You've heard of the ancient Chinese curse that goes "May you live in interesting times."
The financial pages are showing the result on the graphic arts industry of some of the more interesting developments of our times. The sudden and dramatic increase in oil prices has caused suppliers like Agfa, Kodak and Fujifilm to raise prices on key inputs and chemicals derived from oil. This is a result, partly, of tensions in the Middle East and the closure of a leaky pipeline in Alaska. However, the long-term cause of the increase in prices is a long-term significant increase in demand for energy from the rapidly industrializing economies of India and China.
The paper industry continues its consolidation drive: on August 23, Domtar and Weyerhauser announced a merger of their freesheet businesses. The new entity will be called Domtar and its head office will be in Montreal, but its "operations headquarters" ó whatever that means ó will be in South Carolina.
Aluminum prices have also risen recently a third in recent months; Alcan, the world's second-largest producer, reported that prices for its smelters' product have risen by a third in the past year. The reason is increased demand from manufacturers of aircraft and building materials, especially in China. China alone now consumes 28 percent of the world's total aluminum output, according to the National Post. Demand is expected to rise more than supply, forcing up prices yet more.
This is good news for aluminum producers ó Alcan doubled its profit in the second quarter over the first, and increased its share dividend from 15 cents US to 20 cents. Oil producers are also reporting record profits.
But what will that mean for the printers? Higher prices for their major supplies. Granted, the oil and metals producers, now flush with cash, will probably want to buy some more printing; expect some spectacular annual reports from these companies next year. But dramatically higher prices will put yet more pressure on the bottom line. Our comparative quotes earlier this year showed that Canadian printers already have very low prices compared to competitors in China and India. Can they continue to offer these low prices, or will more printers start to raise prices to cover their increased costs? Where can they find a relief to this pressure?
Let's throw in the rising Canadian dollar: input costs are mitigated, but exporting printing products and services isn't as competitive anymore. Imports are cheaper, too. What does all this add up to?
Very interesting times, indeed.
