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Coating pigment demand continues to expand globally, paralleling growth in coated paper output, but the pigment business remains a challenging enterprise. While total pigment volume is rising, major shifts in usage continue, and higher costs are squeezing supplier and mill margins. Industry consolidation is changing who buys what and how coated paper is made in North America, according to several pigment suppliers Pulp & Paper contacted for this article.
Near the mid-point of 2001, the outlook is clouded due to the weak U.S. market and uncertainty about the direction of coated paper markets for the remainder of the year. Also, more rapid growth in markets outside North America in past years has created a greater focus on offshore markets, and most suppliers have developed strong positions in Asia and Europe to offset slow growth here. This may become even more important if North American demand stumbles in the second half of 2001.
Pricing/Cost Issue Crisis. Energy and feed stock cost surges have had a big impact on pigment prices and margins, as well as those for monomer-based binders, and pressures continue. Last fall, natural gas price increases led to an energy surcharge on kaolin. Generally, this was imposed as a $3, $6, and $18/ton surcharge on slurry, spray-dried clay, and calcined clay, respectively. However, these increases failed to recover fuel cost increases and were passed on to the bottom line. The surcharges are pegged to the New York Mercantile Exchange (NYMEX) natural gas futures price. The exact arrangement varies somewhat, but generally, if this price remains above $3.5 or $4.0/million Btu, the surcharge remains in effect. Though natural gas prices have come down considerably from peak levels, they remain very high by historical standards. Through at least the second quarter, it appears the surcharge will remain. Most producers expect gas prices to remain high for some time, and some believe that it will eventually simply be built into the pricing structure.
The hit on the bottom line of kaolin producers has been severe and has the potential to lead to widespread industry change. "The cost surge has been the straw that broke the camel's back," according to Jan Jeffries, enterprise director, paper kaolin, Engelhard. "It has forced us to really focus on areas that have a high return for us and the customer, meaning we can't be all things. Where do you put the effort? We'll see more strategic alliances as we focus on the bottom line. How all of this impacts the future, and how radically different the future will be-in terms of who supplies what and who makes what paper-remains to be seen."
Mills haven't reacted much to date to short-term high energy costs by changing coating formulations or product use, although it seems this will accelerate. Among the trends caused by cost pressures is an increased effort to find lower- cost substitutes for expensive products such as plastic pigments and titanium dioxide (TiO2). "We're getting a lot of requests for ways to cut plastic pigment and TiO2, so the overriding message continues to be cost cutting," states Eric Tillirson, marketing manager, Thiele Kaolin.
Alliances/Mergers Continue. Global consolidation in coated paper capacity is generally viewed as a positive development, with the hope that a higher level of concentration will help improve industry fundamentals. In terms of purchasing practices, singlesource or Tier I supplier arrangements aren't as widespread in coating pigments and chemicals as in wet-end chemicals. However, it appears to be heading in this direction, as signaled by recent supplier alliances aimed at offering broader product lines. "We want to be a total solutions provider," notes Steve Skal, marketing manager, Rohm & Haas, commenting on the company's alliance with Omnova. "We can now provide a range of binders (acrylics and SBR), plastic pigments, additives, rheology modifiers, dispersants, lubricants, and insolubilizers."
Developing a World Sheet. European papermakers now have a large ownership position in North America. One outcome of this is the considerable potential for producers to rationalize-i.e., combine, streamline, or rework-their coated paper grade lines. This could make paper produced here more like European coated paper in performance and composition.
Traditionally, European sheets stress brightness over opacity, while in North America opacity is more important. Coat weights in Europe are also typically heavier and are often all carbonate. Higher carbonate use is usually due to multiple coating in Europe vs. North America. More multiple coating is now being used in North America, including in web grades, whereas a few years ago this wasn't the case. It appears that North American producers are using more European-like formulations, and this will accelerate over time.
However, some don't believe the industry will necessarily become homogenous. For example, concentration will provide opportunities for mills to swim against the current of larger producers migrating to a "world sheet." Tyler A. Jeffrey, North American marketing manager, emulsion polymers, Dow Chemical, notes that "smaller or medium size mills may have the opportunity to differentiate their products by producing grades in between the offerings available from larger producers, such as a sheet with properties tailored to a specific printer. Examples of this are already occurring, and include coated paperboard grades and converter-coated newsprint."
Mergers are not the only influence on North American sheet properties. "Increased imports have exposed customers here to a broader range of specifications and have led to increased acceptance of these different sheet properties. This is also driving the harmonization of quality standards, not just industry consolidation," observes Susan Boss, marketing manager, Imerys.
Ground Carbonate Use Expanding. The continuing push to lower costs while maintaining acceptable margins is changing pigment use and driving increased development of specialty pigments, such as narrow particle size (NPS) distribution kaolin and blends of clays. "Greater than 25% of our revenues come from tailored kaolin products," notes Tillirson.
One key trend is growing use of ground calcium carbonate coating pigments. A notable change is broadened use in coated groundwood papers, notes Bernd Balzereit, market development manager, paper, OMYA. "We see a drive to reduce costs and improve brightness. Use of ground carbonate in coated groundwood offset is expanding as well, with the use of 50 parts carbonate typical in North American sheets all the way down to 34-lb grades, with clay accounting for the remainder. Two or three additional mills will convert to alkaline by early next year. Growth in ultralightweight grades also continues, though use of precipitated calcium carbonate in coated paper remains small."
Other developments include new plastic pigments and binders. For example, Dow has developed several SBR binders designed to work with both NPS pigments and higher carbonate loading where rheology is an issue. A new hollow sphere pigment developed by Dow is also on the market that can replace solid plastic pigment or possibly TiO2 is also on the market. "We have a very low-cost manufacturing process, meaning the product is less expensive," notes Jeffrey. Rohm & Haas has commercialized a new hollow pigment that is binder coated, explains Skal, allowing a reduction in binder use.
Mills are using engineered pigments to modify sheet properties. "We're seeing an increasing degree of sophistication towards controlling ink set and printed performance by designing pigments to impact ink set rate," observes Tom McMahon, global business leader, paper, Huber Engineered Materials.
Coating technology is also evolving. "The general shift to higher ground carbonate use, whether single or double coated in coated free-sheet, and the move to more double coating due to film press applications-which require less capital than blade coaters-is a big trend," states W. Warren McPhillips, senior vice president, sales and marketing, OMYA.
In summary, consolidation and change will continue to rework the industry, bringing to mind, as Jeffries notes, "the question of what the pigment industry, and our customers, will look like in five years. It may be radically different than it is now." The bigger question is whether it will be better or worse, and who will be left standing.
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