Has print-land been checkmated by rising costs? - The Noel D'Cunha Sunday Column

By 24 Oct 2021

Raw material price surge when print demand is weak makes for a worst-case scenario. BMPA's webinar highlighted the turbulent times and the perfect storm. But if prices are raised four more times this fiscal year, how will the industry cope?

Read on....

When the trucks and tempos carrying raw materials like papers, inks, chemicals and plates arrive at the print companies' printing plants, these supply vehicles will be bringing something extra: a hike in prices tacked on by the manufacturers who produce these products from increasingly expensive raw materials.

The print fraternity has been rocked by a new wave of price hikes, amid talks of suppliers considering a price hike. "There's confusion and concerns each time we fill our order book," said Faheem Agboatwala of the BMPA, who moderated the webinar on 18 October 2021 to discuss and decipher the unabated price hikes in the industry.

Undoubtedly, the Indian print industry is dealing with the most severe cost pressures of the decade, with prices for ink, plates, blankets, paper and logistics rising. The prices of coated and uncoated papers have been increased by Rs 1,456 a metric tonne. The big three – Agfa, Fujifilm, Kodak – and TechNova have announced plate price surcharge amid concerns that aluminium supplies for next year will be squeezed.

The rising paper prices
The pandemic has caused dramatic shifts in operating patterns within the paper industry worldwide. It has resulted in fluctuations in pulp and paper supply, and recurring price increases.

In the US, some reports say, in 2021 there have been multiple rounds of pricing increases on all paper grades. Each increase has been from 4-9% resulting in an estimated 3-5% increase on most printing orders. PrintWeek UK reported that one paper maker could be considering a surcharge as high as UK pound 170/tonne.

Sappi confirmed an energy surcharge of Euro 100/tonne  (UK pound 84/tonne) across all its products. Lecta has also announced a price increase of 12%-14% on all its coated woodfree grades in sheets and reels for all new orders. The same increase applies to its speciality paper grades for thermal, carbonless, labels and flexible packaging.

A Mondi spokesperson told PrintWeek UK: "Throughout the year, we saw significantly higher input costs in our uncoated fine paper business such as higher pulp, energy, transport and chemical costs. Therefore, we have been implementing various price increases of our papers during the year."

UPM Communication Papers has also informed customers that the price rises announced last month will need to go up by "at least Euro 50/tonne" from the beginning of next year. 

Further, there's a report that 2020 saw a decline of 20% in the paper market, as a result, paper manufacturers are converting fine paper mills to corrugated/brown paper mills. According to Jo Francis of PrintWeek UK, "All of the major paper groups have taken capacity out by shutting machines and in some cases have even closed or sold paper mills. The problem is that this paper capacity is then completely lost. The Groups buying the mills are all board groups as the food, pharma and home delivery markets are delivering massive growth in the demand for boxes."

Coupled with this, pulp production capacity has been removed too, to keep the prices high, which is mirrored in paper price increases to merchants. "Recovered paper prices are consequently increasing too, so if you are a printer, it is worth checking whether you are receiving decent rates for your waste paper," Francis said.

In India, Deepak Mittal, president of the Federation of Paper Traders' Association of India (FPTA), while making a presentation in July 2021, said that the Indian paper industry went through a rough patch during the pandemic. "The rise in the raw material cost remains a concern. The pulp prices are being offered at USD 750. And uncoated woodfree is being offered at USD 700-730," He added, "It is a funny situation where the pulp is more expensive than the finished product." He argued that the situation won't last — either the pulp prices will reduce or paper prices will go up. "As of now, we believe paper prices will get corrected upwards," he added.

SN Venkataraman of ITC PSPD, a panellist at the BMPA webinar said, the present time is turbulent. "Supply-chain risks are high. Small shocks are quickly getting magnified and disrupting trade. Flows, container shipping, have emerged as the new bottleneck. Today, coal is the new diamond." He emphasised that it is not about increases or decreases, but how we adapt to our supply-chain crisis, which happens from time to time. "In some ways, the phrase – perfect storm – applies to the current situation, but these things tend to pass. I don't think there is a need to be pessimistic, but that is called in economics – a mode of transmission, where you can transmit the hike to your customer and make him realise the value of it."

The ink hike
KS Murthy of Toyo Ink India, the ink expert on the BMPA webinar panel, said that price hike challenges are across all the industries. "There's a strong global market demand that has led to shortages of many raw materials. The supply chain has been disrupted," he said, citing the ban on palm oil, labour shortages post-Covid, which has led to less extraction of resins from plants, increased domestic demand in China, as well as the cost of metal as the reasons for the surge in raw material prices.

Murthy shared a typical formula for manufacturing offset inks. Around 18-22% of the cost is for pigments, 30-40% is for resins, 20-30% is for oil, and 5-10% is for additives. "There's a 25% rise in pigment prices for cyan and 35% for black, to give examples of two categories in pigments. There's a 55% price rise in resin cost, and so on."

