One of the refrains of recent years has been the rate of acceleration in the cost of raw materials used for printing – ink, coatings, paper and now aluminum, a raw material not directly used by printers but by printers. manufacturers producing printing plates.
Aluminum stood out among the metals as prices for aluminum ingots soared to a level of $ 3,000 per tonne; a 70% increase from September 2020 levels.
In addition to the increase in the cost of aluminum ingots, other significant cost increases are the costs of converting ingots to coils; freight and container costs; cost of coating solutions and other chemicals. In addition to the increase in costs, there is a logistical crisis due to the unavailability of containers. “It’s a perfect storm,” says CG Ramakrishnan, CEO of TechNova Imaging Systems.
Why have aluminum prices increased? “We are in the midst of a global commodity super cycle,” informs Ramakrishnan, while Kentaro Imaguku, Fujifim Department Head, GA Division, says: “This has been the result of many factors ranging from environmental concerns to situations. geopolitics ”.
China, which has been the largest aluminum producer, has reduced the bottleneck on the supply side. Its own concerns such as emission rules, power shortages and flooding have recently had an impact on its aluminum production. China produced 3.16 million tonnes of primary aluminum in August, down 3.2% from July, according to a report, as the country removed smelting to reduce pollution and meet green targets. In addition, supply was further disrupted by a military coup in Guinea, the second largest producer of bauxite and the largest supplier to China, the report added. Therefore, China had to import large amounts of the metal.
In addition, there are other factors like the metal used to decarbonise solar PV, the alternative use of lighter metal to lighten cars and packaging, all of which have increased the demand for aluminum.
“Expect aluminum prices to rise from now on,” adds Ramakrishnan.
Impact on the plates
Since metal accounts for 65% of the total plate cost, printing plates envision an impact of at least one Re per m² on a range of plate products. It affects all plate manufacturers around the world.
An increase of 1 Re per kg in the base price of ingots on the LME translates into an increase of 0.9 Rs per m² in the prices of the plates. In other words, an increase of USD 100 per tonne at the London Metal Exchange (LME) translates into an increase of Rs 7 per m² in plate costs.
Since aluminum is the primary raw material for manufacturing printing plates, the cost of digital and conventional plates is expected to increase dramatically, which will add even more inflationary pressure to the already volatile printing business. But given the current situation, this sharp price increase alone cannot be borne by manufacturers, Imaguku believes. “It is impossible for a brand on its own to bear the implications of the increase in the price of aluminum, leading to an increase in the cost of raw materials and therefore it becomes essential that all stakeholders share the increase in the cost of raw materials. “
“Internationally, plate prices have increased from USD 1 to USD 1.5 per m²,” says Ramakrishnan.
Thus, material prices will be passed on to your customers, which will add pressure to already volatile and falling margins due to the Covid calamity. What is the strategy of other industries using aluminum? “All other aluminum-using industries experience similar cost increases and pass them on to their customers,” says Ramakrishnan.
What should printers do? Fujifilm has never been in favor of shifting the entire burden onto its customers, says Imaguku, adding that we believe our customers can overcome the impact of rising costs by selling scrap aluminum at a price. higher.
Ramakrishnan explains this further. “In reality, this increase in the price of plates of Rs 7 per m² is offset by a corresponding increase in the prices of aluminum scrap. Therefore, there will only be a marginal increase in the cost of the plates for customers. “
The enigma of anti-dumping duties
Print week ask plate manufacturers what is the impact of the DGTR final findings recommending anti-dumping duties (ADD) on all aluminum flat-rolled products from China? Good or bad news?
Imaguku says, “Like everyone else in the industry, we are also waiting and analyzing the impact of this one. Fujifilm does not manufacture plates in India.
But TechNova does. “The collection of anti-dumping duties to protect the Indian manufacturing industry is necessary; however, it should be based on strong evidence of widespread dumping causing injury to Indian manufacturers. The ADD levy on aluminum products is a good decision; however, arrangements should have been made to allow imports without ADD, for items of rolled aluminum products that are not made in India, ”says Ramakrishnan.
For example, the litho grade aluminum coils required for the production of offset plates are not manufactured in the quality and width required in India; This has not been done. “This will further increase the cost of the plates due to the imposition of ADD on the aluminum coils that will have to be imported from China.”
Another factor that will exacerbate the gap between supply and demand in the long run, adds Ramakrishnan, is China’s strategy of reducing aluminum production to meet its green targets.
Awareness of plate manufacturers
TechNova and Fujifilm claim to be in constant communication with their customers and partners.
“We are in constant dialogue with all industry participants, regardless of size, to explain our relentless efforts to deal with this extraordinary price and supply volatility,” says Ramakrishnan, while Imaguku says : “Fortunately, all of our stakeholders are well aware of the situation. and are ready to cooperate as much as possible.
These companies also have businesses with larger packaging and newspaper customers who have bargaining power that smaller printers may not have.
Ramakrishnan says, “We have a combination of monthly, quarterly and semi-annual contracts with our large clients, which are extremely transparent and personalized to protect mutual interests. The contracts also provide for aluminum covers adapted to customer needs.
Imaguku of Fujifilm says, “We work with all kinds of organizations to meet their printing and packaging needs, regardless of size. We negotiate with all of our clients and are confident that our extended family understands our situation and will support us in these difficult times. “
A material price formula
From what has been observed over the past year and a half, the constant rise in prices of inputs required for printing due to rising raw materials by the manufacturer of those inputs has been a bone of contention. Can a formula for associating prices with aluminum and ink raw materials be developed to better manage contingencies?
Under the current circumstances, we believe entering into a hardware pricing formula is a feasible option, says Imaguku. “It could be a clearer method for the customer. It must be resolved. “
According to Ramakrishnan, TechNova has for decades followed an extremely transparent pricing formula based on links to the price of aluminum on the LME (up as well as down). “Beyond designing fair pricing mechanisms, we believe it is essential to stay in touch with customers and be fully aware of their ever-changing needs.
TechNova had set up a program to buy back used plates from its customers on an experimental basis several years ago. This was not successful, his customers preferred to sell the plates as scrap locally to their approved scrap dealers. Ramakrishnan says, “In general, local prices for scrap metal tend to be higher because it minimizes the cost of reverse logistics. “
After that ?
Beyond the catastrophic destruction of demand caused by Covid 19, this year has been an unprecedented year in terms of bottom line pressures, both for printers and manufacturers. Shortages, extended delivery times and rising prices for primary inputs have resulted in a significant erosion of the bottom line.
How long before aluminum prices normalize, Print week demand? “Although there is still optimism that price and supply stability will return, given the super cyclicality of base metals, it is very difficult to predict a time frame,” said Ramakrishnan. “Aluminum prices depend on various structural and cyclical factors in the metal industry and the global economy. It is extremely difficult and dangerous to predict the exact levels of the price of aluminum. We continue to hope that volatility eases and prices stabilize soon. “
Imaguku shares Ramakrishnan’s concerns and hopes that the market stabilizes and prices come under control. “But unfortunately, looking at the current situation, the signs look grim.”
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Why are printing plates supposed to cost more? – The Sunday Column of Noel D’Cunha