War and natural disasters won’t slow the rise in printing costs. Conflicts in the Middle East, especially the Libyan civil war, drove oil prices from $90 a barrel in early February to more than $112 in April, and that puts pressure on prices of raw materials, including many of the precursor ingredients for inks. Meanwhile, the massive ?earthquake and tsunami that struck Japan in March has disrupted paper production there. ?
Despite these developments, some industry observers maintain that these events will not exacerbate pressure on paper and ink prices beyond what was already mounting over the last year. Direct marketers are more concerned about the prospect of additional postal increases, overshadowing worries over printing materials. Some observers believe the market is unlikely to support additional hikes. ?
“It’s not as big a concern as postage rates. Paper is a commodity, and commodity prices go up and down over time,” notes Allen Abbott, chief operating officer of direct retailer Paul Fredrick. The Japanese earthquake, while it idled several large paper producers, is not expected to affect paper prices in the US, according to industry insiders. They note Japan is not a major paper exporter like China. However, Japan is a major pulp supplier to China.?
Ink prices skyrocket as raw materials decrease
While the price of ink is not as big a concern as paper prices or postage, it also experienced large increases over the last year, say industry observers. Ink remains under pressure as the prices of oil and natural gas head upward and other supply issues affect prices for raw materials used in ink production.
Rosin, a key ingredient in inks, nearly tripled in price last year, according to a recent bulletin sent to members of the National Association of Printing Ink Manufacturers. Other raw materials used in ink production, such as acrylic acid and carbon black, are also experiencing price pressures.
The recent spike in oil prices is another factor in ink price increases, because oil and gas production provide many raw materials for printing, according to the NAPIM bulletin.
Additionally, many other chemicals used for printing, such as varnishes and washes, have also been affected, says Angie McClure, print production manager at J. Schmid & Associates. Ink manufacturers are blaming the increase in part on a shortage of raw materials, she explained in an email.
Japanese paper manufacturers have a limited US market share, says Donald Cooke, SVP of Midland Paper. “Japan is not a huge export market. They’re mostly an internally-focused market,” he says. “It’s not going to move the ticker in Europe or America.” ?
Additionally, paper and ink prices may be more affected by supply and demand issues than earthquakes, tsunamis and uprisings. Paper prices had already gone up four times over the last year, most recently an April hike that added 5% to paper costs, according to Angie McClure, print production manager at consulting firm J. Schmid & Associates, a direct marketing consulting company. ?
McClure notes ink is up 10% due to oil prices and demand for raw materials as the recession abates. In addition, industry sources expect additional increases from paper mills this summer. One paper company executive who declined to be named said the increases would counteract the rise in oil and raw material costs.?
Catalog marketers adjusted to counter the rising costs last year by reducing frequencies, using lower-weight papers and negotiating paper contracts. Not all paper executives foresee further increases this year. After repeated paper price hikes in the last 12 months, some printers say it would be difficult to pass on the rising fuel costs in an environment where paper demand is recovering, but not strong. The increases to date were fueled by the ongoing paper mill consolidation and the reduction in capacity to more closely match demand. ?
There is a great deal of pressure on mills to keep paper prices where they are or hold off increases until later in the year, says Cooke. Printers noted some mills are putting fuel surcharges in place to offset the rising cost of transporting their goods, rather than hike prices and lose sales. “Right now it’s a buyer’s market,” says Daniel Cornelius, CEO of Prime, a direct marketing and commercial printing firm. ?
Direct marketers are more worried about a possible postage increase following an inflation adjusted one on April 17. The Postal Regulatory Commission recently cited the standard mail flat category was not covering its costs, which means there is the potential for a 22% to 23% postage increase in that category. ?
“I think the number one concern is postage, because that is such a big part of the bill these days,” says Mike Amundson, EVP of Brown Printing Co. McClure noted a similar postage increase in 2007 caused catalog ?volume to fall by one-third.?
Price increases in commodities are cyclical events that the industry handles by negotiating prices and hedging, says Abbott. Postage increases are a different story. “There’s only one way to put a piece of mail in someone’s mailbox,” he says. “With all these other things, there are alternatives.”