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----------------------------------------------------------{ April 30, 2008 }Rising Pigment Costs From China
In February, Steve Grudzinski, Senior Vice President of Finance and Administration, had the opportunity to attend a conference on “Iron Oxides for Colorant and Chemical Applications”. This annual event is sponsored by Intertech Pira Corporation, and brings together producers and consumers to explore the latest processing innovations, applications and the global market outlook of the synthetic iron oxide industry. Synthetic iron oxide pigment is a main raw material in the production of colorants for the color enriched mulch industry. Of most interest were presentations by the China National Iron Oxide Industrial Association and several major Chinese pigment manufacturers.
Color enriched mulch producers who are new to the industry may find it hard to believe that ten years ago (when ChromaScape acquired the Amerimulch business) the price of mulch colorants was in excess of $2.50 per pound. Since that time, selling prices have been cut in half twice. How were mulch colorant producers able to survive and prosper during this period? The answer is through increased volumes and manufacturing efficiencies, as well as a supply of inexpensive synthetic iron oxides available from China. As noted at the conference, for several reasons, the days of inexpensive pigment from China are over.
Everyone has heard that since July 2007, the Chinese government canceled the 13% export tax rebate previously allowed to Chinese producers. There was no transition period. This action forced many smaller Chinese producers to close and forced many larger producers to focus on getting this lost margin back. The cost of pigment for Amerimulch immediately increased by 13%. The Chinese government’s impact on prices didn’t stop with the cancellation of the tariff rebate. With the eyes of the world on China, its government has increased environmental restrictions on discharging process water waste into rivers and dumping in landfills. You may have read of the driving restrictions put in effect in the major cities to help clear the air. In China, the government doesn’t propose or suggest compliance, it demands it.
Half the cost of producing synthetic iron oxide is in the cost of scrap iron, the main raw material. Have you noticed the decline in the number of junk yards in your area over the past few years? This can be linked to the more than 100% increase in value of scrap metal during this time. More than half of the heavy construction cranes in the world today are at work in China. The upcoming Olympic Games and the World’s Fair have put extreme demands on China’s internal supply of steel production competing for scrap iron thereby driving up the price.
Collectively, these items have increased the cost of synthetic iron oxide pigments by more than 60% from a year ago. Will it decrease the demand? The answer is no because of the wide end user applications, from pet foods, to building materials, to cosmetics - there is no substitute that can deliver the color strength, safeness and relative price. While we can’t control the price of pigments, be assured that Amerimulch, the company first to offer our industry fractional pricing and bulk delivery systems, is working hard every day on developing new ways to deliver Real Tangible Value™ to your business.
Posted at 12:02 PM | Link to this Article