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Raw Material Report Outlook 2013

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.

Content
General information Print Media Key Cost Drivers (incl. Pigment) Liquid Packaging and Narrow Web Key Cost Drivers (incl. Pigments)

Key messages Raw Materials


Raw material markets remain strong despite general economic outlook
Well managed intermediate markets
Demand is down supply (managed) even more down All large oil companies report increases (>25%) of refinery margins

Strong BST pricing (Benzene / Styrene / Toluene) Vegetable oils volatile (drought) Increasing Gum Rosin pricing

Crude mid / long term outlook remains bearish


But for Brent Crude todays reality shows the complete opposite Brent remains at a significant premium to WTI

Currency fluctuations make it hard to buy from the right source Market demand fluctuations (sudden high, then low) makes it hard to maintain a low cost inbound chain
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Key Messages Logistics / Packaging / Utilities


Logistics
Diesel surcharge went up over the last 2 quarters on the back of crude and higher refinery margins After a peak in July, container rates in the most important lanes are weakening and coming off a high point Although volumes are down, ocean carriers are aggressively pulling capacity to keep rates propped up. They are collectively committed to not allow price erosion in 2012-13 as they did in 2011.

Packaging
Despite weak demand in Europe and NA HDPE prices follow the gains in plastic feed stocks with double digit figures Hot galvanized steel remains stable and above Q4 2011 prices despite poor economic outlook Kraft paper is making moves upward for the first time in 2.5yrs affecting liner board pricing Supply base continues to consolidate in the area of packaging containers making it more difficult to leverage volume and spend with fewer suppliers

Utilities
EU 2020 as well as the drive for more green sources has increased and will continue to drive the costs of electricity and gas in Europe Markets continue to be volatile mainly due to economic uncertainty, speculation, as well as, geographical and political issues

Last 4 years Economic outlook From a Raw Material perspective


sale levels)

(1)

Q3 / Q4 2008 market collapsed high stocks in the chain (compared to new lower Q1 / Q2 2009 markets stabilised stocks were taken out of the markets suppliers
rationalised products and capacities

Q3 / Q4 2009 markets started to reverse and the normal supply chain amplification
Higher than real demand Rationalised supply base

effects occurred while each step in the chain ordered slightly more than real demand base markets became short:

Q1 / Q2 2010 growth continues while stocks have not been rebuilt, first signs of
major supply chain stress

Q3 / Q4 2010 many key materials are short, combined with critical supply capacity
unavailable (temporarily or taken out)

2011 Pricing power remains with the base chemical producers. Turmoil in the Middle

East caused crude prices to increase fast bringing further economic volatility. The tragic events in Japan caused further challenges in the security of supply

Last 4 years Economic outlook From a Raw Material perspective

(2)

2012 Volatility. Materials move up and down very hard. No long term contracts and
many challenges on demand and supply, partially driven by speculation. Currencies and base raw materials move fast. When prices drop, no trading in large quantities is possible. Pricing power is still with sellers, despite economic head-wind. Due to the negative outlook of the graphic arts industry, this market is more and more perceived as unattractive and the last resort for leftovers. Outlook 2013 It is expected that many suppliers in the ink supply chain will see further shrink of their demand. We expect a number of suppliers to really struggle to survive. The large Global Chemical companies will decide to reduce output rather than go into the normal chemical pricing cycle. Given their domination, due to the last 5 years of consolidation, they will succeed. While crude might hit lower prices, due to the change in refinery set-up and the use of more shell gas / oil, many crude related products will actually see price increases as their specific intermediates become short

Key Cost Indicators


Major concern is Benzene / Toluene / Styrene increases, as this drives many other materials. Vegetable oils down after peak, the rest are flat or up

Forex A 12 month roller coaster


USD versus Euro Euro versus GBP

USD versus CNY

USD versus INR (1000)

EUR versus CNY

USD versus BRL

Euro versus SEK

USD versus AUD

Forex 2012 Explanation note

With the global chemical world dependant on China, the strength of the Yuan versus the USD and more specifically against the Euro is driving significant additional inflation While the Euro has gained some strength, compared to the 2008 peak, it is still extremely weak, resulting in additional inflation in the Euro region Australia / Brazil benefitted from strong exchange rates versus the USD, hence some level of tempering the underlying inflation of RM costs, however lately (and outlook) is that this benefit will be less
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Crude Oil
Crude in quarter 3 increased significantly versus Q2 and only in the last month reversed the trend. The increase was not expected given the general economic outlook. European markets are even more a worry due to record low stocks. Any issue will result in a major price explosion The gap between WTI and Brent has increased in Q3 from $14 to $22. Except for the US, all others regions are Brent based and even some products in the US follow Brent rather than WTI Cost for crude related products will increase in Q4 due to current market conditions. In Europe the effect is slightly less than originally anticipated due to the partial recovery of the Euro

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Key Cost Drivers


Print Media Liquid Packaging and Narrow Web
Click on an application

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Print Media Key Cost Drivers


Heatset NA Coldset NA Publication Gravure NA Publication Gravure EU Heatset EU Coldset EU Sheetfed EU Sheetfed UV Transfer Media Press Room Chemicals Additional Key Cost Drivers
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Heatset NA Key Cost Drivers


Distillate
Distillate prices driven by crude and jet fuel / kerosene prices

Flushed Colour

Carbon Black
Driven by crude oil derivatives

Phenolic Resin
Main driver is Tall Oil Rosin which loosely follows Gum Rosin

Distillate

Flush/Carbon

Hydrocarbon Resin
DCPD & C9 feedstock pricing driven by gasoline and lighter ethylene cracking slates

Phenolic Resin
Additives
Hydrocarbon Resin Additives
Waxes - prices will continue to follow trend of crude oil

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Distillate NA
Cost Development Background

Product Driven
Distillate prices follow jet fuel / kerosene price trends

Financial Driven
Prices dip in summer months then rise to near 2012 highs

Expectation
Slowdown in natural gas fracking improves supply of distillates temporarily while rigs are transitioned from gas to oil Prices expected to remain elevated

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Heatset NA

Flush Colour

Carbon Black
Cost Development Background

Product Driven
Carbon costs are driven by the price movement of various crude oil derivatives. Prices for 2012 through Q3 increased / Q4 decreased slightly Prices for 2013 will reflect movements in these feedstocks. How much movement will depend on the unpredictable derivative costs as a percent of crude.

Market Driven
Overall market tightness continues Rubber, tire, and plastics industries dominate the carbon market and are willing to pay top prices. Four new tire production sites coming on line in the Americas by 2014 which will increase market tightness

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Carbon Black Material Key Cost Drivers

Heatset NA Heatset EU Coldset NA Coldset EU Pub G NA Pub G EU Sheetfed EU


Click to view Carbon Black cost drivers

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Hydrocarbon Resin
Cost Development Background

Europe
2013 prices expected to rise due to continued cracking of lighter feed slates Number of European HC producers has been reduced over the last year The Euro/USD exchange rate negatively affected the overall cost Reduced demand has softened the currency impact slightly

North America
Limited number of suppliers for N. America Asian suppliers are not competitive or able to meet NA product requirements Prices stable in Q3 and Q4 2012 after significant Q2 increases 2013 prices expected to rise due to continued cracking of lighter feed slates

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Hydrocarbon Resin Material Key Cost Driver

Heatset NA Heatset EU Coldset NA Coldset EU Flush Colour

Click to view Hydrocarbon Resin cost drivers

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Phenolic Resin NA
Cost Development Background

Product Driven
Rosin resins used in the US are primarily Tall Oil Rosin based. TOR pricing trends with gum rosin

Financial Driven
Due to reduced gum prices and a softening TOR market, rosin resins prices declined slightly in Q4 2012

Expectation
Phenolic resin supply and demand is in balance Prices are expected to remain flat for Q1 2013 if gum remains stable

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Heatset NA

Flush Colour

Additives
Cost Development Background

Waxes
Microcrystalline - prices have been flat since their peak in mid 2011 due to higher crude oil prices. 2013 prices will be stable to slightly higher depending on the price of crude oil. Virgin PTFE has increased 50% since the end of 2009. Prices are expected to be stable through the first half of 2013.

