The adverse impact of lockdowns has not really worn off when a very awkward situation is now confronting the labels and printing industry at large. Prices of paper and all essential inputs are moving skywards disrupting the cashflows that appeared to be getting back to normalcy.It is a strange situation whereby there is a volume growth in demand and reduced availability of pulp and other materials
coupled with a compulsion of paper mills to recoup the losses incurred due to lockdown, driving up the paper prices. Stuck in between, the label and printing industry is compelled to swallow the increases with intense pressure on their operating margins and working capital requirements. The phenomenon is evident globally, as paper sellers are directing supplies to wherever they find a bigger demand around the world and can command higher prices. There are also logistics challenges owing to the shortage of containers. One wonders if this surge in demand is real or there is an element of stockpiling. If it is the latter, it may result in a market crash once the normal working returns that would be even more worrisome. It is mentioned by analysts that the present spurt in prices is due to increased demand coming from China’s domestic consumption increasing dramatically. Surely these are unprecedented increases happening leaving a premonition of adversity amongst the printing and packaging fraternity.
The price increases in the paper are coming continuously at regular intervals of time. Asia Pulp & Paper (APP) which is one of the largest pulp and paper company in the world, wide their notification dated 22nd January 2021 increased prices of all grades of paper by 100$ per ton then on 1st February 2021 they increased the prices by another 100$ per ton and also withdrew the reel discount they were offering,
yet again on 1st March 2021 they increased the prices by yet another 150$ per ton.With such a steady rise on monthly basis, one is left wondering when and where this will stop. SAPPI another global supplier of label, packaging and specialty papers, on 3rd March 2021 announced an increase of 7-11% in prices. In the case of labels, both the face stock and the release paper have suffered cost escalation. Vinyl Acetate Monomer or VAM is an important part of pressure-sensitive adhesives used for the manufacture of self-adhesive label stocks and tapes. Owing to a whopping increase in demand from China VAM prices also witnessed a continuous upward trend to reach an increase of more than 20% so far in 2021. This too directly impacts the cost of producing self-adhesive label stock and eventually labels. Many polyethylenes (PE) and polypropylene (PP) producers in Texas USA have shut plant operations because of the winter storm in mid-February 2021 sending prices of films upwards due to shortages. This increase in the prices of polymers directly impacted the price of label films and filmic label stocks. The increase for different films varies between 12-25%.
As if the raw material price rise was not enough the varying demand across different geographical zones in the world and shift in purchasing pattern of populations around the globe brought about a huge impetus to online retail business.
This resulted in a logistic change of transportation from established routes and volumes causing disruption of smooth flow of materials and altering the planning for container needs. All this led to increased freight rates, coupled with increasing fuel prices the ultimate impact on the end product keeps on escalating. It is surprising that such an unprecedented upward revision of all inputs in one go has never been witnessed before in the labels industry. The labelstock manufacturer is squeezed between the large raw material suppliers and the printers who are themselves under intense pressure of high equipment cost and facing print buyers who are not willing to increase buying rates. More so, considering that increasing number of label printers are bidding for the same business and are always ready to compromise a bit more, the situation is complicated.
Gautham Pai founder and Executive Chairman of Manipal Technologies Limited Manipal, expressing concern at the situation prevailing says, “The price increase of raw materials is significantly impacting the business. In addition, the supply chain disturbances and logistic cost increases have added to the overall costs increases.
These increases at a time when buyers are still struggling with low demands and muted orders is a major concern.” U K Gupta Group Chairman & Managing Director, Holostik Group also feels, “Price increase in paper, solvents and adhesives have impacted the Label Industry badly”. Indian Labelstock producers have steadily grown in numbers and size as the industry registers double digit growth over the last many years. The industry players have gradually transformed from being manufacturers of just commodity stocks like semi-gloss and uncoated wood free or maplitho to advanced specialized label materials, both coated, uncoated, filmic and specialty products like security label materials. Since all inputs in labelstock manufacturing have been adversely impacted and spreading the effect to the entire self-adhesive label industry, Ajay Mehta Managing Director of India’s largest indigenous labelstock manufacturing company SMI Coated Products Pvt. Ltd. brings forth the reality that the industry is facing by expressing, “The price rise in all raw materials of Label Stock solutions have gone up tremendously and we have to pass it on to the Label converters and unless the Label converting industry joins hands, to take immediate action in getting a price rise from Label buyers , the Industry stands to loose INR 250 million per month, which is going to be extremely detrimental for the health of the industry”.
