Strong demand driving up prices
By By Jianfeng Pei -- Purchasing, 10/19/2000 2:00:00 AM
Adhesive prices are surging this year as manufacturers are trying to pass on rising raw material costs to customers. The price hikes are expected to continue in 2001 because the demand for adhesives will remain strong.
In August, H.B. Fuller, based in St. Paul, Minn., announced it is raising its prices for the second time in a quarter. Combining the two price hikes, H.B. Fuller has increased its adhesive prices by 10% within the water-based market and by 8% within the hot-melt market. For contract customers, the price increase takes the form of a surcharge.
"We have been challenged by significant increases in our raw material expenses throughout the past year," says Al Stroucken, chief executive officer of H.B. Fuller. "We have taken a number of steps, such as reformulating products where feasible without sacrificing quality and consolidating our manufacturing operations, to help offset the cost increases. However, costs continue to escalate, and we can no longer absorb the full impact."
Early this year, National Starch and Chemical Co., based in Bridgewater, N.J., raised its prices for adhesives used in the packaging and converting industries by an average of 5% to 6%. The reason for taking the action was surging costs in raw materials and transportation.
"After years of relatively mild petroleum-related cost fluctuations, opec's success in reducing inventories has had a severe negative impact on our cost of doing business," says Jack Dutney, divisional vice president, packaging & converting, at National Starch and Chemical. "We have no choice but to pass some of those cost increases along to customers."
Adhesive prices were quite stable in the past several years. "Manufacturers were uncertain about the market and they were reluctant to raise their prices," says Jerry Perkins, director of industrial marketing at Loctite Corp., based in Rocky Hill, Conn. "Now demand is very strong. Manufacturers are more confident and they are trying to restore the profit margin which had eroded during the past few years."
He expects general prices for adhesives to increase 3% this year. This is just the beginning. More price increases are expected in 2001. "Customers will face even higher prices next year," he says. "There are early indications that prices will grow an additional 5%-8% in 2001."
Strong demand
The reason manufacturers are able to raise their prices this year and next year is that demand for adhesives is very strong. "The U.S. market is expected to grow 5%-6% this year," says Perkins of Loctite.
The robust growth in industrial productions and the recovery of Asian economies help boost the market. "There are no major negative factors to slow down the strong demand for adhesives," he says.
2001 is expected to be another good year for the adhesives industry. The economy is heading toward a soft landing. Key end-user industries see no sign of a downturn and demand will continue to be strong, according to Perkins at Loctite.
Despite strong demand, supply is not a problem. For standard products, leadtimes are about one to two days. For highly specialized products, leadtimes are no more than 20 days.
The bigger, the better
There are about 500 adhesive manufacturers in the U.S. The top 10 suppliers control about 55% of the $9 billion market. Consolidation continues in the industry as large companies are getting even larger with frequent mergers and acquisitions.
In August, Loctite took over Dexter's California-based Electronic Materials, Adhesives and Polymer Systems business for $400 million. Early this year, Loctite acquired Multicore Solders Ltd. from Kelsey Industries.
Loctite is already a leading supplier to the electronics industry. The latest addition of the Dexter electronics product line takes Loctite a step further to becoming a more dominant player in one of the fastest growing segments of specialty chemicals. With the acquisition, Loctite will be offering a broader and complementary range of products to strengthen its position as a top supplier to global accounts in the computer and telecommunications industry such as Intel, Motorola, Philips and Siemens.
E-commerce
E-commerce is still a relatively new concept in the industry and not many transactions are conducted online at this time. But manufacturers, distributors and dot.com marketplaces are developing e-commerce solutions to help move business to the Internet.
AdhesiveMart.com, launched in early 1998, offers the world's largest online searchable database of industrial adhesives. The database features more than 5,000 products from over 50 partners.
AdhesiveMart.com serves as a middleman between buyers and suppliers of industrial adhesives. Using sophisticated software, it asks buyers a number of questions about their requirements and then matches the responses to specifications from a wide range of products in its database.
Early this year, 3M Adhesives Division joined AdhesiveMart.com and has its products included in the database of the marketplace. 3M also receives sales leads generated by the online marketing program.
Market at a glance
Demand: Very strong. The market will grow 5% to 6% this year and remain strong next year.
Supply: Not an issue.
Prices: Surging. This year general prices are expected to increase about 3% and they will continue to rise in 2001.
Leadtimes: One to two days for standard products and no more than 20 days for highly specialized products.
Adhesives demand/(million pounds)
| Item | 1998 | 2003 | 2008 | 03/98 annual growth |
|---|---|---|---|---|
Adhesives demand |
13,250 |
15,070 |
17,175 |
2.6 |
General purpose adhesives |
7,970 |
9,060 |
10,300 |
2.6 |
Wood binding adhesives |
4,800 |
5,440 |
6,190 |
2.5 |
Specialty & performance adhesives |
480 |
570 |
685 |
3.5 |
Adhesives demand (million dollars) |
8,055 |
10,150 |
12,725 |
4.7 |
Source: Freedonia Group |
Prices to jump as demand remains strong
05/03/2000Demand remains strong, prices will rise
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