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Coldset NA Key Cost Drivers


Base / Vegetable Oil
Base oils driven by crude prices and base oil inventories Vegetable oil volatility continues

Flushed Colour

Carbon Black
Driven by crude oil derivatives

Resin
DCPD & C9 feedstock pricing driven by gasoline and lighter ethylene cracking slates

Oil

Flush/Carbon

Filler
Producers have idled capacity and rationalized production Primary suppliers implemented price increases in January 2012

Resin Filler
Additives

Additives
Organoclay trending slightly up (market driven)

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Base/Vegetable Oil Coldset NA


Cost Development Background

Base Oil
Base oil prices follow crude oil and base oil inventories Prices fell in Q3 with crude decline, but expected to rise slightly for Q4 Domestic producers slowed their exports to Europe due to reduced demand

Soybean Oil - Market price volatility continues


Sluggish 2013 economic outlook combined with Eurozone uncertainty and poor North America crop are limiting year end supplies

Linseed Oil - Stronger than expected 2012 North America flax crop
Q4 2012 small price reduction and expectations for flat pricing throughout first half of 2013

Castor Oil - Excellent crop size in 2012 - 25% market price decline
Prices are expected to rebound in 2013 due to lack of planted acres and increased exports of castor meal

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Coldset NA

Flush Colour

Filler Coldset NA
Cost Development Background

Kaolin
Idled capacity and rationalised production to address shrinking market for kaolin (paper market driven) Little rationalization occurred in 2011, signalling a levelling out between supply and demand No plant shutdowns occurred in 2012 and none are foreseen for 2013 Costs mainly driven by energy and process chemicals which are showing an upward trend Producer Price Index for kaolin mining has shown increase of 33% since 2008 Expect a small price increase in January 2013

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Additives Coldset NA
Cost Development Background
Organoclay - Product Driven
Major cost driver is beef fancy tallow (BFT) which was relatively flat in 2012 BFT is used to produce quaternary amine that coats the clay to give it the required properties Pricing in 2012 saw increases in Q1 while holding steady the rest of the year Pricing in 2013 is uncertain and will depend on both BFT movement and demand from other industries

Organoclay - Market Driven


Oil and natural gas companies dominate clay usage and are willing to pay top prices Hydraulic fracturing (fracking) for oil and natural gas extraction are at the heart of this increased demand It is expected that the increased demand from these industries will drive prices in the coming year

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Publication Gravure NA Key Cost Drivers


TOR Based Resinate
Trends with gum rosin pricing

Solvent
Trends with crude oil and gasoline pricing

Carbon Black
Driven by crude oil derivatives

Resinate
Dry Pigment
No serious pigment shortages, potential for upward price pressure Enforcement of environmental protection laws continues to disrupt supply of pigments and intermediates from India and China

Solvent
Filler
Producers have idled capacity and rationalised production. Major Suppliers implemented price increases in January 2012.

Pigment/Carbon
Filler

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TOR Based Resinate


Cost Development Background
There are two resinate manufacturers in the US. Both have dedicated their capacities to specific gravure ink producers Resinates are approximately 50% solids, most of which is tall oil rosin (TOR) The same fundamentals that drive phenolic resin prices drive resinate prices but on a 50% basis Resinate prices declined slightly in Q4 2012 with falling gum rosin prices Resinate prices are expected to trend up in 2013 with the potential for higher gum rosin prices

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Filler Publication Gravure NA


Cost Development Background

Kaolin
Idled capacity and rationalised production to address overall shrinking market for kaolin (paper market driven) Little rationalization occurred in 2011, signalling a levelling out between supply and demand. No plant shut downs occurred in 2012 and none are foreseen for 2013. Costs mainly driven by energy and process chemicals which are showing an upward trend Producer Price Index for kaolin mining has shown increase of 33% since 2008 Expect a small price increase in January 2013

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Solvent Publication Gravure NA


Cost Development Background

Toluene
Used to supplement recovered solvent in publication gravure inks Price trending with crude oil and aromatic / gasoline prices Prices are expected to rise further in Q4 2012 and remain elevated

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Publication Gravure EU Key Cost Drivers


Gum Rosin Based Resinate
Having experienced major volatility during 2010/2011, the market in 2012 appears to have settled.

Solvent
Toluene price trends with crude oil price.

Carbon Black
Driven by crude oil derivatives

Resinate
Dry Pigment
No serious pigment shortages, potential for upward price pressure Enforcement of environmental protection laws continues to disrupt supply of pigments and intermediates from India and China

Solvent
Filler
Primary cost driver is energy costs

Pigment/Carbon
Filler

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Gum Rosin Based Resinate


Cost Development Background

Gum Rosin
Having experienced major volatility during 2010/2011, the market in 2012 has settled, but at a much higher level than the average in 2009. Sluggish demand around the world, together with substitutions of alternative raw materials has added downward pricing pressure but as a result, farmers are refusing to tap their trees Volatility still exists with the fear that any sudden pick-up in activity will lead to upward price movements. Outlook for 2013 is likely to trend up slightly

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Filler Publication Gravure EU


Cost Development Background
Kaolin
All major kaolin producers have idled capacity and rationalised production over the last 2-3 years to address an overall shrinking market, primarily driven by the paper market. Little rationalization in 2011 with no plant shut downs in 2012, signalling a levelling out between supply and demand. Increasing operational costs including that of fuel and chemicals used in the manufacturing process are pushing pricing upwards.

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Solvent Publication Gravure EU


Cost Development Background

Toluene
Virgin toluene is used to supplement recovered solvent in publication gravure inks. Toluene price generally trends with crude oil price. Reduction of available volume due to reducing capacities has added pressure to the higher price levels. Recent issues with unplanned shutdowns / technical problems led to a short term supply issue which has driven prices higher. 2013 Outlook - Prices expected to stabilise at the higher level due to supply / demand situation.

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Heatset EU Key Cost Drivers


Distillate
Gas oil follows the trend of crude oil Gas oil pricing is at an all time high

Dry Pigment
No serious pigment shortages, potential for upward price pressure Enforcement of environmental protection laws continues to disrupt supply of pigments and intermediates from India and China

Carbon Black
Driven by crude oil derivatives

Phenolic Resin
Tall oil rosin Gum rosin market

Distillate

Pigment/Carbon

Phenolic Resin
Hyrdocarbon Resin
DCPD & C9 feedstock pricing driven by gasoline and lighter ethylene cracking slates

Hydrocarbon Resin Additives

Additives
Virgin PTFE wax remains at high levels Paraffinic wax is following Base oils

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Distillate Heatset EU
Cost Development Background

Product Driven
Gas oil is a feedstock produced from crude oil. The European crude is Brent (North Sea sweet, light crude). Due to instability in the Middle East, crude bounced back after a dip at the end of Q2 and increased significantly in Q3

Financial Driven
The monetary quantitative easing program by the FED has strengthened the Euro a few cents but also increased speculation on commodities.