The pain and anguish at the emergence of this difficult unprecedented turn of events in words of, Ajay Agarwal, CEO of Syndicate labels New Delhi, “Price increase is nothing but a nightmare for the Label Printing fraternity and the biggest reason is that it disrupts the operations for all label Convertors.
The process of transmission of the rate increase to the end customer is extremely difficult and is often characterised by a new round of negotiations, reverse auctions etc. and most likely it results in reduced margins for the label convertor. While price increase is a reality and need of the hour yet in face of the current increase in prices of raw materials, it still leads to a lot of pain.” Sharing the same concern, Himanshu Kapur Director, J K Fine Prints Pvt. Ltd. Mumbai agrees, “Price increase is a necessary evil for accommodating inflation, if done effectively it will benefit the entire supply chain else operation will suffer long term. Unfortunately, the print buyers are also responsible for the collapse of an industry which was once an art form and now considered a commodity”. Rajesh Nema Director Pragati Graphics Indore and honorary secretary LMAI (Label Manufacturers Association of India), “Label industry is indeed facing tough times as cost of all inputs has gone up yet print buyers are not agreeing to price increases. Most of the self-adhesive label manufacturers are in yearly contracts with their buyers, it is difficult to make them agree to price increases during currency of the contract”. According to Lakshminarayanan business unit head-Wintek at Signode India Ltd. : Impact of Prices is not only from raw materials, but it is also due to Inflation and logistics. There is a strong demand for consumer goods and food packaging in the country. Nonessential packaging sectors is also regaining normalcy, but the price increases continue to challenge converters supplying due to their inability to pass on the price increases to end-users, who in turn are driven by their cost pressures and not accepting to consider any price increase in current situation. Considering the greater need for working capital due to the steep increase in prices during recent weeks and the narrowing margins, inventory held by both converters and end-users remained below the average.
A brave Anuj Bhargava of fast-growing Kumar Labels NOIDA beamingly says. “Price hikes shouldn’t affect any organization’s normal profitability in the entire eco-system. All actions favorable to this intent should be taken so that a new equilibrium is arrived at with positivity” However he further adds, “that price hikes should be passed on so that profitability is not affected for anyone. New equilibrium is with revised prices for everyone.”.
LMAI President Kuldip Goel, Managing Director of Any Graphics NOIDA, sums it up as a situation whereby in the covid times many in the industry have lost customers because when you take the increased price to them, your competitors who have their own pressures to strengthen their balance sheets so that banks are satisfied to lend more, are ready to offer without any profit or at a minor loss. Or if they have spare capacity and can retain their loyal customers they will attempt to take in new customers at unreasonable rates. It is not that the print buyer is not facing the impact of covid-19, the moment they see price escalation they will start exploring options to prevent the rise in the cost of inputs.
Printers at this time must evaluate as to how best they can handle the situation; price increase is imperative for them to sustain but then it needs to be seen how much of their business is dependent on that customer. One must strike a balance in price and cost optimization internally by trying to achieve more from their existing infrastructure and manpower. One must look within, reduce labour cost, wastages, save electricity, inventory control, and produce more with less.
At this time, the entire value chain is in jeopardy, each business product unit is customer of another, all constituents of the industry up to the print buyers need to empathise with their suppliers to bring some relief from this dilemma post continuous increase in input costs, that has descended on entire industry. It is appropriate at this time to mention a famous quote, “The journey is never ending. There’s always going to be growth, improvement, adversity; you just got to take it all in your stride and do what’s right, continue to grow, continue to live in the moment”.
Addendum: Messages received after posting the above article;
Aaditya Kashyap, Marks Emballage Pvt. Ltd. Baddi”; Already struggling to come back to normalcy from the pandemic-induced challenges, the increasing raw material pricing is like the last thing we could have wished for. I see label printers in a very weak and vulnerable position completely squeezed out of business by increased prices from bigger players on the supply side and the dominant brands and buyers on the other hand who refuse to accept any price hikes. Would love to see that material manufacturers and suppliers work with printers to take the price hikes to brands and buyers. This is a difficult time for all, so need for all stakeholders to work together to find a win-win in this difficult times.”
Written by Harveer Sahni Chairman Weldon Celloplast Limited New Delhi March 2021
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