Canadian Plastics

Organic Evolution

China's cheap manufacturing costs have forced changes in the North American organic pigments business. Many firms are still adapting to the new landscape, and are offering better services and produ...

July 1, 2006   By Rebecca Reid, managing editor



China’s cheap manufacturing costs have forced changes in the North American organic pigments business. Many firms are still adapting to the new landscape, and are offering better services and producing better products that benefit their end-users, including plastics processors.

North America’s organic pigments industry is under pressure from government regulations that are pushing heavy metals out of more and more applications, and by an influx of cheaper products from emerging markets such as China and India.

The results have been radical changes in cost, quality, procurement strategies from colour concentrate manufacturers, customer service and environmental impact, demonstrating both the strengths and weaknesses of the colourant business.

Throughout North America, industry’s demand for colour pigments is strong and should only get stronger, according to a 2005 report by The Freedonia Group, in Cleveland, Ohio.

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The overall demand for colour pigments will increase by 5.2 per cent each year through 2009, reaching US$3.4 billion by that same year, driven by above average gains in both high-performance organic and various specialty pigments. Although these predictions aren’t specific to plastics, plastic remains a key market for pigments, and susceptible to the twin forces of government and overseas pressures.

PRICE FORECASTS

Perhaps the most immediately obvious impact of these pressures on the pigments business has been on price, a trend that is being further driven by the fact that many organic pigments developed by European and North American firms have recently come off-patent and are being manufactured inexpensively in China, according to Peter Prusak, director of technology for PolyOne Corp.’s Color & Additives Masterbatches division in Avon Lake, Ohio.

“Traditionally [organic pigments] have been very high-priced products, and now with the influence from Asia they cost a third or fourth of what they used to”, he said.

But even though increased competition in the U.S. market from exports will continue to exert an overall downward pricing pressure on a number of pigment products, according to The Freedonia Group, the increased cost of raw materials and product upgrading means the cost of pigments is likely to rise.

This agrees with industry insiders’ own opinions. For example, Robert Charvat, president of consulting firm Charvat and Associates Inc., in Cleveland, Ohio, warned that because of rising demand, North American end-users of organic pigments, and subsequently their customers, shouldn’t expect lower prices despite the market’s cost-competitiveness and the availability of organic pigments from offshore manufacturers.

Cheap organic pigments, mainly pthalocyanines (phthalos) from emerging markets like China and India, have been pouring into North America for between five and seven years, according to Bob Trinklein, color technology manager at Teknor Color Company, a division of Pawtucket, R.I.-based Teknor Apex Co.

The effect of this has been both positive and negative. Those colour concentrate sellers that sourced inexpensive pigments from China, for example, could lower prices for customers, but this is bad news for domestic pigment manufacturers who are losing that slice of business to the offshore firms.

“I had one organic [pigment] manufacturer in the U.S. tell me that in the case of pthalocyanine blue, that is coming from China — which are of quite good quality — it’s selling for less in the U.S. than the cost of raw materials used for manufacturing the product are [selling for in U.S.],” Charvat said.

ENVIRONMENTAL EFFECT

Ironically, the reason organic pigment manufacturing went offshore years ago is the same reason that heavy-metal based inorganic pigments are being driven from the market today: The effect on the environment, Charvat said.

“Many years ago there was a very robust organic area of colour manufacture in the U.S.,” he noted. But as awareness of the environment proliferated, there was a concern over some of the raw materials used in the manufacture of organic pigments.

“Some are pretty nasty, but when they are converted to organics, they are benign,” he said.

But the environment is no longer the driving factor behind offshore production: It’s a cost-of-product issue, Charvat said.

QUALITY CONTROL

Despite the inexpensive cost of product, early adopters of organic pigments from China learned the hard way that quality could be “absolutely atrocious”, Charvat noted.

But the current generation of Chinese-made organic pigments is of considerably better quality. There are now many cutting-edge modern plants in China, some of them built by European companies that have strong positions in the worldwide market such as Ciba and Clariant, Charvat noted, and this has sparked North American firms to tap into this low-cost supply.

Improvements in quality are due in part to the stringent quality control procedures implemented by firms that procure pigments from China, and by those that have forged alliances with reputable manufacturers in the country to prevent quality issues.

“We screen everything that comes in, so we don’t have that type of problem,” PolyOne’s Prusak said. “But we have been aware that there have been products from other companies that have had impurities.”

Rather than examining only one lot of raw pigment, PolyOne has a dedicated team of technicians at the company’s facility in Atlanta, Ga., testing numerous batches of raw organic pigments to ensure that the properties are of sufficient quality. Among other things, the company tests for purity, heat stability and light stability, Carl Knight, market manager for PolyOne’s Color and Additives Masterbatches division in Suwnanee, Ga., explained.