Expectation
Current stocks in ARA (Amsterdam, Rotterdam, Antwerp) area are at low levels and are a potential risk in the winter months which may lead to higher prices in Q1 2013 Brent crude is expected to stay between $105/bbl and $120/bbl in 2013. Exchange rate fluctuations will impact crude pricing in Europe

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Phenolic Resin EU
Cost Development Background

Relatively stable pricing in 2012 - Any mild decrease of gum rosin price has been limited by increased pricing of phenols and anhydrides Prices are expected to trend slightly upward in 2013 as sea freight costs increase and gum rosin production decreases due to reduced tapping by farmers

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Heatset EU

Sheetfed EU

Additives Heatset EU
Cost Development Background
PTFE Wax
PTFE prices have been very stable in 2012. Due to export restrictions in China, this high price level is expected to continue in 2013.

Paraffinic Wax
Microcrystalline wax is a by-product of the refining process. Fewer refineries are producing the oil that creates this by-product leading to an unbalanced supply and demand situation. In 2012, one supplier went bankrupt, which resulted in 3 refineries closing and 4 refineries reducing capacity or focusing only on fuel production

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Coldset EU Key Cost Drivers


Base / Vegetable Oil
Base oils do not follow crude oil Soybean Oil - Market volatility continues

Dry Pigment
No serious pigment shortages, potential for upward price pressure Enforcement of environmental protection laws continues to disrupt supply of pigments and intermediates from India and China

Carbon Black
Driven by crude oil derivatives

Filler
Primary cost driver is energy costs

Oil

Pigment/Carbon
Resin
DCPD & C9 feedstock pricing driven by gasoline and lighter ethylene cracking slates

Resin Filler
Additives

Additives
Organoclay trending slightly up in 2012 (market driven)

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Base/Vegetable Oil Coldset EU


Cost Development Background

Base Oil
Base Oil pricing has not followed crude oil in 2012 as it had its highest level when crude was lowest. As Base oil pricing moved to slightly lower levels, which was not favourable for producers, refineries started using the feedstock for production of diesel instead of base oils which reduced supply and caused an increase in price. The monetary quantitative easing program by the FED has strengthened the Euro a few cents but also increased speculation on commodities. Higher prices are expected by the end of 2012. Prices for 2013 are extremely uncertain, as it depends heavily on the demand from other markets like the automotive industry and, to a certain extent, crude oil prices.

Soybean Oil
Market volatility continues - however trading remains within certain upward and downward trends. Hedge funds still having an impact going forward as they seem to come in and out depending on general market activity. 2013 Outlook - Growing demand still expected to outweigh supply in 2013, keeping pressure on prices.

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Filler Coldset EU
Cost Development Background
Kaolin
All major kaolin producers have idled capacity and rationalised production over the last 2-3 years to address an overall shrinking market, primarily driven by the paper market. Little rationalization in 2011 with no plant shut downs in 2012, signalling a levelling out between supply and demand. Increasing operational costs including that of fuel and chemicals used in the manufacturing process are pushing pricing upwards.

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Additives Coldset EU
Cost Development Background
Organoclay
Major cost driver is beef fancy tallow (BFT) BFT is used to produce quaternary amine that coats the clay to give it the required properties BFT holding steady in price for 2012 thus far Oil and natural gas companies dominate clay usage and are willing to pay higher prices. New hydraulic fracturing for oil and natural gas extraction are at the heart of increased organoclay demand. It is expected that increased demand from this industry will drive prices up in the coming period

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Sheetfed EU Key Cost Drivers


Vegetable Oil / Distillate
Gas oil pricing is at an all time high Linseed supply / pricing to stabilise with a potential to weaken

Dry Pigment
No serious pigment shortages, potential for upward price pressure Enforcement of environmental protection laws continues to disrupt supply of pigments and intermediates from India and China

Carbon Black
Driven by crude oil derivatives

Phenolic Resin
Tall oil rosin Gum rosin market

Veg Oil/Distillate

Pigment/Carbon

Phenolic Resin

Alkyd Resin
Costing driven mainly by vegetable oil pricing Prices of chemicals moving up

Alkyd Resin Additives

Additives
Drier pricing volatile and influenced by cobalt metal PE waxes follow crude / kaolin clay - primary cost driver is energy

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Vegetable Oil/Distillate Sheetfed EU


Cost Development Background

Gas Oil
Gas oil is following crude very closely. Crude is expected to be between 105 USD/bbl and 120 USD/bbl for 2013, the exchange rate can play a significant role in 2013. The fundamental weaknesses and risks still remain (European crisis, Iran nuclear power program). The monetary quantitative easing program by the FED has strengthened the Euro a few cents but also increased speculation on commodities.

Vegetable Oils - Linseed Oil


Canadian and US crop yields were 50% higher than last year, Eastern European yields were far lower Reduced Chinese import demand due to higher Chinese yields made more North American based product available for export to Europe. Linseed cake price has stabilised at a high level, therefore upward risk is low. The negative economic outlook can lead to a bear market.

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Alkyd Resin Sheetfed EU


Cost Development Background

Linseed Oil
Canadian and US crop yields were 50% higher than last year, Eastern European yields were far lower Reduced Chinese import demand due to higher Chinese yields made more North American based product available for export to Europe. Linseed cake price has stabilised at a high level, therefore upward risk is low.

Soybean Oil
Market continue to be volatile. Influence on alkyd pricing is dependent on time of contracting

Chemicals/Secondary Raw Materials


TMP, Penta, PTA, IPA, etc. have moved up during Q4/2012. This trend is expected to continue into Q1/2013 and will counteract any cost advantage from linseed oil

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Additives Sheetfed EU
Cost Development Background

Driers
Cobalt metal price continues to be volatile although there has been more stability in the second half of 2012. Manganese pricing is expected to remain stable for Q4 and 2013 The future of cobalt driers is uncertain because of labelling issues

Waxes
After reaching an all time high, ethylene followed crude pricing downwards for a few weeks but is now back at high levels and is still volatile. The speed of reduction and the following increase was too fast to push it through the supply chain and affect PE wax prices. An increase back to PE prices of Q1 and Q2 is likely. PE waxes will stabilise at these high levels as long as crude stays at current levels, PTFE wax pricing has been very stable at high levels over the last few months and no reduction is expected as the market is still short, driven by Chinese export restrictions.

Kaolin Clay
Supply / demand in balance. Sufficient supply options available to ensure stable pricing. 45

Press Room Chemicals Key Cost Drivers

Fountain Solutions Washes Spray Powders Silicones

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Fountain Solutions Key Drivers


Glycerin
Glycerin is a by product of bio-diesel production

Glycol Ether
Glycol ethers are derived from ethylene and propylene

Gum Arabic
Gum Arabic is agricultural and is dependent on the weather

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Glycerin
Cost Development Background

Europe
Approximately 70% of European glycerin is generated as a by-product of bio-diesel. Low bio-diesel production caused by heavy imports from Argentina and Indonesia has led to shortages and higher prices in the short term. 2013 Outlook - Restart of bio-diesel production will stabilise supply, demand and pricing. Pricing remains volatile as European bio-diesel producers are unsure of future bio-diesel quotas.

