The price hikes that vendors are passing through to newspapers aren’t likely to end anytime soon.

The first massive wave has already come from ink, plastics and prepress consumable suppliers. Agfa and Fujifilm unit Enovation Graphics are among the latest to announce price hikes in the United States, while Kodak Graphic Communications Group raised prepress consumables prices in its Europe and Greater Asia regions.

Vendors say they are squeezed by ever-escalating raw materials costs and can no longer hold back passing those increases onto their newspaper customers.  

Consider the following:

*2005 aluminum costs neared $2,400 per ton, almost double 2003 prices, fueled in part by spot shortages.

*Silver hit $9.53 a troy ounce in February, doubling 2003 prices.

*Polyester feedstock for film rose 30 percent in the past three years.

*Polyethylene resin, used in plastic bags, rose 15 percent.

*Crude oil prices rose 30 percent in the past year and have tripled since 2001.

*Natural gas prices soared from $4 per million Btu in the 2000-2002 time frame to as high as $11 per million Btu, according to US Ink vice president of operations Larry Lepore.

When Agfa rolled out what it termed “substantial” price increases in late February, any notion that last year’s price spikes from ink and paper companies would be isolated were quickly extinguished.

Agfa pegged the hike to “soaring prices of silver and aluminum (reaching 17- and 19-year highs, respectively) as well as continued energy and transportation cost increases” and a decision to maintain R&D spending.

The company, like other manufacturers struggling with the rising price of raw materials, said it would continue its concomitant effort to cut costs through technology and process improvements. But all the cost savings in the world could no longer compensate for the company’s materials prices increases.

“If you look at the marketplace recently you will see that just about every supplier of lithoplates has raised their prices because their commodity prices are impossible to absorb,” said Tom Saggiomo, president of Agfa Graphic Systems in North America. “Pressure on prices for lithoplates will continue in the coming months; it is not going to abate.”

“The costs of these commodities have been rising geometrically just in the general sense,” said Kathy McHugh, Eastman Kodak Co.’s Norwalk, Conn.-based Graphic Communications Group vice president of marketing and strategy, prepress consumables. “Everybody has done their best to take costs out of their own manufacturing processes, to absorb these prices, and we have for years. But it does reach the point where you just can’t continue to do it.

“That’s really the key message, and that’s why you see across-the-board increases by manufacturers within the industry,” she said.

Plastics rapped

As for plastic products, “There were increases, some in the beginning of 2005, and then resin went really crazy in December,” said Peter Taylor, president and chief executive officer of Ontario, Canada-based Discovery Packaging, which makes a variety of plastic bags and extruded films.

Like many another manufacturers, Taylor’s pricing power is limited by the fact that plastic newspaper bags are a commodity product. Discovery rode out the worst of the price increases and spot shortages of polyethylene resin by working closely with suppliers.

News ink providers, meantime, are wrestling with material cost increases in just about every sector imaginable.

Take, for example, pigment intermediate costs, jolted by the rising cost of crude oil and crude derivatives, which increased by 5 percent to 8 percent in the first quarter of this year alone, said US Ink’s Lepore.

Like the consumables makers, ink manufacturers say that, as prices have risen and risen, they have undertaken heroic efforts to institute efficiencies aimed at stemming the tide.

“We have been spending considerable effort looking for ways to take costs out of our organization,” said Norm Harbin, Flint Group’s vice president of business and technical development. “We have closed some facilities, so that now we have fewer facilities making larger quantities of ink. Over the years we have just looked for better sources of materials and we have cut down on headcount in the organization, like any other business. So we’re doing what every other business is trying to do - trying to lower our cost of goods sold to make up for increases in raw materials.”

All points alarm?

Yet, having analyzed the situation, Harbin is issuing an all-points alarm. Ink supplies, he says, are vulnerable to a potential triple whammy that could push prices higher and even force shortages:

Whammy No. 1: Rising prices of crude oil and natural gas, ink’s predominant raw materials.

