Features

The Pigments Report

By Kerry Pianoforte | August 11, 2005

Increasing raw material prices and rising fuel costs are two of the biggest issues affecting the pigment market

Increasing raw material prices coupled with rising fuel costs are two of the biggest challenges facing the pigments industry today.

"We have experienced cost increases in all categories of raw materials including intermediates, bulk chemicals and specialty chemicals," said Bob Schweitzer, GM coatings business unit, Sun Chemical. "These increases, when combined with the sharp rise in energy costs have put us into a position where we have been forced to raise prices for our pigments and pigment preparations."

Many pigment companies are working hard to make adjustments internally to offset rising prices, but they're feeling the affects. "Increased raw material costs continue to affect our profits in view of the fact that we have not entirely passed along these price increases to our customers," said Suzanne Bernardi, creative director color and effect, EMD Chemicals Inc. "Alternatively, we have focused internally and wherever possible streamlined our production and logistic process."

"After a long period of relative cost stability, the iron-oxide industry is facing major raw material price pressures along with the increasing energy costs that are effecting all pigments," said Chuck Hoover Jr., COO, Hoover Color Corp. "This, coupled with strong demand for our products has pushed out lead times and pushed up prices in the marketplace."

Like domestic suppliers, importers are feeling the affects too. "As an importer of organic pigments we are faced with price increase from our suppliers," said Torsten Schwerdt, marketing manager organic pigments Europe, Kromachem. "Sometimes there is room for negotiation but not enough to reach the old price levels. Also, oil prices and increasing petrol prices make transport more expensive."


PRICING PRESSURES FORCE INCREASES
Increased raw material prices have forced pigment manufacturers to implement price increases.

According to Hoover, the cost increases are too large in magnitude to be absorbed by the pigment industry, so they are being passed on at a rapid pace.

"Increasing prices is the major issue these days in the pigment industry, added Schwerdt. "We have to pass along at least a part of the increased prices to our customers."

"In some cases, we are forced to pass along increased costs to our customers," said Bernardi. "As we move forward, we will have to pass even more of these costs along but we want to remain sensitive to this delicate situation."

"The tremendous increase in the cost of raw material combined with the higher cost of producing and transporting organic pigments have necessitated a price increase on our part," said Schweitzer.

Also, maintaining quality service is a costly endeavor, according to suppliers Coatings World spoke with. "Servicing our customers with ample inventories, technical support and proper quality systems are important to fulfilling our customers' expectations, but come with increases costs that are not borne by small pigment traders," said Frank Lavieri, executive vice president and general manger, Lansco Colors.


MORE CHALLENGES
Further complicating matters for the pigment industry, as a result of the instability in the Middle East, oil prices have been rising steadily, resulting in increases in fuel and transportation costs.

"The increased costs of pigments and costs of transportation are very important issues for our company at this time," said Lavieri.

"Increased costs in other areas such as oil, energy and transportation continue to plague everyone," agreed Bernardi.

In addition, the importation of less expensive pigments from Asia continues to challenge U.S. and European pigment manufacturers.

"The global restructuring of manufacturing to Asia continues to challenge the industry," said Hoover. "While the industry initially looked at Asia as an inexpensive source of raw material it is now a customer base of growing importance."

In addition to offshore competition, there are other challenges facing the organic pigment industry, especially in North America and Europe. According to Schweitzer, higher customer expectations in terms of pigment performance and the need to meet tougher regulatory requirements are key issues.

Bernardi agreed. "Increased competition from offshore pigment suppliers, the rate of exchange, along with the movement of OEM manufacturing from North America to Asia have significantly impacted the coatings environment which ultimately influences the pigment industry," she said.


PRICE STABILIZATION?
The outlook is not entirely bleak for the pigments industry. Some suppliers were optimistic that prices will stabilize in the coming year.

"We are cautiously optimistic that the worse is behind us, but a lot has to do with high demand levels," said Hoover. "If raw materials become scarcer than they are now, more price increases will take place."

"We have worked closely with our factories concerning these escalating costs and believe that prices have now stabilized at these higher levels," said Lavieri.

"Generally speaking, the price increase will slow down and come to an end, but the prices will remain on a higher level and finally the coating and ink makers have to pass these higher costs onto their customers," said Schwerdt.

Not all suppliers are as optimistic about price stabilization or supply. "In the foreseeable future, raw material prices are continually going to increase due to the globalization of the economy and the turbulent social environment," said Bernardi. "The increase in material demands, particularly from China, has changed the supply and demand curve drastically shifting the price equilibrium causing critical supply issues."

"If oil and natural gas stabilize, we have a chance," said Tom Pettijohn of Wayne Pigments. "When shortages hit, then customers will not be concerned about pricing."


VALUE-ADDED SERVICES
Luckily, pigment customers understand the current market situation. But suppliers still need to provide their customers with value-added products in this difficult environment.

"We try to be transparent with our customers and let them know the challenges we face," said Bernardi. "In many cases, they are facing the exact same challenges. While we are always trying to help our customers manage their costs, we also work hard to be the kind of supplier who listens to their needs and looks for ways to help them develop new opportunities that may be less affected by issues of cost and prices. We do this with leadership in innovation, technical service and knowledge."

The key is to zero in on each customer's needs, said Schweitzer of Sun Chemical. "Of course, costs are an issue for everyone, but for some, cost can be reduced by improving the value in use of our product."

Pigment manufacturers can design the product to work better in the customer's system, make it easier to handle or provide a supply-chain solution. "The key is to understand the priorities of each customer in depth and then develop tailor made solutions to help them create value for their customers and their business," said Schweitzer.

"Innovation is the light at the end of the tunnel�innovations from the pigment supplier, but also from the customer," said Roland Valin, Manager, Sales & Technical Marketing.

Over the last few years Hoover Color has been actively working with its customers to minimize their total pigment costs. "We have one program which focuses on alternative raw material sources. We have successfully introduced products produced with these materials to our customers and hope to expand the usage of these materials in the future," said Hoover.

In addition, Hoover Color is working with its major customers on ways to eliminate non-value adding costs from the supply-chain. "By better understanding customers' true requirements we have successfully been able to reduce the costs of packaging, freight, handling and other costs," said Hoover.

"We work with customers to save costs throughout the entire supply chain including logistics, pigment selection and raw material cost," said Lavieri. "For example, costs are saved by our customers who use low cost alternatives to high performance, branded pigments."

Delivering quality products remains key, especially in light of all the added costs. "We are very quality focused," said Schwerdt. "So we offer high quality and special quality pigments, which are not always exchangeable." To keep its customers satisfied, Kromachem is offering a number of pigment-related services, including color matching, local warehousing and quality control testing.

As a result of rising costs, formulators are looking to make the most of their pigments. "As pigment costs increase, there is a need to optimize pigment dispersion to produce the maximum amount of color development from a given amount of pigment," said Jeff Norris, market development manager, specialty additives, Noveon Performance Coatings. "Including hyperdispersants in a formulation reduces concerns about using new pigments, providing reproducible color strength and dispersion stability."

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