North America
U.S. is a net importer of glycerin. Bio-diesel production has begun its winter slowdown, and less crude glycerin is being generated, as antifreeze and de-icer production increases. Crude glycerin has found its way into more animal feed applications as the price of corn has climbed. Price is trending upward.

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Gum Arabic
Cost Development Background

Good rain levels in main producing countries of Sudan / Chad suggest a good harvest in January. No supply issues expected. Prices expected to be stable / minimal increase for the foreseeable future. Political situation quiet.

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Glycol Ether
Cost Development Background

Europe
Pricing is anticipated to increase in Q4, mainly driven by concerns around availability, following issues in the Middle East and Asia. A number of major global sources are in or will enter turnarounds in the next few months.

North America
One major producer of ethylene oxide experienced production problems. Supply of ethylene and propylene are beginning to tighten. Pricing appears to be stable to slightly upwards.

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Washes Key Drivers


Monopropylene Glycol Solvent
Hydrocarbon solvents following crude closely The main driver behind monopropylene glycol is propylene

2 EthylhexylCocoate
Coconut oil is the main driver behind 2-ethylhexyl cocoate

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Solvent
Cost Development Background

Hydrocarbon Solvents
Prices follow crude closely. After a drop mid-year, crude has come back to old price levels. Hydrocarbon solvents are expected to stay at current high levels in 2013.

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2-Ethyhexyl Cocoate
Cost Development Background

Europe
The key material drivers in Europe have continued on a downward trend, due to good availability of feed stock. Market feedback is that the level of reductions has reach its low point and price is expected to stabilise in first half of 2013

North America
Availability and inventory of coconut oil continues to improve. Supply and demand are well balanced. Pricing is trending downward.

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Monopropylene Glycol
Cost Development Background

Europe
Availability is very good at present. Outlook is stable with propylene pricing currently on a slight downward trend. (Q4 - 2012) Product is seasonal with high demand during the winter months, which could result in possible shortages leading to an upward price trend.

North America
Aircraft de-icing is a large end user and is seasonal. Weather will impact demand. Prices declined in Q3 following cost reductions of propylene. Prices are expected to rebound as propylene continues to rise after the Q3 decline.

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Spray Powder Key Drivers


Starch
The 2012 North American drought has reduced supply

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Starch
Cost Development Background

Europe
Maize and wheat starches are becoming tighter in the market. August crops were delayed due to the floods in Europe. Starch pricing, having fallen at the start of the year, is now heading in the opposite direction with double digit increases. Current increases and product availability will not change until the new crops are harvested in April/May 2013.

North America
U.S. is now an active importer of corn from South America. U.S. corn production is at its lowest level since 2006. Poor yield resulting from the 2012 drought is forcing pricing upwards.

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Silicones Key Drivers


Silicone
The demand for silicon metal (used in solar cells and computer chips) is down

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Silicone
Cost Development Background

Europe
Pricing has been stable since the start of 2012, outlook is for this to continue into Q1 - 2013. Demand has reduced during Q4 as plants around Europe start to de-stock for year end. As a result, current availability/lead-times have reduced significantly.

North America
A new plant has been built in the U.S. Exporting to Asia is down as a result of two new plants in China. Supply and demand are well balanced. Pricing is trending steady to slightly downward. A major producer is in deep financial difficulty and may exit the business resulting in a price spike.

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Transfer Media Key Cost Drivers

Sleeves

Blankets

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Tensioned Blanket Key Drivers


Mixed Compounds
2012 Weakness in butadiene 2013 Expect mild recovery in polymers

Aromatic Solvents
Toluene is impacted by the aromatics / gasoline market

Interleaving & Cure Paper Fabric


Reduction in cotton prices Stabilisation in polyester Reduced pulp pricing Paper not demonstrating reductions

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Fabrics
Cost Development Background

Product Driven
Global demand for short staple cotton generally drives the total market, especially from the Far East with China and India in particular Long staple cotton (used for blankets) is limited in its acreage availability, this is being replaced with alternate cash crops as prices fall With increased pricing in 2010 and 2011, many spinning mills moved to synthetic yarns reducing availability Falling base price has destabilised some markets with traders trying to sell inventories at last year's prices

Financial Driven
The strength of the US$ versus euro has had an impact on market strength, US$ economies have difficulty competing against euro based manufacturers

Expectation
Base raw material price for 2013 would indicate that pricing should be lower than 2012 prices, however higher priced 2012 yarn inventories will impact pricing during the early part of 2013 With stabilisation of synthetic prices in relation to the volume of cotton used, 2013 price stability is expected. 61

Mixed Compounds
Cost Development Background

Product Driven
In the first half of 2012, butadiene prices spiked to the record high prices of 2011. In the second half of 2012 prices dropped but are still higher than in 2010 Acrylonitrile prices have also declined throughout most of 2012 with a slight increase in Sept/Oct Additive and filler costs remain high and stable

Financial Driven
Weakened Euro versus the US dollar has impacted pricing

Expectation
Polymer pricing will continue at current levels through end of 2012, but expected minor economic recoveries in NA and China during 2013 would lead to incremental increases Additives may see increases as raw materials and availability become tight Pricing pressure expected from increasing environmental requirements globally

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Aromatic Solvent
Cost Development Background

Europe
Toluene price generally trends with crude oil price. Reduction of available volume due to reducing capacities has added pressure to the higher price levels. Recent issues with unplanned shutdowns / technical problems led to a short term supply issue which has driven prices even higher.

North America
One major refinery is planning a total shutdown, leaving no toluene refineries in the Northeast. Aromatics market is strong, which is pushing toluene prices upward.

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Interleaving and Cure Paper


Cost Development Background

Product Driven
Reduced number of paper manufacturing mills available globally Increased manufacturing cost of paper, including environmental costs of waste management Additives and chemicals related to the coatings required are continuing to increase Reduced demand in high specification coated paper has reduced the number of coaters capable of providing wide width paper

Financial Driven
The continued weakening of the Euro during 2012 has impacted cost for Europe

Expectation
The reduction in base pulp pricing combined with increases in materials and manufacturing cost should balance the end user pricing

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Nickel Sleeve Key Drivers


Polymer
Butadiene increases Acrylonitrile stability

Stainless Steel
Market stable at lower levels

Polyester Yarn
Stability of North American polyester cord

Nickel
Stability in nickel prices

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Nickel
Cost Development Background

Product Driven
Raw nickel prices driven by demand in steel production Global Inventories, demand and replenishment Conversion costs, especially electricity

Financial Driven
The weaker Euro versus the US Dollar has impacted costs

Expectation
Global recovery will influence the demand for nickel

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Polymer
Cost Development Background

Product Driven
Global market volatility especially from the Far East which drives the price market Acrylonitrile cost that has shown reasonable stability The global NBR polymer demand has been greater than capacity for several years Continued margin retention by the producers

Financial Driven
The continued weakened Euro has impacted cost

Expectation
End of 2012 polymer pricing is expected to be similar to December 2011 prices, with an increase in 2013 during Q1 and Q2 which will be negated during Q3 and Q4. New capacity is not expected in NBR during 2013 with global demand influencing and putting pressure on availability

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Polyester Yarn
Cost Development Background

Product Driven
Polyester Conversion and electricity Smaller number of North American thread mills have limited pricing leverage

Expectation
Declines in the polyester market are due to a decrease in global demand compared to 2011 Expect some increases in the polyester market due to demand recovery in 2013 Pricing of polyester cord is expected to be stable

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Stainless Steel
Cost Development Background

