Jan Paul van der Velde, SVP of Procurement at Flint Group provides insight into expected raw material developments in Q3
Tuesday, September 24, 2013
Press release from the issuing company
“During 2012 many material prices began to stabilise – albeit at quite high levels.” says Jan Paul van der Velde, SVP Procurement of Flint Group. “The general consensus within the market at the time was that raw material costs would come down. This was in some part based on the economic outlook but also on the back of expected lower crude prices. All of these expectations were built on sound logic, lower economic growth = less demand and this reduction to demand would in turn bring a relaxation in price. Another perception that helped shape this opinion, was the belief that global supply of crude would grow due to the increase in output of shale gas and oil and that the anticipated reduced demand (due to the economy) would lead to a significant correction of crude prices.”
Jan Paul continued, “The reality is significantly more complex than many people had first anticipated. Against all logic crude actually went up, even worse, WTI-the US crude base, increased even more than Brent crude, closing the gap between the two.
“In the first half of this year the economic activity around the globe was relatively weak with very low growth rates in the US, China and negative figures in most parts of Europe. However the expectation that the low demand would also result in lower raw material prices, came only partially to fruition. In actual fact there were as many raw materials that went up in price as came down. In our most important ink markets (i.e. the oil related feed-stocks) the market trend was similar in this year to last. Crude today trades at around $110 per barrel-significantly above any level that people had forecast at the end of 2012.
“In the base chemical markets materials such as benzene, styrene, toluene and xylene, (important as building blocks for many material categories such as pigments and resins) prices again continued to rise in the first part of 2013 despite low demand in these markets. Since then, prices do seem to have leveled off although this has been at a relatively high historical price. Clearly the power of supply management in these concentrated markets is substantially larger than the buying weakness.
“Looking at third quarter developments - we have witnessed significant changes in some of our key markets since June and July with crude oil, gum rosin and pigments being amongst the key areas affected.
“Crude oil has remained at around the $110 mark-per barrel - many of us will have already noticed and been affected by the near record fuel prices at the pumps on garage forecourts. This situation is still further compounded within our own industry as oil prices not only directly impact on publication inks, but also indirectly via other base materials in addition to materials and services such as packaging and logistics.
“Gum Rosin prices within China had increased steadily throughout the year but began to really escalate dramatically from July - with a 40% hike impacting substantially on our pigments and hydro carbon/ phenolics based ink portfolio (Heatset, Coldset, Sheetfed and Publication Gravure inks). Given the relatively low stocks of crude Gum Rosin, it is likely that prices will remain at the current levels or potentially even increase until such time as the next crop is harvested. This is very similar to the situation in 2011 which resulted in Gum Rosin being traded at up to $ 3,500 / mT.
“This rise has also unfortunately been mirrored within other Gum producing markets who use the Chinese GR grade as a reference point to base their own costs.
“Finally, we have also seen significant increases in pigment costs. This has mainly been driven by the ongoing and increasingly stricter enforcement of environmental rules in China and India - both for pigment suppliers and the suppliers of base chemicals for pigment production. Rightly so, the rules of the game in these countries have changed, leading to governmental imposed factory shut downs, reduced production capacity due to effluent plant restrictions as well as major investments in waste water treatment. All of which has contributed to placing fixed costs at a completely new level to those previously seen.
Questioned on the effect currency fluctuations may have on raw material costs Jan Paul again revealed that the reality is often quite different to what is generally assumed. He explained “One remark I have frequently heard over the last few months relates to the current weakness of the Indian Rupee and whether this has been beneficial in lowering prices? While it has undoubtedly had an effect on local costs - in general the vast majority of raw materials are imported in India or are priced at international levels, and are therefore not helped by the relative cost position as a result of the weak Rupee.”
In closing, Jan Paul summarised, “It is clear that the ink industry is again being confronted with the rising cost of raw materials and unfortunately it does not look like this situation will quickly disappear. The result of these rising costs to some of the key raw material markets will inevitably have an increasing impact on the costing of publication inks.”
Flint Group’s next Raw Material Data presentation is expected to be available to download from mid October.
Post a Comment
Copyright © 2018 WhatTheyThink. All Rights Reserved