Whammy No. 2: The growing global shortages of naphthenic petroleum, the kind needed to make printer’s ink, which have been compounded by the vagaries of Venezuela’s President Hugo Ch‡vez. Venezuela, California and the North Sea are the three remaining regions producing naphthenic petroleum. Most of the stuff today comes from the North Sea, adding to transportation and other costs.

Whammy No. 3: Dwindling refining resources for naphthenic petroleum, especially the Venezuelan type, which is acidic and tough to refine. Three U.S. refineries still refine naphthenic crude, in California, Arkansas and Louisiana. Hurricane Katrina knocked out the Louisiana facility for a time, which tightened supplies even further.

Rita and Katrina illustrated the weak links in ink’s supply chain. “The Louisiana refinery lost power,” Harbin said, although the complex was relatively undamaged. “If there was a catastrophic event in that particular refinery, there would be big problems in the industry very quickly, because there’s no way there would be the capacity to make that up.”

Meanwhile, as of February, 25 percent of the Gulf of Mexico’s daily oil production remained off-line, Harbin said. And only 22 of the 183 pipelines destroyed by the twin storms have resumed operations.

More than storms

But last year’s cataclysmic hurricane season explains only part of why commodity prices have risen so far and so quickly.

Instead, industry observers say, the prime culprit is a supply-demand equation that’s seriously out of whack.

Consider aluminum: “Demand for aluminum is not going to go down and we have these huge emerging markets that are coming on,” said McHugh at Kodak.

Clark Casson, president and chief operating officer at plate vendor Southern Lithoplate Inc., said the metal’s pricing is hammered by multiple factors: First, a two-year shortage of alumina, the stuff derived from bauxite that’s transformed into aluminum; second, rising demand from the aerospace and automotive industries; third, the closure of older U.S. aluminum smelters in large part because of rising energy and electricity prices; and last, competition from emerging economies such as China’s.

Agfa’s Saggiomo echoes Casson’s contention about the effect of reduced smelter capacity and higher energy costs on aluminum’s price ascendance, but isn’t as quick to point a finger at the China syndrome.

“(International) demand for aluminum is not skyrocketing,” he said. “In fact, on average, last year the overall growth in aluminum demand was about 5 percent,” a typical increase. “What’s happened, though, is that the aluminum producers have taken smelting capacity off-line.”

Meantime, “Aluminum buyers around the globe right now are trying to determine whether we have hit the peak, and will it be coming back down now,” said Casson, who added that Southern Lithoplate is dealing with the cost increases through a “blend of highly efficient, highly modernized manufacturing.”

“We have invested over the years in cost reductions and we’re partnering with their vendors to try to do our best to control costs. I don’t think there’s any magic to it.” Still, in February Southern Lithoplate was forced to announce only its second increase in prices in the last nine years, he said.

On the other hand, computer-to-plate vendor ECRM Imaging Systems has been able to hold the line on price increases, said Jim Luttrell, marketing director. “The interesting thing with violet computer-to-plate technology or the violet polymer technology is that, even though there are across-the-board increases because of the price of aluminum, there has been a dramatic relative drop in the price of violet plates.”

Despite the gloomy perspective, there is a bright side. One bit of good news is that vendors have not raised prices anywhere near the increase in their raw materials costs, nor have they stopped looking for efficiencies. Also, the capitalist economy is cyclical: Vendors already are moving to bring the benefits of innovation to their newspaper customers. Case in point: Discovery Packaging developed Rapid Close self-sealing bags, in part to satisfy customers’ desire to cut double-bagging costs, and in part as a way to escape the commodity pricing straight-jacket of polyurethane newspaper bags (see “Canadian company offering new protection for newspapers,” Newspapers & Technology, September 2005.

And things could be worse, said Hal Hinderliter, director of graphic communications at Cal Poly San Luis Obispo. “The cost of employees’ health insurance increases has been similar to the increase in the price of aluminum, but multiplied over four employees or more this has a far greater effect on operations. Other issues are having a far greater impact on printers and publishers than the price of plates, or even the price of ink.”

David Lewis is a Denver-based freelance writer. He can be reached at lewiscommunications@comcast.net.