Product Driven
Steel Nickel Specialized conversion requirements and electricity Low purchase volumes for the steel market Chinese and Asian demand are largest and impact the global markets

Expectation
NA Market declined Jan-June and has been stable since July North American market expected to be stable for balance of 2012 and into 2013 Expect producers to balance production and match reduced demand to stabilize pricing

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Liquid Packaging and Narrow Web Key Cost Drivers

Solvent Based Colour Solvent Based Clear Solvent Based White Water Based Colour Water Based Clear UV Coating

Additional Key Cost Drivers


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Solvent Based Colour Key Cost Drivers


Additives
Silicones have not seen the feedstock decrease so far Waxes follow crude oil

Resin
Nitrocellulose Reduction of planted cotton acreage will keep the NC market short

Additives Resin

Pigment

Pigment
No serious pigment shortages, potential for upward price pressure Enforcement of environmental protection laws continues to disrupt supply of pigments and intermediates from India and China

Solvent
Solvent
Crude pricing fluctuations recently related to geo-political news, the economy, and oil and product inventories

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Additives - Liquid Packaging & Narrow Web


Cost Development Background

Defoamers, Rheology Modifiers, Dispersing & Wetting Agents


Silicone based additives have yet to see the decreases in the silicone feedstocks. Pricing is expected to come down in 2013. All other additives have stabilized for the remainder of 2012. Another small increase is expected for 2013..

Waxes
PE Waxes follow crude closely. After a dip, ethylene prices remain at high levels, consequently PE waxes will stabilise at high levels going into 2013. FT-Waxes are still short. The capacity increase has been absorbed by high demand in other markets. The additional capacity expansion has been delayed to 2014. PTFE prices have been very stable in 2012. Due to export restrictions in China, this high level is expected to continue in 2013.

72

Additives - Liquid Packaging & Narrow Web Key Cost Drivers

s/b Colour s/b Clear s/b White w/b Colour w/b Clear UV Coating UV Sheetfed

73

Resin - Solvent Based Liquid Packaging


Cost Development Background

Product Driven
Pulp suitable for nitration is 0.4% of the global pulp market. The reduction of planted cotton acreage will keep the NC market short until 2014. Unbalanced NC market despite the global economic crisis.

Financial Driven
Currency volatility, political uncertainties, economic weakness and financial speculations, all have an immediate impact on NC pricing.

Expectation
Pricing will be driven upward over the next two years due to the expected shortage in cotton.

74

s/b Colour

s/b Clear

s/b White

Solvent - Solvent Based Liquid Packaging


Cost Development Background

Product Drivers - Ethylene, Propylene and Energy


After a slight decline at the beginning of Q3, propylene and ethylene are now on the rise. IPA and ester pricing have been affected by supply / demand and feedstock costs. Annual planned refinery shutdowns associated with required preventive maintenance keeps the market short. Three refineries are up for sale. Global demand for solvents remains high. Raw material cost have increased exponentially The industry continues to operate its assets at high rates

Financial Drivers - Currency Volatility


Political uncertainties, economic weakness and financial speculation have an immediate impact on solvent prices.

Expectation
Solvent prices will remain high due to emerging countries, which today are the major markets, driving higher margins for the solvent producers. 75

s/b Colour

s/b Clear

s/b White

Solvent Based Clear Key Cost Drivers


Additives
Silicones have not seen the feedstock decrease so far Waxes follow crude oil

Resin
Nitrocellulose Reduction of planted cotton acreage will keep the NC market short

Additives

Resin

Solvent
Crude pricing fluctuations recently related to geo-political news, the economy, and oil and product inventories

Solvent

76

Solvent Based White Key Cost Drivers


Additives
Silicones have not seen the feedstock decrease so far Waxes follow crude oil

Resin
Nitrocellulose Reduction of planted cotton acreage will keep the NC market short

Additives Resin

Solvent
Crude pricing fluctuations recently related to geo-political news, the economy, and oil and product inventories

TiO2

TIO2
Higher prices are expected in 2013.

Solvent

77

TIO2 - Liquid Packaging


Cost Development Background

Product Driven
No new world scale investments in ilmenite and ore mines. Limited availability of slag and ilmenite has been the major reason for the price explosion over the last years. Reduced demand caused be economic downturns and substitutions brought this price erosion to a standstill. In addition to limited mining possibilities, TiO2 production capacity reduced by 7%. Rising feedstock costs and RM price margin pressure resulted in price increases of 20-30% over two months.

Financial Driven
Currency volatility. Political uncertainty, economic weakness, and financial speculation have had an immediate impact on TiO2 prices.

Expectations
It is expected that TiO2 prices will decline until first quarter 2013, but due to the improved housing market in the U.S., prices are expected to rise in the spring. 78

Water Based Colour Key Cost Drivers


Additives
Silicones have not seen the feedstock decrease so far Waxes follow crude oil

Hard (Dry) Resin


Hard acrylic resin water based Styrene feed stocks very volatile causing increases

Additives Hard (Dry) Resin

Polymer (Emulsion)

Polymer (Emulsion)
Polyurethane and acrylic Polyols, ethylene, propylene, acetone, isocyanate and MDI are all key base feedstocks

Pigment
Pigment
No serious pigment shortages, potential for upward price pressure Enforcement of environmental protection laws continues to disrupt supply of pigments and intermediates from India and China

Water

Water

79

Polymer (Emulsion) - Water Based Liquid Packaging


Cost Development Background

Product Driven
Isocyanate production has stabilized slightly. Isocyanates are driven by the benzene and petroleum markets. TDI supply remains tight due to plant turnarounds, strong exports and high demand. IPDI market has loosened up since the Evonik plant in Mobile, Alabama is up and running.

Financial Driven
Polyols, ethylene, acetone will continue to be volatile in pricing and critical in supply due to unscheduled shutdowns and planned plant maintenance supporting higher prices. Propylene continues to be short due to most ethylene crackers running light feed stocks as well as suppliers controlling global propylene production. Propylene demand is expected to remain strong keeping prices evaluated.

Expectation
Escalated prices continue to be supported by supply/demand. Supplies of IPD are short and are expected to remain short through 2013 due to Chinese demand, particularly for windmill blades. In addition, higher acetone prices are contributing to the support of IPD prices. 80

Hard (Dry) Resin - Water Based Liquid Packaging


Cost Development Background

Product Driven
Styrene is produced from ethyl-benzene, formed by alkylation of benzene with ethylene. Methyl methacrylate, styrene, ethyl-benzene, benzene and ethylene are solid acrylic resin feed stocks.

Financial Driven
All feed stocks for styrene have been very volatile and drove prices upward through 2012. GAA remains tight due to an explosion at a major Japanese producer resulting in market shortages and higher prices. Methyl methacrylate is also tight due to growth in emerging markets which are yielding higher margins for producers. Volumes are moving rapidly to markets that will pay higher prices than graphic arts.

Expectation
Feed stock for styrene will remain tight and prices volatile through 2013. Japanese plant explosion will keep acrylic acid tight for 2013.

81

w/b Colour

w/b Clear

Water Based Clear Key Cost Drivers


Additives
Silicones have not seen the feedstock decrease so far Waxes follow crude oil

Resin (Emulsion)
Acrylic emulsion MMA, GAA remains in tight global supply

Additives

Resin - Emulsion

Hard (Dry) Resin


Resin (Dry)
Hard acrylic resin water based Styrene feed stocks very volatile causing increases

Water
Water

82

Resin Emulsion - Water Based Liquid Packaging


Cost Development Background

Product Driven
Methyl methacrylate (MMA,) styrene, and glacial acetic acid (GAA) are the key feed stocks in the production of acrylic emulsions. More than 80% of MMA worldwide is produced by the esterification of methacrylamide obtained from acetone cyanohydrine.

