Raw Material Update October 2015

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Dulcie Paul
7 years ago
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1 Raw Material Update October 2015

2 FORWARD LOOKING STATEMENTS This report contains a number of forward looking statements. Forward looking statements reflect our current views about future events and are based on currently available financial, economic and competitive data and therefore include a level of risk and uncertainty. 2

3 General Overview POSITIVES Crude oil pricing relatively stable Supply stable for most products Soft global economy NEGATIVES Supply Base Consolidation Environmental Regulation Impacts on Asian and Indian products Carbon Black (stricter EPA regulations in NA) driving prices Feedstock producers based on crude raising adders on indexed products opportunistically Transportation Costs Currency Impacts 3

4 Crude Oil Relative price stability in 2015 compared to 2014 but at significantly lower levels (in USD) Refined product pricing dependent on refinery capacity remaining at current levels Unscheduled refinery shutdowns cause shortages and price increases Refinery closures continue globally due to low margins Low oil prices do not necessarily lead to lower ink prices Natural gas is the precursor to many packaging ink feedstocks, not crude oil Shift to shale gas and oil refining results in less derivatives that are used by ink companies More producers decide to step out of specific heavier fractions required for ink, for example the Q8 closure in Europe takes out more than 20% of capacity for heavier fractions Crude Oil Pricing From $/barrel J-13 M -13 M -13 J-13 S-13 N-13 J-14 M -14 M -14 J-14 S-14 N-14 J-15 M -15 M -15 J-15 S-15 Month/Year Monthly WTI Crude Price Monthly Brent Crude Price 4

5 Supply Base Issues Consolidation decreases market options Titanium dioxide Huntsmann acquired Rockwood s Sachtleben brand in 2013 and Henan Billions Chemicals merged with Sichuan Lomon Titanium in 2015 Resins Kraton Performance Polymers has entered into an agreement to purchase Arizona Chemical Manufacturers exiting material markets Resins BASF announced it was ceasing production of polyamide resins at the end of 2015 Cray Valley exited the C9 resin market in 2014 Environmental Chinese and Indian governments are targeting pigment and intermediate industries China has shut down two of the three producers of C-amine acid Tianjin port explosion has focused attention on chemical production and storage in China Soft global economy Less demand for ink and pigment raw materials keep prices stable Any marginal increase in demand could have significant price impact upward due to smaller supply base Continued soft economy may result in manufacturers deciding to exit certain material markets 5

6 Pigment supply situation Market demand has been declining and continues to depress price. Many pigment producers are considering consolidation of production units to cut cost for survival. Some have already started to do so. Environmental pressure continues to intensify and many producers are forced to commit more investment in environmental protection, not just for waste water but also solid waste, and air pollution. Supply situation outlook is very uncertain. Other than environmental, supply of pigment intermediates also very erratic with wide price fluctuation. Some small intermediate producers may ill afford to invest in environmental protection and may decided to wind up. This will impose more challenges to the pigment producers. 6

7 Pigment supply situation Many pigment traders are offering very low prices by cutting corners. This may be a thing of the past with the regulatory environment getting tougher. Many of these traders will likely exit in the next few years. All things considered, it is unlikely that pigment prices will decline further. Prices will remain stable short-term but an uptrend in the mid-term remains a high probability. 7

8 Currency Issues A strong U.S. dollar has affected the pricing of global commodities throughout the world Significant weakening of the Euro to the U.S. dollar in 2015 The exchange rate change between EUR and USD has offset the price reductions seen in crude oil based derivatives in Europe and has increased in Europe prices of many raw materials coming from China Latin American countries have seen the same issue as their currencies have dropped in value versus the U.S. dollar 8

9 Transportation Issues Road and Rail 9 While Fuel prices did come down, other major factors increased: Driver shortages in both Europe and North America are a serious issue In 2014, the American Trucking Association estimated that in the U.S., the industry needed 30,000 more truck drivers. In October, 2015, that number had risen to 48,000. An aging workforce, turnover rates of more than 90% and the inability to recruit qualified applicants are the major reasons for the lack of drivers U.S. regulations governing the hours that drivers can operate has increased costs Increasing demands on specific Delivery requirements Customer demand for just in time shipments to keep their inventory levels low have resulted in an increase in the number of shipments required in many cases Customer requirements include: Just in time delivery Specific delivery hours Short lead times from order to delivery All contributing to higher / less efficient logistics Rail (U.S. only) Shortage of capacity and infrastructure improvements continue to trend pricing upward

10 Transportation Issues Sea Freight Sea Freight U.S. ocean export rates are expected to be lower in the next couple of quarters as demand from Latin America and Europe continues to be soft relative to capacity Spot market rates for Asia-Europe and Asia-U.S. remain low as efforts to implement GRIs continue to fail, however this year an additional surcharge Low Sulphur Fuel has been introduced in the seas around Europe Idle ship capacity is at the highest level since Q New alliances plan to be more aggressive with additional capacity removal in attempts to bolster rates while settling into winter schedules New document and delivery requirements for Dangerous goods shipments in Asia as a result of this Tianjin explosion in August. 10

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