One of the refrains of the past years has been, the rate of acceleration of the cost of input material used for printing – ink, coatings, paper, and now aluminium, a raw material not directly used by printers but by manufacturers producing printing plates.
Aluminium has been a standout among metals, because aluminium ingot prices have skyrocketed to a level of USD 3000 per ton; an increase of 70% over the September 2020 levels.
In addition to the increase in the cost of aluminium ingots, other significant cost increases are ingot to coil conversion costs; freight and container costs; cost of coating solutions and other chemicals. In addition to cost increases, there is a logistics crisis due to the non-availability of containers. “It’s a perfect storm,” says TechNova Imaging Systems’ chief executive officer CG Ramakrishnan.
Why have prices of aluminium hiked? “We are in the middle of a global commodity super cycle,” informs Ramakrishnan, while Fujifim’s head of department, GA division, Kentaro Imafuku says, “This has been a result of many factors ranging from environmental concerns to geopolitical situations.”
China, which has been the largest producer of aluminum has been subsiding supply-side bottleneck. Its own concerns like emission rules, power shortages, and floods recently have impacted its aluminium production. According to a report, China produced 3.16-million tonnes of primary aluminum in August, 3.2% less than in July as the country suppressed smelting to reduce pollution and meet green targets. Also, supply was further disrupted by a military coup in Guinea, the second-largest producer of bauxite and the largest supplier of China, the report added. Hence, China has had to import large quantities of metal.
Besides, there are other factors like the metal used decarbonising the solar photovoltaic, alternate use of lighter metal for making cars lighter, and packaging, which have all increased demand for aluminium.
“Expect the prices of aluminium to up, from here on,” adds Ramakrishnan.
Impact on plates
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.
An increase of Re 1 per kg in the base LME ingot prices translates to an increase of Rs 0.9 per sqm in plate prices. In other words, an increase of USD 100 per tonne in the London Metal Exchange (LME) translates into an increase of Rs 7 per sqm in plate costs.
Since aluminium is the main raw material for manufacturing printing plates, the cost of both digital and conventional plates is expected to significantly increase, which will add even more inflationary pressure on the already volatile print businesses. But given the current situation, this steep increase in price cannot alone be borne by the manufacturers, says Imafuku. “It's impossible for any brand alone to bear the implications of the increased aluminium prices, leading to an increased raw material cost and hence it becomes critical for all the stakeholders to share the increased cost in raw materials.”
“Internationally, plate prices have increased by USD 1 to USD 1.5 per sqm,” highlights Ramakrishnan.
So, the material prices will be passed on to your customers, which will add pressure to the already volatile and shrinking margins due to the Covid calamity. What is the strategy of the other aluminium user industries? “All other aluminium user industries are experiencing similar cost increases and are passing them on to their customers,” says Ramakrishnan.
What should the printers do? Fujifilm has never been in favour of passing on the entire burden onto their customers, says Imafuku, adding, we believe that our customers can overcome the impact of increased cost by selling the aluminium waste at an increased price.
Ramakrishnan explains this further. “In reality, this increase in plate price is compensated by a corresponding increase in aluminium scrap prices. Therefore, there will be only a marginal increase in the cost of the plates for customers.”
The anti-dumping duty conundrum
PrintWeek asks the plate manufacturers, what is the impact of the DGTR's final findings recommending anti-dumping duty (ADD) on all aluminium flat-rolled products from China? Good news or bad news?
Imafuku says, “Like everyone else in the sector, we are also waiting and analysing the impact of it.” Fujifilm does not manufacture plates in India.
But TechNova does. “Levying of anti-dumping duty to protect the Indian aluminium manufacturing industry is necessary; however, it should be based on strong evidence of rampant dumping causing injury to the Indian manufacturers. The levy of ADD on aluminium coils imported from China is appropriate. However, provision should have been made to allow imports without ADD of those items of aluminium rolled products that are not manufactured in India," says Ramakrishnan. "For example, litho-grade aluminium coils required for the production of offset plates are not manufactured in India in all the required qualities, quantities and widths. These items should have been exempted from ADD. Imposition of ADD on litho-grade aluminium required to be imported from China will further shoot up the cost of offset plates.”
Another factor that will exacerbate the demand-supply gap in the long term, Ramakrishnan adds, is the Chinese strategy of cutting down the production of aluminium to meet their green targets.
Plate manufacturers outreach
Both TechNova and Fujifilm say that they are in constant communication with its customers and partners.
“We are in constant dialogue with all industry participants, irrespective of scale, to explain our relentless efforts to cope with this extraordinary price and supply volatility,” says Ramakrishnan, while Imafuku says, “Fortunately, all our stakeholders are well aware of the situation and are ready to cooperate to the maximum extent.”
These companies have businesses with some bigger packaging and newspaper customers, too, who have the power of negotiation, which smaller printers may not have.
Ramakrishnan says, “We have a combination of monthly, quarterly and half-yearly contracts with our large customers, which are extremely transparent and customised to protect mutual interests. The contracts also provide for hedging of aluminium tailored to suit customers’ requirements.”
Fujifilm’s Imafuku, says, “We work with all kinds of organizations in catering for their printing and packaging needs, irrespective of their size. We are negotiating with all our customers and are confident that our extended family understands our situation and will stand by us in these testing times.”
A material price formula
From what has been seen in the last year and a half, the constant price hike in input material needed for printing due to raw material hike by the manufacturer of these input materials, has been a bone of contention. Can a formula whereby prices are associated with aluminium, ink raw materials be worked out so the ups and downs can be better managed?
Under the current circumstances, we think entering into a material price formula is a feasible option, says Imafuku. “It could be a clearer method for the customer. It needs to be worked out.”
Ramakrishnan says, for decades, TechNova has been following an extremely transparent pricing formula based on linkages with aluminium price on LME (upwards as well as downwards). “Beyond designing fair pricing mechanisms, we feel it is critical to remain connected with the customers and be fully aware of their constantly evolving needs.”
TechNova had introduced a scheme to buy back used plates from its customers on an experimental basis several years ago. It was not successful its customers preferred to sell the plates as scrap locally to their approved scrap dealers. Ramakrishnan says, “Generally, local prices for scrap tend to be higher as it minimises the cost of reverse logistics.”
Beyond the catastrophic demand destruction caused by Covid 19, this year has been an unprecedented one in terms of bottom-line pressures, both for the printers and manufacturers. Shortages, stretched lead times, and increase in prices of primary inputs, have resulted in significant erosion of the bottom-line.
How long till the aluminium prices normalise, PrintWeek asks? “While one continues to be optimistic about price and supply stability returning, considering the super cyclicity of base metals, it is very difficult to predict a timeline,” says Ramakrishnan. “Aluminium prices depend on a variety of structural and cyclical factors in the metal industry and global economy. It is extremely difficult and hazardous to predict the exact levels of aluminium price. We continue to hope volatility reduces and prices stabilise soon.”
Imafuku shares Ramakrishnan’s concerns and hopes that the market stabilises and the prices get under control. “But unfortunately, looking at the current situation, the signs look bleak.”