Financial Driven
MMA is tight in spite of the partial restart of Lucite Beaumont early this year. MMA is not being produced to full capacity, resulting in price increases. GAA remains tight due to an explosion at a major Japanese producer resulting in market shortages and higher prices. Methyl methacrylate is also tight due to growth in emerging markets which are yielding higher margins for producers. Feed stock for styrene is very volatile and driving prices upward.

Expectation
83 Japanese plant explosion will keep acrylic acid tight for 2013. Feed stock for styrene will remain tight and prices volatile through 2013. MMA will return to full capacity yielding some pricing relief on MMA globally.

Sheetfed UV Key Cost Drivers


Dry Pigment
No serious pigment shortages, potential for upward price pressure Enforcement of environmental protection laws continues to disrupt supply of pigments and intermediates from India and China

High Functional Material


Sheetfed UV material Increased epoxy and isocyanate prices, push the prices upwards

Monomer
High propylene prices pushes prices upwards

Photoinitiator
Photoinitiator- stable supply situation The weakening Euro increases prices for Europe

Additives
Silicones have not seen the feedstock decrease so far Waxes follow crude oil

Oligomer
Propylene, BisA, liquid epoxy price continues upward

84

Monomer Sheetfed UV
Cost Development Background

Product Driven
Main drivers are acrylic acid and propylene. Current monomer supply situation is stable. Uncertain situation for acrylic acid due to Japanese production explosion.

Financial Driven
Contract price of acrylic acid will increase at a greater pace than spot prices as supply availability will be key. Propylene price continue upwards during Q4 2012.

Expectation
Contract prices of acrylic acid will continue to increase and spot prices will soar. Propylene demand expected to remain strong and will keep price elevated.

85

Sheetfed UV

UV Coating

High Functional Material Sheetfed UV


Cost Development Background

Product Driven
Acrylic acid is the base for all products. Propylene, BisA, liquid epoxy are all used to produce oligomers.

Financial Driven
Propylene price increases drive the base material up. BisA and liquid epoxy prices continues upward and prices for epoxy acrylate are increasing. Isocyanates are short in the market, driving the urethane acrylates upwards. Unstable global soy market push prices on acrylates based on soy.

Expectation
The Japanese plant explosion will plague supply and drive acrylic acid prices upward.

86

Photoinitiator Sheetfed UV
Cost Development Background
Product Driven
Base materials for photoinitiators are also used in the more profitable detergent and medical products market. Production of PI is mainly in China.

Financial Driven
Prices will depend on China's continued internal growth. Over the last months, the Chinese Yuan has strengthened against all other major currencies. Stable supply situation for the next half year. Specialty photoinitiators such as polymeric types are higher in cost and are facing additional costs due to new regulatory requirements.

Expectation
Required Polymeric types will continue driving finished good costs higher. China is expected to experience continued internal growth, driving pricing upward, mainly in the second half of 2013.

87

Sheetfed UV

UV Coating

Oligomer Sheetfed UV
Cost Development Background

Product Driven
Acrylic acid is the base for all products. Propylene, BisA, liquid epoxy are all used to produce oligomers.

Financial Driven
Propylene price increases drive the base material up. BisA and liquid epoxy prices continues upward and prices for epoxy acrylate are increasing.

Expectation
Acrylic acid will remain tight for all of 2013. Unsure situation for acrylic acid due to Japanese production explosion. Contract prices of acrylic acid will continue to increase and spot prices will soar.

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Sheetfed UV

UV Coating

UV Coating Key Cost Drivers


Monomer
High propylene prices pushes prices upwards

Additives
Silicones have not seen the feedstock decrease so far Waxes follow crude oil

Photoinitiator
Photoinitiator- stable supply situation The weakening Euro increases prices for Europe

Oligomer
Propylene, BisA, liquid epoxy price continues upward

89

Flush/Pigment Material Key Cost Drivers

Heatset NA Heatset EU Coldset NA Coldset EU PubG NA Pub G EU Sheetfed EU Sheetfed UV


Click to view Flush / Pigment cost drivers

s/b Colour w/b Colour

90

Dry Pigment
Cost Development Background

Pigment Intermediates
Asian governments enforce stricter compliance with environmental laws. As a consequence pigment intermediate producers need to invest in additional waste water treatment (WWT) capacity, increasing overhead costs. Overall capacities are reduced throughout China/India due to WWT limits and enforcement of environmental laws. Pigment intermediates for reds receive increased price pressure due to beta naphthol shortage and continued environmental challenges. Pigment intermediates for yellow remain high due to reduced global capacity, shortage of some feedstocks and high cost of benzene and toluene. Pigment intermediates for blue/green fluctuate at high levels due to copper and phthalic anhydride market volatility. Unfavourable currency movements and increased freight rates largely influence final cost.

91

Red Drivers

Blue Drivers

Yellow Drivers

Red Pigment Key Drivers (PR53 & PR57)


Strike Chemicals
Caustic soda, hydrochloric acid, sodium nitrite, calcium chloride Aside from regional supply issues, most markets are slightly declining or stable

BONA, Beta Naphthol


Bona pricing sees continuous upward trend due to beta naphthol

4B Acid/ 2B Acid, C Amine Acid


Toluene price generally trends with crude oil price.

Gum Rosin
Having experienced major volatility during 2010/2011, the market in 2012 appears to have settled.

92

4B Acid/ 2B Acid/ Amine Acid


Cost Development Background

China
4B Acid PT is in surplus in Chinese market due to the demand of its isomer OT. OT is being used in a new application as a gasoline additive. Local 4B acid price remains stable. 2B acid price has remained stable. No big price changes are expected in the near future as supply/demand is in balance.

North America
4B Acid price remains stable despite rising toluene, unfavourable changes in currency and freight rates. Currently supply is greater than demand. 2B acid price has remained stable due to declining demand. Future expectation is upward trend due to the rising cost of toluene and freight rates. C Amine Acid has upward trend due to price pressure of toluene, exchange rate changes and freight. Supply has become unpredictable due to tight supply of both toluene and chlorine in some regions. Due to the product's polluting nature, plant closures and relocation of factories have been experienced.

93

Strike Chemicals - Red


Cost Development Background

Caustic Soda
Overall the global demand for caustic has been flat. Some regions in US and Europe have experienced supply tightness, keeping prices elevated. Conversely, Asia's weakened downstream demand has resulted in lower prices.

Hydrochloric Acid
Due to the global economy, China's PVC demand in the construction industry has been very weak thus creating a chlorine excess. The abundance of chlorine contributes to flat HCl pricing. US HCl markets have experienced price increases in Q3/Q4 due to continued strong demand and a decline in the availability of by-product acid. The initial outlook for 2013 is positive.

Sodium Nitrite
US sodium nitrite has experienced a slight uptick in pricing due to rising ammonia costs. China's sodium nitrite price remains stable.

