This article is based on a GCiS multi-client report: China Inks Market Research Report.
The purpose of this article is to gauge the potential growth of China’s ink market and to propose if there are still significant potential opportunities for businesses to thrive in this sector. To answer this, this article will focus on three main aspects: Market trends, existing competition and driving vs. inhibiting forces.
The target product is widely used in the following industries: flexible packaging, publication printing, commercial printing, labels, rigid container packaging, retail bags and sacks, PCB circuit boards and others. There are five target ink products, which are segmented by printing plate type:
- Lithographic Ink: Is used for lithography printing. The surface area is not raised or depressed, so the process operates on the same level. Lithographic ink must be water resistant, as it is applied using the oil-water repellent principle: The image area repels water, and the blank area attracts water. Thus, this method pushes water away from the image leaving just the ink.
- Gravure Ink: Gravure printing is an intaglio printing technique, where the image being printed is made up of small depressions in the surface of the printing plate. These depressed cells are filled with ink, and the ink on the non-image area is scraped off with a doctor blade.
- Screen & Textile Ink: Screen printing is a printing technique that uses a woven mesh in conjunction with an ink-blocking stencil. It uses the mesh-based stencil to apply ink onto a substrate.
- Flexographic Ink: Flexographic inks are transferred by the process of flexography, primarily used in the printing of packaging materials such as cardboard boxes, corrugated cardboard, paper bags and plastic bags, food packaging, and catalogues, etc.
- Letterpress Ink: It is a kind of ink used in the letterpress printing of books, newspapers, picture albums, documents and account books. The main characteristic of letterpress printing is that the inking part bulges out over the non inking part.
A Brief Look at the China Market
The target market is defined as the Chinese ink market, which is exclusive of exports unless otherwise stated. The target ink market is valued at RMB 20,146 Mn with output totaling approximately 665,000 tons, and an overall growth rate of 4.6% varying by product segment.
The largest end-user industry is flexible packaging which alone constitutes nearly half of overall target revenues. This typically includes paper packaging for food, tobacco and pharmaceutical products. Geographically, end-users are concentrated in Eastern and Southern China where the Yangtze River Delta and Pearl River Delta are located.
Litho ink and gravure ink are both major segments. Flexographic ink has a market share of less than 10%, but it is expected to have the highest growth. Screen and textile ink is the only segment with less market share when measured by sales volume than by revenue, which indicates that this product segment generates revenue by high price rather than volume.
Figure 1: Market Shares of Each Product Segment by Revenue and by Sales Volume
Market presence of competition
High-end suppliers are competing over technological innovation and ink quality, while suppliers at the low-end of the market are competing intensively over price. The price varies a lot from low-end to high-end.
Domestic suppliers have developed well over the last five years. Unlike in 2010 when foreign companies had 80% of the market, in 2014 domestic suppliers had two thirds of the market share and foreign suppliers only had one third. This shows that the competition level has increased a lot.
The market is led by domestic leader Yip and foreign leader DIC. They have a strong presence in the litho ink and gravure ink markets. In general, domestic suppliers have an 80% share in the gravure and flexographic ink market. For other product segments, foreign suppliers and domestic suppliers have an even share of the market. Foreign market leaders are mostly Japanese companies, with advanced ink technology. Large suppliers earn more than half of market revenue and SMEs have the remainder.
Potential Opportunities and Inhibitors
Opportunities and inhibitors often come in pairs.
Firstly, there are two fast expanding end-user industries for the Chinese ink market: PCB and flexible packaging. On the other hand the publication printing industry is declining. With the increasing popularity of electronic devices, it is no surprise that there is rising demand for PCB circuit boards. The rapid development of digital media is reducing demand for traditional publication printing. Screen and textile ink is mainly used for PCBs, gravure and flexograpgic inks are used in flexible packaging. Therefore, these two end-user industries are ripe for entry. Market players may want to gradually exit or avoid entering the lithographic ink market as the publication printing industry mainly uses lithographic ink. But because publication printing is a traditional industry with a huge basic demand, it is expected that the industry is still going to expand, though with a low overall growth rate.
Secondly, there are technological innovation opportunities, though the cost is high. Due to the maturity of the Chinese ink market, there are not many opportunities. But customers are gradually transitioning to the high-end market which has stricter requirements for ink products. This will spur demand for high-level products, which requires R&D. In this kind of situation, large enterprises can take advantage of their superior resources to leverage innovation, and capture market share. Through large-scale R&D, new products and/or new market may be discovered to meet customers’ new demand.
Thirdly, though the growth of the Chinese economy is slower than before, it is still steadily expanding, creating a stable environment for the Chinese ink market. Through the leadership of the central government, China is experiencing smooth economic growth, though the world economy remains subdued. It is predicted that China’s GDP growth will be above 7% in 2015. The stable macro environment creates less fluctuation for the Chinese ink market.
Fourthly, the raw material costs for inks have remained stable, which means that prices do not fluctuate a lot. However, ink price is very sensitive to raw material prices, and will change if there is a shortage of raw material in the future.
Finally, government regulations encourage a high level of innovation and healthy competition, which manifest itself in three ways: Via regulations requiring eco-friendly ink; Requirements for benzene- and ketone-free ink for food packaging; The closing down of small enterprises that produce less than 300 tons of ink. These regulations consolidate the market from the supply side, encouraging high-end growth.
By looking at the size of the market segments, the overall industry, foreign share in the market, demand growth rate and industry demand for quality, GCiS provides the following recommendations:
The size of the PCB industry is medium, with foreign shares of 30%. The PCB industry has experienced fast growth in recent years, especially after the rise of the electronic devices industry. Foreign suppliers have more opportunities in this industry because it requires higher technology. However, domestic suppliers have increased their proportion of R&D funds and have been developing increasingly advanced technology. Though they have not reached the same level as foreign companies, they are still a threat to foreign suppliers. Only screen and textile ink can be printed on PCB, and this market has the best opportunity for foreign suppliers. It is the second largest product segment by market size and growth rate.
Flexible packaging is the largest downstream industry with a market size of RMB 2.6 Bn. It is one of the fastest growing end-user industries. All types of ink can be used in this industry. However, foreign suppliers only have 27% of the market share in this industry, less than the 32% enjoyed by foreign companies in the total ink market, indicating domestic suppliers are stronger. Also, there is little demand for high-quality products.
Water-based flexo ink is more eco-friendly, and cheaper than litho and gravure ink. Therefore, it has been and will continue to gain market share in food and pharmaceutical packaging. The market is currently occupied by small and medium enterprises with low-end products. Foreign suppliers are focusing on R&D of water-based flexo ink in the high-end market. However, foreign suppliers only account for 26% of the market. Hence, there is larger opportunity for domestic suppliers rather than foreign suppliers in this market segment.
Entrance into the retail bags and sacks industry is highly discouraged because of the following four factors: Firstly, the market size is too small, only RMB 0.16 Bn, because the government has put a limit in this industry for food safety and environmental reasons. Secondly, the growth rate is among the lowest. Thirdly, foreign suppliers only account for 17% of the market share, which is the lowest among all downstream industries. Fourthly, the quality requirement is low.
Overall, GCiS estimates that the Chinese ink market can expect a 5.5% CAGR over the next 5 years, primarily driven by the growth in screen and textile ink and flexograoghic ink with heavy use in the PCB and flexible packaging sectors.
GCiS does not expect the Chinese ink market to thrive in the near future, but it will continue to grow with the country’s economy, and there may be potential opportunities for companies that are willing to invest in R&D for new ink products or open a new ink market.