Label printers’ woes, price increases and shortage of inputs

The print industry has been at the receiving end not just because of the price rise but also due to shortages of paper and that too at a time when demand is rising. The printers have suffered because of long lockdowns due to Covid-19 pandemic; they had hardly heaved a sigh of relief as the situation started to improve when prices began their upward movement followed by shortages or unavailability of critical inputs, adding to their operational problems.

The self-adhesive label printing and converting industry is an extension of the sheetfed or unsupported web printing industry.

Four label specialists, Saurabh Agarwal of Avery Dennison, Ajay Mehta of  SMI Coated Products, Prashanth Raveendran of Seljegat Printers and Manish Desai of Mudrika Labels shared their insights. The webinar was initiated by Rajesh Nema, president of LMAI, with Jaideep Singh, secretary, LMAI and Anurag Mohan, a management committee member, coordinating the event.

The stock angle
Mehta of SMI Coated Products shed light on the gravity of the situation due to rise in prices with price increases being announced by paper mills frequently despite not getting their full requirements of materials. “Forward contracts are made with paper mills but those are for quantities required and mills in general, charge prices prevailing at the time of dispatch. However, the increasing international freight rates, reduced availability of raw stocks with mills and the upswing in demand impacts adversely,” he said.

Mehta also said that while the mills give a date where after new enhanced prices will be applicable, the adhesive suppliers do not even give time for price increase and announce the new price with immediate effect. “Paper mills supplying release base papers are either facing shortages of pulp so have lesser materials to offer or they, to recover the losses incurred during lockdowns, are directing their materials to markets where they get higher value for their products.”

Mehta cautioned that by modest estimates, the label stock industry will stand to lose over Rs 250 crores annually and there is no way this loss can be absorbed. “We will have no alternative but to pass on the price increase to the printers. They do get resistance from some quarters but there is no way to compromise on this if one has to survive and keep the company in sound health.”

Agarwal of Avery Dennison echoing Mehta’s views said that the significant increase in demand post the improvement in pandemic impact, especially in the large economies of the world, while the supply environment continuing to remain constrained has been the single biggest reason for the serious inflationary pressures. “The rising oil and energy prices and the prevailing ocean freight crisis intensifies the impact and is now impacting almost every region. At Avery Dennison, all our efforts are geared to continue serving our customers in the best possible way during these volatile times, while at the same time keeping them informed of the prevailing situation.”

The buyers aren’t listening
Desai of Mudrika Labels said that the print buyers are strongly resisting the price increases by expressing that there are other printers ready to supply at lower rates. “The key is in becoming that supplier who does not give the buyer an option to go elsewhere, yet retain a healthy profitability.”

Desai further said, there will be the lure of downscaling the product specification by lowering substrate grammages and adhesive coat weights to reduce the profit gaps, but that will only lead to inferior quality and rejections. However, he said, “Many print buyers now mention the standard brand label stock usage in labels supplied to them hence printers do not have the option to consider alternate suppliers.”

Desai suggested to the label stock manufacturers that since they interact with print buyers to get their materials approved, they should in turn also impress upon to approve price increases in tune with raw material price escalations. “It would also be prudent for labelstock manufacturers to make forward contracts with raw material suppliers such that they in turn can give some breathing time for printers to settle down with new prices.”

Price rise is an ongoing process in growing economies and eventually the industry settles down in three to four months time frame. “Unfortunately, times are challenging, and the raw material price hikes are becoming more frequent,” Desai lamented.

Desai cited a case, where the label buyers, which are privately owned companies, amicably settle to a new price approval as one can deal directly with senior management and justify the need for higher prices. “Contrary to this, it takes three to six months to get approval from multinational companies as they have multiple layers of management and the price approval is a long-drawn process and by the time the approval comes, the prices may already have increased some more.”

Raveendran of Seljegat Printers was more focused stating that they have reached a level of success by continuously investing in the finest equipment to manufacture labels to international standards and creating innovative products. He said that not getting the appropriate and remunerative price for their products will hamper their growth and not justify their huge investments. “If some print buyers do not understand the situation and do not agree to give the right prices, unfortunately and sadly we will have to forego such orders. After all, we have to service our financial commitments,” Raveendran said.

Participants comment
Priyank Vasa of Ahmedabad based UnickFix-a-Form, said, “The recent price hikes and inflation in raw materials has got us wondering how long we can sustain a healthy margin while continuing to offer the best rates and quality to our customers. Production efficiency has been impacted in the past two years because of the pandemic. Looking at the current situation, it is tough to offset increasing cost of raw materials with an improved efficiency. Labels have become a commodity, unlike older days where one could reap the benefits of developing a product for years together.

Product diversification could be the key which could offer a good balance between profitability and volume. Current market conditions do not offer many niche segments where business could thrive. Sustainability of the margins will take the driving seat versus the volumes. Expansion models must be feather light as nature of our industry needs repetitive investments that come with an interest burden.”

Mahendra Shah of Renault Paper in Palghar, a part of Manohar Packaging group says, “We call ourselves manufacturers of labels but technically, we are just converters without any consumer brand-value which can be encashed at a later part of our entrepreneurial tenure. Our current or past investments do not last long, due to fast changing technology. If you do not capitalize your investment in the first one thousand days, your time and energy is wasted in just recouping the investments done. Really, is this why we became entrepreneurs? Competition was always there and will remain in future, the only difference is the mindset. Now with fast evolving technologies we need to achieve the return on our investment at a faster pace. As first-generation entrepreneurs, we took harsh calls and succeeded, with this huge price impact on our inputs now, we all need a fearless attitude to go for price increases from our customers before it is too late. We may lose some customers but with clear thoughts I am sure we can all make our business profitable and sustainable.” 

Anuj Bhargava of Kumar Labels asserted that the price increase must be passed on and it is an imperative for survival. Another point he mentioned is that the industry is not realising that people are a necessity in a company to work efficiently and the cost of people has dramatically increased post Covid-19. “That cost combined with the enhanced raw material costs is a – killer. If label printers do not pass on the impact of the combined cost increase, then definitely it is a formula for suicide.”

Conclusion
The PSA or self-adhesive labels industry is already at crossroads whereby evolution is leading to a lot of demand growth going off to different evolving technologies like shrink sleeves, in-mould labels, wraparound labels and direct on product digital printing.

Expansion in capacities coupled with commercial and other offset printers, facing pressure from the online communication, also investing in label manufacturing is bringing about intense competition and pressure on profit margins.

Label manufacturing also has another challenge which is becoming a matter of concern and that is the waste management. Adhesive coated waste matrix and the release liner that form more than 50% of the laminate is either going to landfills or being incinerated.

Facing pollution controls and attending to environmental concerns the printers must now invest in measures that support sustainable and environmentally safe production processes.

At such a time when input prices are going up putting margins under pressure, their woes keep on escalating, prompting them to get together as an industry and ponder over workable solutions to counter the concerns that are arising.

The positive side is that in a large country India with a huge young population, the growth is evident and there will be enough for all label manufacturing technologies.

(Harveer Sahni, is the chairman of Weldon Celloplast, and a key member of LMAI)