The pigment report: although pigment companies generally noted that 2007 was a relatively good year for the industry, there are also numerous concerns for the future, including raw material costs, the economy, the elimination of the VAT in China and environmental mandates.

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Overall, pigment manufacturers reported that 2007 was relatively good for business. However, there were plenty of concerns as well: the economic slowdown, higher petrochemical and raw material costs, the reduction and elimination of the value added tax (VAT) in China and closing of pigment companies due to environmental concerns in China.

Peter Carey-Yard, marketing director, coatings, high performance pigments for Sun Chemical, said that the pigments market worldwide was generally good, especially in Europe, but the U.S. market is struggling.

"The U.S. is currently the most challenging region of the world for the pigments market, primarily due to a weakened dollar, a struggling automotive market and a housing slump that led to a decline in home building and paint use," Mr. Carey-Yard said. "It was a slow start the first half of 2007," said Andrew Grabacki, vice president of sales for General Press Colors. "We picked up the second half of the year. From what we have heard, it was about the same for everyone else."

"Lansco Colors had a strong year in 2007," said Frank Lavieri, executive vice president and general manager for Lansco Colors. "The business conditions were challenging due to the dramatic cost increases experienced by the pigment industry."

David Woolven, head, imaging & inks business line NAFTA, coating effects segment, Ciba Specialty Chemicals, said that overall, the 2007 pigment market performed quite well, particularly in the commercial, packaging, digital and specialty segments. "The market for unique types of pigments and unique application areas continue to grow steadily, as brand owners become more demanding in terms of effects, performance and differentiation," Mr. Woolven added. "For Toyo, 2007 was above plan and saw a greater focus on high performance, violet, blue, red, magenta and green pigments," said Chris Whiston, regional marketing manager, Toyo Color America, LLC.

Ibrahim Zidan, head of global technical marketing printing inks for Clariant International AG, said that the past year included several challenges for Clariant and the pigment industry.

"The main challenge was and remains the strong increase of costs for raw materials, energy and transportation," Mr. Zidan said. "The elimination of export incentives in China, an increased focus on the resolution of environmental issues leading to tightened supply and a strong fluctuation between major currencies rank among the top influential factors. Demand remained strong for Clariant's products and services, confirming the need for high performing, cost effective materials in combination with a strong service orientation around the globe."

Thierry Chevrier, director, performance chemicals--coatings, plastics and specialties, for BASF in North America, said the pigment industry is relatively flat and growing slightly below gross domestic product (GDP) in North America. "Some segments, including markets for products in the building and construction industry, were soft," Mr. Chevrier noted. "Other segments, including the automotive industry and pigments for additives, reflected the industry fluctuations that have taken place. On the positive side, we saw growth in the plastic packaging and specialty ink segments."

Badal Shah, director, marketing at Aakash Chemicals & Dye-Stuffs, Inc., said that 2007 was a memorable year for his company. "It was a year which saw a complete economy of change," Mr. Shah said. "The U.S. economy incurred serious setbacks due to its depreciating currency as well as severe credit woes sparked by the housing market. These issues coupled with record oil prices, strengthening foreign economies as well as currencies, and pollution problems, created a shortage in raw material supply, increased prices, and longer lead times.

"This past year was an interesting journey for Heubach and the pigment producers in general," said Don McBride, COO for Heucotech Ltd. "On one side there was the continued rise in oil and key raw materials, combined with erratic metal pricing, U.S. dollar weakness and elimination of the VAT in China. On the other hand Heubach introduced several new pigments, added inorganic pigment capacity in Europe, built our third organic pigment facility in Asia and laid the groundwork for a new business unit in NAFTA."

