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Raw material costs set to rise

Flint Group is focused on mitigating rises in raw materials
 

Flint Group has published a new Raw Material Update to explain raw material trends since January 2016 and the company’s expectations for the remainder of the year. After a relative stable period, with crude and some other materials at stable supply/demand balance and low cost levels, many raw material costs have suddenly started to move up significantly.

Jan Paul van der Velde, senior vice president procurement, IT and regulatory of Flint Group, explains: “When in mid-December last year we looked at our raw material forecasts for 2017, we anticipated relatively small upward cost pressures. Now about two months later we look at a completely different picture. Since the Opec + 11 restriction on output of crude had a notable impact, we have seen many other raw material costs increase, even if not related directly to crude oil.”

“It is fair to say that all business segments are impacted by the sudden raw material challenges,” notes van der Velde. “We see increased costs on raw materials used in offset, flexographic and gravure inks, pressroom chemicals, flexographic plates and printing blankets. The supply tightness and cost increases affect a wide variety of key materials, though we can summarise it by looking at a few areas.

“We have seen increasing challenges in availability of pigment intermediates, which drives costing on all three primary colours. The domino effect reaches all inks we manufacture, but predominantly our Print Media offset inks, driven by the shortages in the raw material supply chain mentioned earlier.

“Naphthalene supply (all from China) is tight due to environmental action (potential waste water issues), causing challenges for red pigment manufacturing. Last but not least, costs of copper and Phthalicanhydride, both key intermediates for blue pigments, have increased, causing increased costs to produce blue pigments. Name a colour and you see there are challenges. Cost is one, but in a number of cases, availability is even more of an issue.

“For oil-based inks (sheetfed, heatset and coldset) the key challenge is the increase in crude oil pricing, which has led to cost increases of key materials, including 10% on carbon black, 5% on hydrocarbon resins, and 20% on mineral oils since Q2 2016.  

“It is hard to say where the trends will go from here, however most analysts believe that crude oil will continue to increase, which, if that is the case, could trigger further cost increases of key raw materials used by the printing ink industry.”

“Flint Group’s printing blanket business has been hit significantly by major cost increases in rubber chemicals. Butadiene, which is a key rubber ingredient for both the blanket business and also the flexographic plates business, has already tripled in cost since Q3 2016 and new cost increases have been announced this week. In addition, costs of another rubber chemicals, acrylonitrile, rose by almost 35%.

“Costs of many solvents have also increased, which affects the cost of manufacturing many pressroom chemicals and solvent-based inks. Hydrocarbon costs increased by 25%, and ethyl acetate (ETAC) costs started to increase earlier this year by double digits. Glycols, glycol esters, and isopropanol are on allocation, we have seen cost increases in the range of 4%, and we expect further cost increases in the future.

“Flint Group’s cost of manufacturing water-based packaging inks has been hit hard by the cost increases in styrene (35%) and acrylic acid(12%), two key ingredients used to make acrylic resin, which is the base for a water-based ink.”

“With the world of chemicals being so dependent on a few players and also being dependent on China and India for a number of key raw materials and intermediates, the increased sea-freight rates are a concern as well.”

van der Velde concludes: “The raw material challenges are affecting all chemical consuming industries and will require careful management to ensure supply. While we cannot disassociate ourselves from raw material movements in terms of cost and availability, I’m confident that Flint Group will be in a good position to ensure supply to our customers at prices that are still competitive in this environment. 

"The global sourcing ability of our company, the close cooperation with our key partners and very senior contacts with the key manufactures, puts Flint Group in a relatively good position. However, these challenges will not abate quickly. Flint Group will work closelywith our suppliers and customers to plan for and mitigate the volatile raw material trends we face."

 
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