Raw materials, performance products drive pricing trends

By Staff -- Purchasing, 7/13/2000

As a market, "adhesives and sealants" covers a lot of ground. After all, many different types of adhesives and sealants products are used in everything from food packaging to automotive components manufacturing. As one might expect, factors affecting one market segment do not necessarily affect all market segments for adhesives and sealants. And this makes price reporting and forecasting difficult.

But in general, some trends have emerged. Prices are beginning to track increases in raw material costs. Producers are looking to pass price increases through to customers to improve their margin situations. But there is also a great deal of competition and price sensitivity in today's marketplace for adhesives and sealants. In effect, these factors and the pressures placed on total cost reduction have made it difficult to get price increases to stick.

In addition, market segments are maturing. Producers are beginning to set their research and investment focuses on the discovery of new technologies. Other trends, such as consolidation of both the supply base and the customer base, are causing a shake-up of the market picture.

Specialty products drive demand growth

The U.S. market will see healthy demand in the coming years, according to analysts. Market researchers at Cleveland, Ohio-based The Freedonia Group Inc. place demand growth for adhesives and sealants at approximately 2.7%/yr through 2003 to 17.5 billion lb. By this time, the U.S. market is expected to total $13.6 billion.

Market segments contributing to demand growth include residential repair and remodeling, non-building construction, paperboard packaging and the automotive aftermarket. According to a Freedonia report, gains in the latter will be modest due to expected slowdowns in motor vehicle production, as well as improved adhesive and sealant durability and performance. In fact, Freedonia estimates demand for adhesives and sealants in the automotive markets at 1.3%/yr to about 1.8 billion lb in 2003.

Another factor influencing demand is product reformulation. These efforts have centered on lower solvent and volatile organic compound (VOC) emission levels in response to increasingly stringent legislation and an expected phasing-out of solvent-based adhesives and sealants.

For general-purpose adhesives and sealants, the primary beneficiaries of reformulation efforts have been product formulations with higher solids content, such as water-based and hot-melt products. Specialty materials such as radiation-cured adhesives are also seeing strong gains.

"There is less interest among producers in putting money and resources into developing commodity-type products, and a lot more interest in trying to find improved technologies, looking into radiation-cured, hot-melt, laminated, pressure sensitive and water-based technologies," says an adhesives analyst. These products are finding more demand for specialty uses, such as medical applications.

Pricing picture

According to most industry sources, the primary factor influencing prices of adhesives and sealants has been, and continues to be raw material costs. The rapid rise in crude oil costs during the first quarter of this year has sparked producers to attempt price hikes. And while some price increases have gone through for some buyers, several factors combined are keeping a lid on the increases.

According to Freedonia, the trend toward higher-performing, more environmentally friendly adhesives and sealants product formulations will benefit market value gains (these products, most of which are 100% solids or water-based formulations, tend to carry a higher price tag). Due to uncertain future environmental regulations, many producers are covering their bases by developing many of these product formulations for each market segment in which they participate.

"As a result, competition has increased," says Morton's Hugh Wilson. "It is inexpensive to develop this type of technology, and companies are finding it easy to get into this form of adhesives and sealants production," he says.

However, there are many tried-and-true products available in the marketplace. Continued use of these large-volume commodity products will keep major price swings to a minimum, according to the Freedonia report.

"Prices seem to be coming up slowly," agrees Hugh Wilson, sales manager for packaging adhesives at Rohm & Haas' Morton International packaging business, located in Ajax, Ontario, Canada.

Wilson alludes to raw material price increases for the price hikes, but also adds that getting the price increases to go through has been difficult. Wilson blames the Canadian economy and stiff competition in the marketplace.

"In general, we're seeing a trend toward price escalation," Wilson says. "However, how much prices will escalate remains unclear," he says, explaining that the North American market for adhesives and sealants is very price sensitive. "Producers try to pass a price increase through, and customers ask for a 5% reduction on the original price," Wilson says.

Broad, maturing market

Adhesives and sealants are used in nearly all sectors of industry, though the most significant demand comes from the packaging and construction markets, as well as from manufacturing and assembly operations. Analysts estimate the current market at approximately $10.7 billion.

The large packaging market makes up the lion's share of demand for adhesives and sealants. This market tends to show less cyclical demand fluctuation than construction and manufacturing, due to seasonal weather conditions, and is forecast to grow steadily. The most rapid growth in packaging for adhesives and sealants, however, is in products used in the manufacture of tapes and labels, according to Freedonia.

"There is a lot of competition," Morton's Wilson says. "Especially among the smaller players fighting for niches of the adhesives and sealants markets."

According to the Freedonia report, "No single supplier is able to compete in every product line or every adhesives and sealants market." This factor, based on the wide variety of market segments that use sealants and adhesives products, supports niche marketing strategies by producers.

Most of the market share (about 50% to 60% of total revenue) is controlled by a few, very large players, such as National Starch and Chemical, 3M Corp., Bostick-Findley, Akzo Nobel, Borden Chemical, adco, Franklin International, and Lord.

Supply adequate

Supply for most adhesives and sealants seems adequate, though supply situations vary from product to product and market segment to market segment.

Though the market is led by some large players, most adhesives and sealants manufacturing companies are small, private, and have few plants or locations. These companies compete in the market because the technology, raw materials and capitol equipment requirements are minimal. Also, many companies manufacture both adhesives and sealants because there is some overlap in the technologies required.

In supply news, two of the largest global suppliers of adhesives and sealants have merged, which may cause some shakeup of market share in the industry. As a result of the merger of petrochemical parent companies, total (Belgian) and fina (French), adhesives and sealants giants Ato-Findley and Bostick USA have merged. The company, which will be known as Bostick-Findley, is currently reviewing details of the merger.