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Raw materials and chemicals are literally the building blocks of the adhesives and sealants industry. Without quality materials that are often specifically tailored to specific applications, our industry could never fully succeed. To better understand this often tumultuous sector, I recently posed several questions to industry leaders and our social media community.
How is the increasingly global economy impacting raw materials/chemicals supplies and/or suppliers?
Greg Bunker, Global Business Director, Adhesives & Functional Materials, Dow Packaging and Specialty Plastics: Current polyethylene prices in the U.S. remain among the lowest in the world, making the American plastics industry highly competitive. Dow is committed to making strategic investments that support numerous businesses, including packaging and adhesives, by taking advantage of gas-based feedstocks in the Gulf Coast. These investments will result in increased capacities that can address industry shortages, propel innovation to the marketplace and support U.S. job growth.
Even as the economy becomes increasingly global, markets like packaging are still shaped by regional preferences, as manufacturers must develop products that appeal directly to the consumer. We deploy a regional model that provides technical expertise, as well as solutions, to best serve our customers no matter where they are located.
For example, in many developing economies there is a trend for consumers to purchase small amounts of goods such as personal care products in single-use portions because it reflects consumers’ need for these items and the limited economic means necessary to purchase the products in larger amounts. In developed economies, particularly in North America, we notice the emergence of three retail channels: convenience and dollar stores, traditional retail/market stores, and club stores. The packaging requirements for brand owners to effectively serve these channels require different packaging sizes and looks. Dow works with our supply chain customers to develop new technologies and products to help them effectively serve their customers and ultimately the local consumer.
John Duffy, Owner, Easterly Research: Easterly Research does contract tech service for foreign raw material suppliers and contract development for non-competing (with each other) A&S manufacturers, both domestic and foreign, so maybe we have a good perch to see this issue from. First, of course, is that the global market is a two-way, 25,000-mile-long street. It is interesting to see how the rest of the world views North American raw material suppliers and, in particular, how those suppliers are perceived in the developing world. Overall, it’s pretty impressive, in that U.S. and Canada raw material suppliers are doing well.
On the availability of global raw materials in the U.S., most of our Easterly Research projects are in the upper half (sophistication or just novelty) of the technology in the adhesives industry, and so we see materials that are in the first halves of their product life cycles. For the most part, we see European suppliers as just a few more time zones away, but otherwise similar to North American suppliers. Of course, all companies come from some local culture with local issues; we all see this every day, even with Western European suppliers, and we all make adjustments for it. But it’s also apparent that we globally share many themes and goals, and it’s exciting that there are now a few more thousands of people around the world working on those challenges.
The most interesting raw material developments have been in East Asia, particularly China, and some Indian supply. (I don’t include Taiwan, Japan and Korea here because they have been critical partners for many years.) Ten years ago, many A&S manufacturers would only consider buying low-risk technologies (think TiO2) from the fast-growing countries. Now we’re willing to buy many high-value materials with some risk, but mostly if they are still of well-established technology and standards. In the very near future, the outcomes of the risk/benefit calculation may change even more.
And there are always the lingering questions of supply. For example, in China: Who is really making the product? What is their quality system? This sometimes elevates the importance of U.S.-based distributors/importers that are doing the gate-keeping for the A&S manufacturer unless the A&S manufacturer has Chinese operations that can screen the good suppliers from the less good. And even from China, it’s a very different situation if the supplier is from one of the old high-technology national companies like Sinopec.
The particular value of these new suppliers and good importers is that they bring pricing levels down on materials that were price-inflated based on a value calculation different from the one being used by the emerging supplier. I don’t think too many A&S people are looking to these suppliers primarily for qualitatively strong innovation, although some of the new suppliers are quite good at it. But the newcomers can let the air out of the balloon on some pricing situations if the adhesive manufacturer can control supply and quality. Of course, there are also many situations where East Asian manufacturers have been critical in maintaining global supply when Western raw manufacturers pulled out (think Neoprene).
The fact is that for U.S. raw material suppliers that are priced fairly and to value, there is little to fear, and much to profit, from the new global suppliers. Because the labor component of most of our raws is low enough, favorable labor rates don’t matter nearly as much as technology, an innovative culture, process and quality consciousness.
