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Is the Direct Thermal Shortage a Sign of Things to Come?

Over the last few weeks, it has been widely reported that direct thermal (DT) paper manufacturers have put their customers on allocation.  A Chinese company, Connect Chemicals, has shut down its main manufacturing facility due to environmental issues.  (It is unclear whether the stated environmental issues are a result of Connect Chemicals or other companies in its industrial park.)  It is estimated that Connect Chemicals supplied approximately 70% of the leuco dye, a key component in DT paper production, for Europe and Asia.

The DT paper shortage is expected to significantly impact the receipt paper market.  In addition to price increases, most suppliers have put customers on allocation.  Thus far, the DT label business appears to have an adequate supply of DT face stock, but a price increase in the near future wouldn’t surprise me.  Our vendors have assured us that they have an adequate supply of DT paper.

Those of us in the label world lived through a disruption in the thermal transfer ribbon (TTR) market a few years ago, as manufacturers of thin PET film moved capacity from TTR to more lucrative markets.  In many markets, global consolidation has led to one or two suppliers having dominant market share.  A major disruption in the supply chain of one of those firms will have a dramatic impact on the markets they dominate.

We’ve lived through many years of low volatility in our supply chain.  The last announced price increase from our vendors came in 2011!  The years of supply chain tranquility are coming to an end.  To avoid supply disruptions, choose your partners wisely.  Remember, price is irrelevant if your supplier cannot deliver.

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