raising standards of living around the world.”

The problem is that many industries use raw materials derived from oil and gas to produce products, which means as the need for fuels, plastics, PVC and other building materials increase, the available stock left for manufacturers of printing films, inks, and coatings naturally decreases. It is supply and demand 101.

A Balancing Act
With all of the factors affecting prices, the real question is not “Why are prices rising?” Rather it is “Why haven’t they gone up more?”

Suppliers to the print industry such as Neschen Seal, GBC, and others, have made great strides to shield their products-and customers-from as much increase as possible.

“The rising costs of raw materials have had a major impact on our business over the last few years,” said Ms. Mohni. “The impact can be seen in our bottom line, as we are doing whatever we can to absorb these increases and not pass them on to customers. These increases are putting more pressure on our purchasing and R&D departments to find lower-cost materials while still maintaining our strict quality levels.”

Mr. Turner concurred, noting that the margins in business have gotten progressively slimmer over the past several years. GBC, he noted, has made every effort to streamline its operations, cut costs, and have even moved what it could off-shore to help balance the price increases the company is seeing, but even that has not been enough.

Gideon Schlessinger, vice president, marketing and engineering, GBC, added, “We have faced unprecedented increases in all of our raw materials components. Initially we tried to push back on suppliers, but we have found [they] have no choice but to pass these increases through, and are fully prepared to stop selling us substrates and resin if we do not accept the increases. Of course, we have done everything we can to reduce our costs by improving efficiency in production, but there is no way to overcome the increases. In the end, we all must pass through the increases.”

Another way suppliers are trying to help both improve their own bottom lines as well as give printers more options is to try and develop newer, innovative specialty products.

A Choice for Printers
In the end, printers around the world are facing increased costs for their inks, films, coatings, and almost every other material they use in their shops on a regular basis.

The problem, however, is that printers are not raising their own prices to compensate for the rise in materials costs. Mr. Turner noted that it is very difficult for printers to pass along cost increases; there is a paranoia that people will not accept them and will take their business elsewhere.

However, people/customers are not oblivious to what is going on in the world, and while a few might choose to shop around, many, if not most, will understand the reasons for rising prices if a shop takes the time to educate them, he added.

“Strangely,” said Dr. Webb, “printing prices have not kept up with inflation. While some printers have been able to increase their prices, on an overall basis, printing businesses have not been able to pass through costs and have been cutting costs and expenses elsewhere. We know that is the case because profits generated by the industry are down significantly since 2000-about 75 percent-and have not recovered since.”

Costs are going up across the board, and raw materials suppliers have no choice but to pass them on to the manufacturers. They, in turn, are being forced to pass along what costs they can no longer absorb to the printers.

Printers, who thus far have been the most shielded from price increases, are going to start feeling the push more over the course of the next 12 months and beyond, if the market continues on its current path. They will be forced to either continue to cut costs-which are already starting to hit bone-or raise prices.

“We are all impacted by the ultimate price for oil in many ways,” said Mr. Kramer, “[such as] filling up the car, or our home heating tank; the cost of goods made from oil; and the transportation impact of just about everything sold in the country. The printing industry is impacted in this along with everyone else.”

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