Shamsi P. Gravel, K-Flex Product Line Director, Emerald Kalama Chemical: Increased globalization presents challenges and opportunities for raw material/chemical sourcing, as well as for working with our customers worldwide. We see our customers leveraging their global presence—not only from a consumption/usage perspective, but most importantly from the view of sharing technologies and trends internally across regions. From an operations perspective, we must leverage and optimize our manufacturing base, logistics network and distribution partners to serve our customers around the globe. On the raw material supply side, supply chains can be more complex and prices of certain items experience greater volatility, yet globalization provides a larger pool of potential suppliers.
Troy Corp.: Environmental and regulatory issues remain a prominent factor in the development and marketing of preservatives and additives. Suppliers have invested in developing ‘green’ products in anticipation of these concerns. Troy, for instance, offers a full portfolio of green, environmentally responsible dry-film preservatives, wet-state preservatives, and performance additives for the adhesives and sealants market. Troy products have proven to be highly effective and have minimal impact on the environment. Troy endeavors to anticipate tomorrow’s challenges as well with advanced technologies that will meet or exceed regulatory and performance demands.
Zhejiang Sucon Silicone Co. Ltd.: The global economy makes the world become smaller. The exchange of information between suppliers and buyers becomes easier. It leaves less margin for suppliers of raw material, so suppliers are forced to shut the factory because that they could not break even.
What impact does continuing regulation/legislation have on the raw materials/chemicals sector?
Bunker: Our team members throughout all regions of the globe are working with industry and environmental regulations to help ensure that we offer solutions that are effective throughout the manufacturing process. We are also active in a number of industry trade groups to guarantee that regulations are balanced and science-based. Dow has been devoted to providing the industry with innovative technologies that offer sustainable advantages to help meet increasingly strict regulations around the world.
In 1998, the Environmental Protection Agency (EPA) enacted a ruling that limited the level of volatile organic compounds (VOCs) that could be used in adhesives and sealants for consumer goods. The EPA has also established Controlled Technology Guideline (CTG), helping local and state authorities limit VOC levels in industrial adhesive applications. Currently California, Michigan, Illinois, Ohio and Indiana have all adopted rules relating to VOC levels. At Dow, we worked closely with supply chain members and sustainability experts to ensure our products meet or exceed these standards.
Additionally, the national trade organization, The Association of Postconsumer Plastic Recyclers, created a set of standards for evaluating labels and adhesives used in polyethylene terephthalate (PET) packages. The association collaborates with North American companies that work directly with post-consumer plastics, encouraging packaging designers to consider recycling options at the development stage. Dow is a member of the association’s Rigid Plastic Recycling Committee and continues to team up with retailers, such as Wal-Mart, to emphasize these kinds of standards and ensure their end products are sustainable.
Gravel: Regulations and legislations are important to keep up with. From our view, this also drives innovation throughout the entire value chain—from raw material suppliers through formulators and manufacturers all the way through to consumers. We are able to innovate at each step of this chain, with an eye to current and new regulations on the horizon but keeping our focus on delivering performance first and foremost. Registration processes, such as Europe’s REACH, can influence the raw material choices for companies that prefer to standardize their product platforms globally, and must be a consideration in the commercialization process for new product development.
Zhejiang Sucon Silicone: It builds up barriers for suppliers of raw material to enter regional markets because of certain regulations. For example REACH regulation in EU countries makes it hard for suppliers from other countries to enter the EU market.
How important is a collaborative relationship between raw materials/chemicals suppliers and manufacturers/formulators in the adhesives and sealants industry?
Bunker: It’s critically important. At Dow, we believe that the best work is accomplished through collaboration. With very few exceptions, good innovation cannot be done in a vacuum. Our experts are always collaborating with customers, equipment suppliers, industry leaders, brand owners, retailers and supply chain members to create the best chemistries out there. Working together isn’t just a timer saver. Providing value chain members with access to Dow experts and labs ensures that end-use products are durable, high performing, and maintain the highest quality aesthetics.
