Pigment Market Update

By Kerry Pianoforte | August 10, 2005

The pigment market has been besieged with dwindling demand, increasing price pressures and lower-priced imports. Will 2003 be an improvement?

Although the pigment market experienced tentative growth in 2002, pricing pressures continue to force suppliers to drive costs down in order to make a profit. Pigment suppliers are competing for an increasingly smaller piece of the pie, and are facing stiff competition from lower priced imports and rising prices from raw material suppliers.

"The pigment market was relatively stable in 2002 in comparison to 2001," said Lou Brincat, vice president, Clariant Pigments and Additives. "The market continues to be impacted by industry trends such as the presence of low price imports and manufacturing capacity related issues."

According to The Freedonia Group, demand for pigments and dyes used in paints and coatings is forecast to rise 3.4% per year to 1.8 billion pounds in 2006. But the reality of the situation is not quite as optimistic. As a result of pricing pressures and a sluggish economy, the pigments market is only now beginning to recover from a rough year.

"We had already seen a sharp decline in 2001 pigment demands prior to September 11," said Chuck Hoover Jr., chief operating officer for Hoover Color. "Different pigments have come out of that decline at different times. I believe that demands for organic pigments are only starting to rebound now, while demand for inorganic pigments grew rapidly beginning the second quarter of 2002."

"The pigment market has shown growth in 2002 but some prices continued to decline, so the growth was greater in volume than in dollars," said Rick Campbell, vice president sales and marketing, Lansco Colors.

Most suppliers will agree that pigment producers are under tremendous price pressures. As a result, the pigment industry's primary focus is on finding new ways to further reduce costs.

"The pigment market is under huge price pressures," said Mr. Hoover. "This varies by type of pigment. The commodity pigments are under the greatest pressure, while specialty grades are under less."

The increasing availability of lower priced imports has greatly affected pigment prices. "These products are typically copies of materials that are recently off patent protection," said Mr. Brincat. "Business of any kind will always be impacted by a new entry into the supply chain. For our industry, this covers one part of the spectrum of pigments available, but is not a reflection on the entire market."

"Certain commodities were under price pressure," said Werner Peter, business director performance chemicals for coatings, plastics and specialties NAFTA, BASF Corp. "However, it seems that the picture is somehow changing. Today we are confronted with significant raw material price increases for organic pigments on a global basis."

According to Mr. Campbell, imported products are entering new territory. "2002 saw, for the first time, pigments like titanium dioxide, carbon black, pearlescent pigments and specialty organic pigments being imported into the U.S. from China. Expect to see even more or all of these pigments coming to the U.S. in 2003," he said.

In order to stay afloat in this tough business environment, pigment suppliers must focus their efforts on meeting customers' performance needs and at the same time, keeping their costs low.

"Everyone is scrambling to figure out how to reduce their cost while maintaining the performance characteristics that the market has come to expect," said Mr. Hoover. "While the market is interested in better consistency and performance characteristics, there appears to be an inability to pay a premium for products with these properties. In fact, many market segments have found ways to use lower quality pigments in order to meet their own cost reduction needs."

Changing and tightening product requirements are some important issues facing pigment producers. "This includes requests for increased durability as well as a wide range of other modifications to specifications," said Mr. Brincat. "The intent on the customer side is to tighten the acceptable manufacturing product profile. Customers want higher assurance that their products are not just acceptable but that the quality falls within their specifications and guidelines."

Suppliers are working hard to develop new technologies that will allow them to achieve a balance between keeping costs low and delivering quality products.

Hoover Color has been working with PEL Technologies on the joint development of a new technology to produce black iron oxide from waste iron streams, using a patented thermal process. "We began producing material from this process in early 2002 and have been introducing it to the marketplace since early summer with positive results," said Mr. Hoover. "These pigments display easy dispersing properties with good pigment and color strength at an economical price."

Clariant is one of a handful of companies investing in chromophore research which involves using UV light. "In addition, we are working on easy-to-disperse pigment technology and formulations as well as custom solutions," said Mr. Brincat.

Mr. Peter of BASF believes that some of the most important issues facing the pigments industry are the development of waterborne systems as replacements for heavy metals. "We are well prepared for the further replacement of lead containing pigments with a variety of organic, inorganic (non-toxic) and co-finish products," said Mr. Peter.

In order to stay ahead in this competitive market, Hoover Color is focusing on identifying variables in order to improve its consistency, according to Mr. Hoover. "We are also looking at alternative raw material streams. Technology now allows us to refine materials that we discarded in the past. While the supply for pigments continues to exceed that of demand, and price containment pressure continues all along our supply-chains, all pigment manufacturers will continue to focus on driving down the costs of their products."

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