According to Murthy, Toyo Ink India has internally taken steps to reduce the impact. These include optimising raw material utilisation where it is developing formulation with new raw materials keeping all the product quality intact, increasing the batch, thereby reducing the overall material cost, as well as rationalising products by merging two products and improving product efficiency.

The plate conundrum
CG Ramakrishnan, who represented TechNova Imaging Systems at the BMPA webinar, said that what's happening in plates is both "structural and cyclical", which in turn is spiralling the cost for plate manufacturing.

Considering that metal constitutes 65% of the total plate cost, the printing plates are looking at an impact of no less than Rs 100 per sqm across a range of plate products. This impacts all plate manufacturers worldwide, where it has been reported that prices have been increased by 25-30%. Ramakrishnan, however, said TechNova had factored only the changes in the base London Metal Exchange (LME) cost in its price increase. "An increase of USD 100 per tonne in the LME translates into an increase of Rs 7 per sqm in plate costs. Internationally, plate prices have increased by USD 1 to USD 1.5 per sqm," highlighted Ramakrishnan.

Printers are trapped
While Murthy of Toyo Ink India suggested steps that can be taken to reduce the impact of price hikes like placing long booking orders, increasing raw material optimisation, producing batch size and product rationalisation, Ramakrishnan of TechNova said that an increase in plate prices could be compensated by a corresponding increase in aluminium scrap prices. Therefore there will be only a marginal increase in the overall cost of the plates for its customers.

Venkataraman felt that the situation could be managed with some flexibility on their stock choice, prior planning, and commitment to suppliers.

The three panellists suggested that the print fraternity correspondingly revise the prices of their print products. 

Manufacturers use the raw materials to produce products, which in turn become raw materials for printers. So, passing the price rise to the printer's clients – the brands or print buyers – is easier said than done. Many printers are not able to get their customers to pay the extra cost.

Faheem Agboatwala, who anchored the webinar, said, "The print and packaging sector has been resilient during the pandemic. However, there's acute cost pressure, and the sector can't escape that, as prices are rising by a double-digit percentage."

"Also, there is a high risk of factory stoppages as a result of the costs of energy being too high to bear. This will impact manufacturing, consumer, retail and other print products," he said, adding, "It's a nightmarish scenario."

Across the country, printing companies, most of whom fall in the small and medium enterprise segments, are already hit by the slackened demand for print. This price hike will add yet another woe to an endangered segment of the economy.

While China is seen as the main villain in the entire raw material price hike saga by the Indian manufacturers of input material, high crude and transportations are the other standout factors. And as India gradually emerges from the wreckage of the second covid-19 wave, high crude prices are causing discomfort and sending ripples across many industries.

One of the questions that arose during the webinar was – if crude cost, one of the ingredients in manufacturing, of USD 85 is impacting raw material cost now, how were the prices of USD 130 in July 2008 and USD 117 in March 2012 not have as much impact? Was there any reduction in the cost of material supplied to printers when crude was USD 27.02 in Jan 2016 and USD 21.04 in April 2020?

The devil is in the taxes, which the governments are collecting, for supposedly developmental work. Plus, the coal crisis, which Venkataraman of ITC PSPD said, has become the new diamond.

So, as we see, the Indian paper mills could be forced to shut down if the coal crisis impacting industries isn't resolved soon, an industry expert has warned. "There are serious risks of effectively factory stoppages as a result of the availability of coal. In those circumstances, there will be a gradual knock-on effect on supply chains, across manufacturing, consumer, retail and other products," said Venkataraman. "The risks are very, very real."

Hence, can the government of the day help tide over the situation by reducing the taxes on crude and managing the coal supplies better? Only time will tell.

In the meanwhile, paper, inks and plates will continue to be used by the printers even at higher prices because the brands will need to consume print or packaging for its products. However, when it comes to passing on the price hike from printers to the brands or print buyers, would the brands or print buyers accept it, particularly when they have more than one choice to go to? And that's where the question arises: Who will bell the cat?

That said, Venkataraman was upbeat about the economic recovery. "Overall major economies globally are rebounding and experiencing high growth post-Covid impact. India is poised for 8.5% GDP growth. Festival season demand is strong and fears of the third Covid-19 wave are receding. Offices have reopened and work-from-home is declining with "revenge consumption" surfacing." He expects the demand for paper to rebound in the second half of this financial year.

Managing Venkataraman's optimism and where the raw material prices settle will depend on what course the printers adopt and the policymakers are forced to take. Both cannot afford any missteps.

Statutory warning – A bubble waiting to burst: “The BMPA wants its printer members to realise that times have changed. It’s no longer okay to match the rate of your competitor. One must look at your own costs and then decide what price to sell at. Review and revise is the mantra.”

 
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BMPA hosted a webinar about the unprecedented price hike in 2021. It was clear all the suppliers have united and passed on the price rise to their customers. The question is, can the printers unite and seek a price rise from their customers?

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