Calcium Chloride
Calcium chloride has remained stable. 94

BONA/ Beta Naphthol


Cost Development Background

Bona price has been on an upward trend throughout 2012. Direct feedstock beta naphthol remains unstable due to strict environmental regulations and tightness of feedstock - naphthalene. A recent explosion at the largest global beta naphthol producer caused extreme tightness in the market 2H 2012. Due to environmental regulations, other producers are being forced to reduce capacity or relocate. Naphthalene is used to cure cement. As Chinese government stimulus programs are put in place for construction, it reduces the amount of naphthalene available to other markets such as pigments.

95

Gum Rosin
Cost Development Background

Having experienced major volatility during 2010/2011, the market in 2012 has settled, but at a much higher level than the average in 2009. Sluggish demand around the world, together with substitutions of alternative raw materials has added downward pricing pressure but as a result, farmers are refusing to tap their trees Volatility still exists with the fear that any sudden pick-up in activity will lead to upward price movements. Outlook for 2013 is likely to trend up slightly

96

Pigment Red

Pigment Yellow

Blue Pigment Key Drivers


Cuprous Chloride Anhydrous
Copper stays 7500-8500 MT level

Phthalic Anhydride
Asia PA price follows feedstock orthoxylene trend

Urea
Urea prices have slowly declined

Strike Chemicals
Acetic acid, caustic soda, hydrochloric acid, sulphuric acid Aside from regional supply issues, most markets are slightly declining or stable.

97

Cuprous Chloride Anhydrous


Cost Development Background

Copper
Stimulated by QE3, LME copper price jumped in Q3, while weak downstream demand cannot provide support for this pricing. Copper price may see downward trend in latter part of Q4.

98

Urea
Cost Development Background

Prices peaked in Q2 during planting season and have slowly declined due to demand. Illegal use of agri-grade urea in India is still a major problem, which causes a higher degree of differentiation in market pricing and unannounced plant closures by authorities.

99

Phthalic Anhydride
Cost Development Background

Asia PA price follows feedstock orthoxylene trend. Prices declined in July but are back to early 2012 levels. PA price will remain soft in Q4 due to weak demand from downstream DOP market.

100

Strike Chemicals - Blue


Cost Development Background

Acetic Acid
Due to excess capacity and sufficient methanol feedstock, China's acetic market has been less volatile in 2012 than in 2011. Acetic pricing in the US has been elevated as a result of unplanned outages.

Caustic Soda
Overall the global demand for caustic has been flat. Some regions in US and Europe have experienced supply tightness, keeping prices elevated. Asia's weakened downstream demand has resulted in lower prices.

Hydrochloric Acid
Due to the global economy, China's PVC demand in the construction industry has been very weak thus creating a chlorine excess. The abundance of chlorine contributes to flat HCl pricing. US HCl markets have experienced price increases in Q3/Q4 due to continued strong demand and a decline in the availability of by-product acid. The initial outlook for 2013 is positive.

Sulphuric Acid
Most regions have seen minimal decreases in the latter half of the year as a result of sulphur price stability.. 101

Yellow Pigment Key Drivers


Arylides
Benzene price generally trends with crude oil price

DCB
Prices escalate due to supply and demand

Gum Rosin
Having experienced major volatility during 2010/2011, the market in 2012 appears to have settled.

Strike Chemicals
Acetic acid, caustic soda, hydrochloric acid, sodium nitrite Aside from regional supply issues, most markets are slightly declining or stable

102

Arylides
Cost Development Background

China
China AAOT price on an upward trend influenced by OT. Aniline used as gasoline additive in China has been substituted by OT as a result of new environmental regulations, pushing OT price up. Chinese AAMX price has shown a downward trend over the past 12 months after jumping over 50% in 2011 due to the Japanese earthquake.

North America
NA AAA market price remains high due to continual high pricing of benzene and currency fluctuation. Strong upward price pressure will remain going into 2013. NA AAOT price struggles to remain stable due to rising toluene and global demand. Price pressure will remain going into 2013.

103

DCB
Cost Development Background

China
DCB price continued upward trend, influenced by benzene, ONCB, and limited availability due to capacity loss. Three ongoing capacity expansion projects in China are planned to be completed in 1H 2013, adding an extra +10K mt of DCB capacity.

North America
DCB supply concerns related to reduced global capacity. Two factories exit market while others are forced to reduce capacity due to environmental controls or shortage of hydrogen. Global supply of ONCB is also reduced due to unplanned incidents in China and Europe. Pricing trending upward due to elevated benzene costs, isomer imbalance issues, increased freight, fluctuation of currency and uncertain market conditions. Ongoing price pressure and limited availability are expected going into 2013.

104

Strike Chemicals - Yellow


Cost Development Background

Acetic Acid
Due to excess capacity and sufficient methanol feedstock, China's acetic market has been less volatile in 2012 than in 2011. Acetic pricing in the US has been elevated as a result of unplanned outages.

Caustic Soda
Overall the global demand for caustic has been flat. Some regions in US and Europe have experienced supply tightness, keeping prices elevated. Asia's weakened downstream demand has resulted in lower prices.

Hydrochloric Acid
Due to the global economy, China's PVC demand in the construction industry has been very weak thus creating a chlorine excess. The abundance of chlorine contributes to flat HCl pricing. US HCl markets have experienced price increases in Q3/Q4 due to continued strong demand and a decline in the availability of by-product acid. The initial outlook for 2013 is positive.

Sodium Nitrite
US sodium nitrite has experienced a slight uptick in pricing due to rising ammonia costs. China's sodium nitrite price remains stable. 105

Flush Pigment
Cost Development Background

Pigment Intermediates
Asian governments enforce strict compliance with latest environmental laws. As a consequence pigment intermediate producers need to invest in additional waste water treatment capacity increasing overhead costs. Overall capacities reduced throughout China/India due to WWT limits & enforcement of environmental laws. Pigment intermediates for reds receive increased price pressure due to beta naphthol shortage and continued environmental challenges. Pigment intermediates for yellow remain high due to reduced global capacity, shortage of some feedstocks and high cost of benzene and toluene. Pigment intermediates for blue fluctuate at high levels due to copper and phthalic anhydride market volatility.

Oils & Distillates


Oils follow crude trends and distillate prices follow jet fuel / kerosene price trends. Both expected to increase slightly in 2013.

Resins
Phenolic resin pricing expected to be flat in 2013. Hydrocarbon resin pricing expected to rise in 2013. 106

Flush Drivers

Flush Colour Key Drivers


Mineral Oil/Vegetable Oil Heatset Flush - Resin
Main driver is Tall Oil Rosin which loosely follows Gum Rosin Base oils driven by crude prices and base oil inventories Vegetable oil volatility continues

Distillate
Distillate prices driven by crude and jet fuel / kerosene prices

Coloured Presscake
No serious pigment shortages, potential for upward price pressure Enforcement of environmental protection laws continues to disrupt supply of pigments and intermediates from India and China

Coldset Flush - Resin


DCPD & C9 feedstock pricing driven by gasoline and lighter ethylene cracking slates

107

Additional Key Cost Drivers

Packaging

Logistics

Energy

108

Print Media

Liquid Packaging

Packaging Key Cost Drivers


Drums, Pails etc.

Intermediate Bulk Container (IBC)

109

IBC Key Cost Drivers

Steel
Cage for IBC / metal drums Slow down in the steel industry

HDPE
Inner bottle / plastic drums / plastic pails Demand from the market is moderate

110

Drums, Pails etc. Packaging Key Cost Drivers

Steel Drum

Plastic Drum

Jerry Can

Pail

111

Steel
Cost Development Background

Europe
Steel demand is decreasing slightly due to the slow down in the automotive industry. Large price decreases are not expected but small adjustments are possible.

