Organizations representing the printing ink industries in different parts of Europe have detailed the precarious and challenging state of supply chain affairs that the sector faces as it moves into 2022.
The European Printing Ink Association (EuPIA) has highlighted the fact that the coronavirus pandemic has created collective conditions akin to the factors needed for a perfect storm. An aggregation of different factors is now seen as severely impacting the whole supply chain.
The majority of economists and supply chain experts are of the view that the global economy is experiencing the most unprecedented supply chain volatility in recent memory. Demand for products continues to surpass supply and, as a result, global raw material and freight availability has been heavily impacted.
This situation, driven by a global pandemic which continues to cause manufacturing shutdowns in many countries, was exacerbated first by a home-bound consumer base purchasing more items than usual and outside of peak seasons. Secondly, the revival of the global economy at broadly the same time around the world prompted additional surges in demand.
The crippling supply chain problems arising directly from pandemic isolation needs and staff and driver shortages have also created difficulties, while in China, reduced output due to the Chinese Energy Reduction Program, and a shortage of key raw materials have compounded industry headaches even further.
Key Concerns
For printing ink and coatings producers, transportation and raw material shortages are causing a variety of challenges,as set out below:
• Supply and demand imbalances for many critical raw materials used in the production of printing inks—e.g. vegetable oils and their derivatives, petrochemicals, pigments and TiO2—are causing significant disruption to EuPIA member companies. Materials in all of these categories, to a differing extent, are seeing increased demand while supply continues to be constrained. Demand volatility in those forgoing areas has led to increased complexity in vendors’ abilities to forecast and plan shipments.
• Pigments, including TiO2, have surged recently due to increased demand and factory shutdowns in China caused by the Chinese Energy Reduction Program. TiO2 has experienced increased demand for architectural paint production (as the global DIY segment has experienced a huge surge based on consumers staying at home) and wind turbine production.
• The supply of organic vegetable oils has been affected by unfavorable weather conditions in the USA and Latin America. Regrettably, this coincided with Chinese imports and consumption of this raw material category has increased.
• Petrochemicals—UV-curable, polyurethane and acrylic resins and solvents—have been rising in cost since early 2020 with some of these materials having demand increases that exceed expected levels. Furthermore, industry has witnessed a multitude of force majeure events that have further constricted supply and exacerbated an already unstable situation.
As costs continue to increase and supply continues to tighten, printing ink and coating producers are all becoming highly affected by the intense competition for materials and resources.
Challenges faced by the industry are not, however, confined purely to chemical and petrochemical supplies. Other dimensions of industry such as packaging, freight and transport, are also experiencing difficulties.
• The industry continues to face shortages in steel for drums and HDPE feedstocks used for pails and jugs. Increased demand in online commerce is driving a tight supply of corrugated boxes and inserts. Material allocation, production delays, feedstock, force majeures and labor shortages are all contributing to packaging increases. Extraordinary levels of demand continue to outstrip supply.
• The pandemic generated much abnormal consumer purchasing activity (both during and after shutdowns), causing unusual demand within multiple industries and straining both air and sea freight capacity. Jet fuel costs have increased along with shipping container costs (in some routes from Asia-Pacific to Europe and/or the USA, container costs have increased 8-10x the norm). Unusual ocean freight schedules have emerged, and freight carriers are stranded or challenged to find ports to offload containers. The conflation of increased demand and ill-prepared logistics services has led to a critical shortage of freight capacity.
• As a result of the pandemic conditions, strict health and safety measures are in place at global ports, which is affecting port capacity and throughput. The majority of ocean freight liners are missing their scheduled arrival times, and ships which do not arrive on time experience delays as they wait for new slots to open up. This has contributed to escalating shipping costs since autumn 2020.
• There is a critical shortage of truck drivers in many regions but this has been most pronounced across Europe. Although this shortage is not new and has been a concern for at least 15 years, it’s simply been heightened due to the global pandemic.
Meanwhile, one of the recent communications from the British Coatings Federation demonstrated that in early autumn of 2021, there had been a new surge in raw material prices affecting the paint and printing ink sectors in the UK, meaning that manufacturers were now exposed to even greater cost pressures. Since raw materials account for about 50% of all costs in the industry, and with other costs such as energy also increasing rapidly, the impact on the sector cannot be overstated.
Oil prices have now more than doubled in the last 12 months and are up by 250% on the pre-pandemic low point of March 2020, more than matching the huge increases seen during the OPEC-led oil price crisis of 1973/4 and more recently the sharp price rises reported in 2007 and 2008 as the world economy headed into recession. At US$83/barrel, oil prices at the start of November were up from an average of US$42 in September a year ago.
Impact on the Ink Industry
The impact on paint and printing ink producers is obviously very severe with solvent prices now 82% higher on average than a year ago, and with resins and related materials seeing a price hike of 36%.
The prices of several key solvents used by the industry have doubled and trebled, with notable examples being n-butanol up from £750 per ton to £2,560 in a year. n-butyl acetate, methoxypropanol and methoxypropyl acetate have also seen prices double or treble.
Higher prices were also seen for resins and related materials with, for example, the average price for solution epoxy resin up by 124% in September 2021 compared to September 2020.
Elsewhere, many pigment prices were also sharply higher with TiO2 prices 9% higher than a year ago. In packaging, prices were higher across the board with, for example, five-litre round tins up 10% and with drum prices 40% higherin October.
Reliable forecasts are hard to come by but with most major forecasting bodies expecting oil prices to remain above US$70/barrel for 2022, the indications are that higher costs are here to stay.
Oil Prices to Moderate in ‘22
Meanwhile, according to the US-based Energy Information Administration (EIA), its recent Short-Term Energy Outlook suggests that a rising production of crude oil and petroleum products from OPEC+ countries and the USA will lead to global liquid fuels inventories increasing and crude oil prices falling in 2022.
Global crude oil consumption has exceeded crude oil production for five consecutive quarters, starting in the third quarter of 2020. During this period, petroleum inventories in OECD countries fell by 424 million barrels, or 13%. It expected that global crude oil demand will exceed global supply through the end of the year, contribute to some additional inventory draws, and keep the Brent crude oil price above US$80/barrel through December 2021.
The EIA’s forecast is that global oil inventories will begin to build in 2022, driven by rising production from OPEC+ countries and the USA yet with slowing growth in global oil demand.
This shift is likely to put downward pressure on the Brent price, which will average US$72/barrelduring 2022.
Spot prices of Brent, an international crude oil benchmark, and West Texas Intermediate (WTI), a US crude oil benchmark, have risen since their April 2020 lows and are now above pre-pandemic levels.
In October 2021, the price of Brent crude oil averaged US$84/barrel, and the price of WTI averaged US$81/barrel, which are the highest nominal prices since October 2014. The EIA forecasts that the price of Brent will fall from an average of US$84/barrel in October 2021 to US$66/barrel in December 2022 and the price of WTI will fall from an average of US$81/barrel to US$62/barrel throughout the same time frame.
Low crude oil inventories, both globally and in the USA, have put upward price pressure on near-dated crude oil contracts, whereas longer-dated crude oil contract prices are lower, presaging expectations of a more balanced market in 2022.