Mostly, however, it’s simply the raw pigment that’s being imported with the colour concentrate or masterbatch being prepared domestically, Knight added.

Whatever the recent improvements, North American plastics processors still need to pay attention to the quality control procedures of any company from which it sources a material containing an organic pigment from China, Chavrat warned.

PIGMENT PARTNER

Still, the cheaper cost of China-made pigments is, not surprisingly, of great concern to the North American colour concentrate manufacturers — and some are dealing with the perceived threat by embracing it, not only sourcing organic pigments from China, but taking it a step further by partnering with Chinese manufacturers or opening their own facilities in the country.

For example, Clariant International Ltd.’s Pigments and Additives Division (Clariant) signed a joint venture with Hangzhou Baihe Chemical Co. Ltd. in early 2005 after working closely with the Chinese manufacturer for several years, according to Clariant.

The plant co-owned by the two firms started manufacturing e high-performance phthalo reds and yellows in June, 2006.

According to Clariant, however, this extra capacity was not the result of added demand for lower costs from the North American market, but rather a response to the increased demand for high-performance pigments in China — proof that the Chinese have indeed learned how to manufacture a better colour concentrate. And most of the pigments produced at this facility will stay in China, serving domestic end-users and international companies investing in production facilities in China, the company added.

THE CHANGING SUPPLY CHAIN

Clariant’s experience hints at the changing nature of the supply chain in today’s pigment industry, a change that also has Canadian companies adjusting their sourcing patterns to take advantage of the new market rules.

Recently, for example, L.V. Lomas Ltd. in Brampton, Ont., announced that it would no longer be procuring organic pigments from Toronto-based Dominion Colour Corp. Instead it has signed a deal with the U.K.-based company, Thomas Swan, wh
ich has partnered with two organic pigment manufacturers in China.

“The hope is that [by signing with Thomas Swan] we will be able to provide competitively priced products for the Canadian market against the organic pigment giants like BASF, Ciba and Clariant,” Ted Porter, marketing manager at L.V. Lomas, said. “The market for organic pigments is huge and it’s one of the reasons Thomas Swan has struck up the deal to manufacture organic pigments in China. There seems enough room in the market [for another player].”

PRIMARY PROBLEMS

But organic pigments are still limited by shortcomings in their properties, especially when compared to their inorganic counterparts.

While there exists good organic alternative to blue and green inorganics, the reds, oranges and yellows are more problematic, Teknor’s Trinklein said.

Their drawback, however, is that the very best organic pigments — for example, those that have similar opacity and UV-stability as inorganic pigments — are more expensive, he added.

“In the plastics industry we had a division; we had cheap [organic] pigments and good ones. The cheap ones were good in some areas but weak in others, while the good pigments were really good but very expensive,” Trinklein said. “But now, companies are looking to supply some middle of the road pigments. The fact that they were threatened probably prompted faster or more work in this area.”

Trinklein observed that he’s seen companies take one of two responses to the pressures from China.

“The first response was to try to play the ‘we can be as cheap as they can’ game,” he said. “They tried to get competitive with the low cost materials coming in from these markets. What we saw was wider quality tolerances and a reduction in R&D and in tech support,” he said.

The second approach, innovation, seemed to work better, Trinklein added. “Some companies became very innovative and said ‘we can’t sell these cheap pigments [so] we’re going to branch out and create new things that might be difficult for these new companies to match'”, he said. “I’ve seen [these companies] maintain a good position. My impression is that they are doing better.”

Trinklein has also observed new methods of combining pigments with additives, modifying particle sizes and experimenting with surface treatements to improve properties.

PolyOne’s strategy to differentiate itself is to improve performance, for example adding additives to prevent product degradation and to increase properties like UV-resistance, Prusak said.

Additionally, firms are increasingly offering faster turn-around times, and more service options to compete with lower cost products. “The concentrate manufactures are essentially thinking, or trying to think globally,” Charvat noted. “The mantra I’m hearing is ‘I’ve got to be able to supply our U.S. customers with products and services that cannot be duplicated from China,’ or India, for that matter.”

INDIA: THE NEXT CHINA

Even though China is currently the 800-pound gorilla in the organic pigments manufacturing market, Charvat said, India is coming into its own and he cautions the plastics industry to brace for this.

And India isn’t the only emerging market poised to become a player in the organic pigments market, insiders agree.

“Recently, I have seen more direct contacts [from manufacturers, not representatives] coming in from manufacturers in emerging markets like Czechoslovakia, Ukraine, Poland and Russia,” Trinklein said.


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