China’s push to reduce its mammoth export growth and clean up chemical pollution is the latest culprit leading to higher ink prices for U.S. newspapers.

The impact is already being felt. In August, Flint Group raised the price of its news ink 6 percent and the cost of other inks by as much as 12 percent, effective Oct. 1. Among pressures forcing the increase, said Bill Miller, president of Flint Group North America, was “recent actions taken by the Chinese government to close chemical operations and the elimination of refunds of the Chinese value-added tax.”

The Chinese government’s move to restructure VAT refunds threw the chemical market into turmoil.
 

Sun Chemical unit US Ink followed suit in early September, hiking the price of commercial, publication and news inks by as much as 11 percent. Greg Lawson, Sun’s group president, also pointed to the Chinese economic and regulatory landscape as a major contributing factor.

Still, said Todd Wheeler, US Ink’s marketing manager, “The [Chinese situation] is only one factor in the price/cost equation. As key raw material pricing pressures increase, US Ink is committed to minimizing any potential ink price impact to the market.”

Quick impact

The economic streams contributing to the latest uptick in raw materials costs began converging in June, when China gave little more than a week’s notice it would effectively hike value-added taxes 13 percent on thousands of products exported to North America, effective July 1 (see sidebar, page 18).

Among products included were pigments, pigment intermediate chemicals and rosins used in newspaper printing inks, said Norm Harbin, Flint Group’s vice president of business and technical development.

About 90 percent of these intermediate chemicals made globally are manufactured in China.

Harbin said he and a group of colleagues were attending a late June meeting in Washington, D.C., when they first heard of China’s surprise announcement. “We were all looking around at each other,” he said. “We were shocked.”

Speculation flourished as to why China made the sudden moves.

One reason was that it could: “This is what happens when you allow somebody to gain a monopoly on a market. Well, guess what, if you get that monopoly one of the things it allows you to do is raise prices,” said Lloyd Wood, spokesman for Washington, D.C.-based AMTAC, the American Manufacturing Trade Action Coalition trade group. “That may be exactly what is happening. More people should expect that.”

Few alternatives

The Chinese ministries in question gave no warning of the increases. Turmoil ensued. Reports emerged of chaos as frantic exporters rushed ports in China, Singapore and Hong Kong to try to beat the deadline.

Rumors ballooned that Chinese authorities would extend a reprieve of the rebate reductions until August or September, until manufacturers, importers and transport chiefs could straighten out the mess. But it was not to be.

Harbin said all of the pigment precursor chemicals are among the commodity categories hit by the tax adjustment, and that there are few alternative sources available.

“Unfortunately, some of the intermediate chemicals that are used especially to make color pigments have moved to China because of the lower costs of dealing with the environmental issues of producing chemicals,” Harbin said.

Meantime, newspaper production chiefs interviewed prior to Flint Group raising its prices said they will just have to deal with any price increases as an additional, albeit unwelcome, cost of doing business.

“How big a hit this is going to be I don’t know,” said Paul Briand, director of operations for Seacoast Media Group in Portsmouth, N.H. “What it does mean is that, as newspapers get into more and more color, it could have a real big impact.

“In 2007 and beyond, what is the pressure, what are we being asked to do? We’re being asked to produce more and more process color pages, so that will put some pressure on the cost of colored ink.”

Said another production chief at a major Southeastern daily who declined to be identified, “As we get into this September and October time frame we all go to budgeting, so my questions always are, ‘What are the ink prices looking like for next year?’

“We’ve had a couple of color ink price increases in the last couple of years because of raw material issues. With declining consumption and all the other bad things going on in the newspaper business it will be difficult for newspapers to accept another ink price increase. That doesn’t mean it is not going to happen, but it will be difficult.”

But the pressure works both ways, said a consumables buyer for a group of major papers who couldn’t speak for attribution.

“There are going to be challenges for ink manufacturers because of what the Chinese government is doing,” he said. “The issue here in North America will be how the two major ink manufacturers react to that, and what is the temperature in the marketplace” to support a price hike.

For their part, ink vendors say they will continue to moderate price increases as much as possible by relying on internal supply chains and taking other steps to keep a tight rein on raw materials.

Flint Group, for example, has pigment manufacturing facilities in the United States, “so it puts us in a little better position than many that have no vertical integration when it comes to this,” Harbin said.

US Ink has taken a similar tact, said Edward Pruitt, Sun’s chief procurement officer. “As a global buyer of raw materials we purchase pigments and intermediates from many sources all over the world,” he said, adding that Sun also has its own plants.

But Pruitt and Harbin concede that China’s influence as a primary manufacture of many raw components will be all but impossible to minimize.

“China has become over the last decade a significant manufacturer and seller of pigments and intermediates to the world markets,” said Pruitt. “The recent developments in China will ultimately impact the value chain of these important raw materials as well as the products, like color inks, that are made from them.”

David Lewis is a Denver-based freelance writer.