North America
Steel prices are expected to decrease by the end of 2012, and stay low into 2013 (with the possibility of a small spike as usual at the new year, due to producers holding end of year inventories low). This is being caused by the global economic slowdown (China, in particular) which is resulting in a surplus of Chinese steel.

112

IBCs

Drums, Pails etc.

HDPE
Cost Development Background

Europe
HDPE price is unpredictable due to volatility in the oil and gas market, however, as current demand is moderate, short term prices will likely remain stable.

North America
HDPE prices are expected to hold steady for the remainder of 2012 and into 1Q 2013 due to decreased demand and recent ethane price stability. Outlook for 2013 is continued volatility in HDPE prices. It will be dependent on the outcome of the election and the resulting business climate, any lingering effects from super storm Sandy, as well as geo-political situation in places like Syria.

113

IBCs

Drums, Pails etc.

Logistics Key Cost Drivers

Logistics NA

Logistics Ocean

Logistics EU

114

North American Logistics


Rates
Road rates continue to trend upward Increased operating costs and tight capacity

Diesel Fuel
U.S. Diesel projected to fall slightly and stabilize through Q4

Market Capacity
Transport market capacity remains tight but stable

115

Rates NA
Cost Development Background
Carriers working to repair margins from economy and increased fuel costs. Current inflation period in the U.S. transport industry Q3 rate changes by mode
LTL rates continue to rise, trending up 1-2% each month Truckload, Bulk rates are relatively flat through the quarter

Intermodal rates stable with increases at less than 1%

116

Market Capacity NA
Cost Development Background
Capacity projected to slowly tighten through Q4 and be worse in 2013
Driver shortage expected because of tougher regulations Carriers holding back on capacity additions Projected demand increase with economic improvement

US Shippers Condition Index is at -6.8, scores below 0 are unfavourable to shippers.

117

Diesel Fuel NA
Cost Development Background

U.S. Diesel projected to average $3.96/gallon through Q4. 2012 Diesel fuel prices rose from a January low of $3.83 per gallon to an October high of $4.15. Tight market conditions and increasing crude oil prices drove on-highway diesel up in Q3.

118

European Logistics
Rates
Decrease in (new) capacity will probably push prices upwards

Diesel Fuel
2012 diesel prices stable & high

Market Capacity
More capacity available in market due to economic slow down

119

Rates EU
Cost Development Background

Economic slow down and decreasing capacity should result in balanced transport prices. A misalignment in the timing of these two elements (economic slow down, decreasing capacity) may result in more price volatility

120

Market Capacity EU
Cost Development Background

Recent reports on new truck sales show dramatic drops which will have negative impact on market capacity

121

Diesel Fuel EU
Cost Development Background

Possible excise duty increases by EU governments could even further increase diesel prices Crude oil price direction uncertain

122

Global Logistics Ocean


US to Asia
Exports continue to be strong and rates in the TBWB market are expected to slightly rise

Asia to Europe
Demand in Europe continues to be soft but carriers intend to keep rates up.

Asia to US
Transpacific carriers collectively committed to reverse 2011-2012 losses

Europe to US
Rates are trending downward in the next two quarters

US to Europe
Rates are trending downward

US to Latin America
Rates into WCSA continue to remain strong. Expect rates to hold steady for the next two quarters.

123

US to Asia TPWB
Cost Development Background
Increases primarily due to rising intermodal costs. Ongoing USEC labour issues will push up TPWB rates in late Q4 and early Q1 of 2013. Equipment shortages continue to be an issue in certain Midwestern locations.

124

Asia to US TPEB
Cost Development Background
December 1 GRI announced by carriers
$480/20, $600/40, and $675/40HC

TSA Carriers have proposed increases for all 2013 contracts.


$800 FEU increase Asia to the USWC $1000 FEU increase from Asia to the USEC

Contingent USEC port strike congestion surcharge begins December 30.


$1000/container for all U.S. ports for both imports and export, includes USWC ports

125

US to Europe TAEB
Cost Development Background
Consolidation of vessel services continues in order to match capacity with softening demand. Contingent USEC port strike congestion surcharge begins December 30.
$1000/container for all U.S. ports for both imports and exports

126

Asia to Europe WB
Cost Development Background
Q4 spot rates historically trend down but carriers are responding by tightening capacity control resulting in a quick rate restoration. Carriers will continue to slow steam vessels and consolidate services to reduce capacity The major carriers have already announced price increases for 2013 due to capacity control and financial need.

127

Europe to US TAWB
Cost Development Background
Consolidation of vessel services continues in order to match capacity with softening demand. Contingent USEC port strike congestion surcharge begins December 30.
$1000/container for all U.S. ports for both imports and exports

128

US to Latin America
Cost Development Background
Rates into ECSA continue to trend downward.
Additional carrier capacity coming into this market will continue to hold down rates.

No GRIs are expected to hold in the next two quarters. Equipment shortages continue to be an issue in certain Midwestern locations.

129

Energy Key Cost Drivers

Crude
Relative stability in Q4 2012 expected to continue into 2013

Natural Gas
U.S. - cost expected to increase Europe - downward price trend

Electricity
U.S. power generation changing from coal to natural gas

130

Crude
Cost Development Background

Europe
Oil demand in continental Europe remains weak due to the poor economic environment with many nations experiencing mild recessionary conditions Austerity measures are further harming growth prospects in some regions, while high oil prices (particularly with a relatively weak Euro) are undoubtedly helping to weigh on demand and dent economic prospects. Brent and WTI prices remained elevated on the high side during the third quarter due to a combination of factors. A resurgence of geopolitical concerns, poor non-Opec supply growth, a large sanctions driven decline in Iranian output and the announcement of further monetary stimulus out of the US Federal Reserve.

North America
Demand, supply, inventory levels, exchange rates, speculation and geopolitical issues all play a role in cost. After dropping in mid-summer, crude oil prices have stabilized at roughly the same levels as Q4 2011. The gap between WTI and Brent continues to be around $20 per barrel and predictions that this would narrow significantly have not materialized. In 2013, the glut of inventory at Cushing, OK, is expected to decrease, causing WTI pricing to increase closer to that of Brent crude. 131

Natural Gas
Cost Development Background

Europe
There is a downward bias to prices this winter due to an expected increase in Norwegian output and a persistently weak demand outlook. While weather driven demand should increase in the final quarter of this year, the ongoing economic malaise and comparatively cheaper coal prices should further offset demand and associated costs. Oil prices are likely to ease which should weigh on deferred natural gas contracts as well. Although commodity prices are likely to fall further, increases in tax and other bundled and associated costs may offset any reductions seen in the markets.

North America
Total cost expected to increase by up to 9% NYMEX costs expected to climb beginning Q1 Volumes expected to increase year over year (2012 was a warmer than usual winter)

132

Electricity
Cost Development Background

Europe
With the continuation of weak economic fundamentals in the Eurozone and a depressed carbon market, power prices are expected to find little support in the fourth quarter. Should a more favourable resolution to the debt crisis be found, a return to optimism in growth prospects for the Eurozone and an increase in demand may return. If there is further deterioration in the European debt crisis, this will detrimentally impact carbon prices and push European power prices to the lower end of price expectations. Although commodity prices are likely to fall further, increases in tax and other bundled and associated costs may offset any reductions seen in the markets.

North America
Overall electricity increase 2.6% Clean Energy is main driver in price increase Change over from coal to natural gas fired power generation

133