"China began the price increase after the government retracted the export rebate from all factories, thus immediately increasing all prices by an average of 13 percent," Mr. Shah said. "This affected all raw materials in general from resins to pigments. Immediately markets began shifting in favor of India. However, within three months, the Indian currency had risen to record value against the dollar and all prices began increasing once again. The world market was in a tailspin and was forced to undesirably accept price increases. As many suppliers were lost in the increases, Aakash Chemicals saw this as opportunity and began to restrategize. Our new strategies were deemed successful as Aakash Chemicals had a record year and a very positive lookout for 2008."

The U.S. pigment industry continues to face its own challenges: "2007 has seen the continuation of the decline in the color pigment business in the USA," said A. Nurhan Becidyan, president, United Mineral & Chemical Corporation.

"The pigments market continued to consolidate in 2007--a clear indicator that margins are down overall in the pigments market," said Russell Schwartz, vice president, colors technology, high performance pigments, Sun Chemical.

There were changes, as companies integrated acquisitions.

"For BASF, we consider 2007 to have been a very solid year despite the challenges we faced during the integration of former Engelhard products into our portfolio," Mr. Chevrier said. "Now that we have completed the integration process, BASF has a stronger and broader product portfolio as well as a stronger channel to market. We continued to invest in our pigment business even though we are seeing some apparent contraction in the industry with several announced plant closings."

Fred Altieri, vice president of new product development at EC Pigments USA, an operating division of European Color plc., said the major activity for EC Pigments USA in 2007 was the acquisition of the product line and intellectual property of Magruder Color Company. "This acquisition and subsequent capital investment and expansion of our Fall River facility has positioned the company at the start of 2008 as either the only or one of the very few companies that are vertically integrated to produce pigments process in presscakes and/or dry toner and then further process to flush color, acrylic chips and liquid dispersions," Mr. Altieri said.

All in all, it was a time of change for the pigment industry.

"For 2007, the pigments industry saw a continued reduction in overall global capacity," said Edward daPonte, global marketing manager, Flint Group Pigments. "For most pigment producers, the market situation remains difficult with returns on investments at unacceptable levels. As to Flint Group Pigments, in 2007 we continued to grow our product portfolio, geographic footprint and worldwide sales. We still do not believe, however, that the current margins within the industry reflect the appropriate return on products of this nature given their capital investment requirements and the ever tightening environmental regulations."

Raw Material Costs and Supply

Pigment manufacturers are struggling with the dual spectres of higher costs and supply challenges. In terms of increasing costs, higher prices are a major concern across the board.

Mr. Zidan said that Clariant expects further raw material price increases among key ingredients in 2008, including isophthalic acid, phthalic anhydride and copper; hydrochloric and sulfuric acids; acetic acid and ethylene; DCB and arylides; and bon acid and 4B-acid.

Mr. Woolven said that virtually all chemicals based on petrochemical derivatives are affected, specifically Red Lake C (C-acid, beta-naphtol); 2B Toner (2B-acid, BONA); 4B Toner (4B-acid, BONA); azo red (BONA); copper phthalo cyanines (CPC crude), as well as some additives and photoinitiators. "Through long-term relationships with our raw materials partners, Ciba has been able to secure a solid supply of critical raw materials to maintain continuity with our customers," Mr. Woolven added.

"Pigment, resin, oil and energy costs have all gone up," Mr. Grabacki said. "Pigment is of the most concern for us. However, oil and resin, which were a small cost in our formulations, are becoming more of a concern because it has been such a dramatic increase. At this time there are no shortages for our raw materials."

"Raw materials based on petroleum and inorganic pigments tied to rising metal prices have impacted our product costs dramatically," Mr. Chevrier said. "BASF makes every effort to contain costs while maintaining high quality standards; however, price increases are necessary to maintain margins for reinvestment."

Shigeki Kato, general manager, pigments division, color materials business headquarters, Toyo Ink Mfg. Co., Ltd., reported that prices for various kinds of raw materials continue to rise. "In particular, we're concerned about the jump in raw material costs for red and yellow pigments," Mr. Kato said. "We're also keeping a close eye on the material costs of blue, green and violet."

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Shortages of materials are equally a concern for many pigment manufacturers.