Matt Croson, President, The Adhesive and Sealant Council: Critical, as this relationship supports innovation, which is critical to any company. This is why ASC dedicates 3.5 hours twice a year for an Expo at its Convention, and also dedicates a full-day track focused on Advanced Technologies featuring research highlighting novel concepts and formulations within the research community. Innovation will be a major part of the council’s long-range plan that is in development, and the dynamic between the supply chain partners will be a primary focus.
Gravel: A collaborative relationship is extremely important; as ideas continue to develop, it is increasingly challenging to come up with the “next big idea.” Collaboration between suppliers and manufacturers allows for additional creativity and thinking “out of the box.” Working collaboratively is also beneficial to develop a mutual understanding of needs and define all performance targets up front. These best practices lead to faster product development cycle times with better outcomes.
Troy Corp.: A collaborative relationship with customers is a big part of Troy’s philosophy. By partnering with our customers, we not only assist them in overcoming their challenges, but also gain firsthand knowledge of their long-term objectives, where they want to position themselves in their markets, and what will help them get there. We can therefore develop the technologies that customers will need in the future, and play a larger role in our customers’ ongoing success.
Troy offers regulatory assistance worldwide, a service which many of our customers who operate internationally or globally find valuable. With a highly experienced regulatory department with global, regional, and national expertise, Troy assists customers to navigate the complex rules and regulations that continue to be a factor in many of the industries we serve.
Troy introduced this past year a value-added program called TMMA—the Troy Microbial Management Advantage. TMMA is a technical consultative service, as well as a preservation philosophy based on sound plant hygiene practice, customized treatment and prevention programs, and expertise in systems troubleshooting. Backed by comprehensive microbiological and analytical testing, TMMA is a partnership program that Troy offers to customers to help them achieve their objectives and optimize preservation costs.
Zhejiang Sucon Silicone: From the perspective of a raw material supplier, it is very important to build up stable and close relationships between manufacturers and formulators. There needs to be a balance on the price of raw material. It is the foundation of a collaborative relationship.
What factors are driving innovation for raw materials/chemicals producers? How do these materials advancements help serve the adhesives and sealants industry?
Bunker: Globally, flexible packaging is driving much of the innovation with the increasing need to package a much wider variety of goods. The adhesives required for this application need to withstand the product’s various demands. For example, fragrances and other ingredients in personal care items place demands on packaging laminations. The adhesives used can’t contribute to any odors or remove, also known as “scalping,” the fragrances from the product itself. Likewise, similar requirements are placed on food packaging. Have you ever noticed the odor of the adhesives used on your orange juice carton? No? That’s because the adhesive is doing its job, making sure to only showcase the aroma of the freshly squeezed oranges.
Adhesives are extremely important when it comes to food packaging. Food protection and safety remain a high priority for consumers and manufacturers alike. Americans are living “on-the-go” lifestyles and seek packaging solutions that accommodate their busy schedules. This trend lends itself toward individualized pouches that are pre-portioned, easy to open and close, and lightweight. Ironically, the smaller the product size, the higher the package and barrier requirements are due to the higher surface-to-volume ratio. All of these unique characteristics require specific and more-demanding adhesive technologies.
Dow works tirelessly to create products for our customers that help achieve brand owners’ objectives. We also look further down the value chain and create products with the end-use consumer in mind. Shoppers drive the demand and they want their products to arrive in convenient and reliable packaging.
Troy Corp.: The predominant trend is toward green materials. Facing both regulatory pressure and consumer demand, adhesives and sealants manufacturers want to offer the best of both worlds: the same high-quality products and adhesion strength as historically offered, plus green attributes such as low VOCs. To assist manufacturers in achieving these goals, additives suppliers such as Troy are focusing on green preservatives and multifunctional additives (i.e., single-additive products that accomplish the tasks of several products).
Innovative suppliers are using their technical expertise to help customers maximize value. Troy dry-film preservatives, wet-state preservatives, and performance additives are formulated to offer high performance at very low use levels. The benefits for adhesives and sealants manufacturers are higher performing products with lower cost-in-use.
Julie Vaughn Biege, V.P., Marketing & Business Development, Emerald Performance Materials: Regulatory shifts have caused significant shifts in raw material preferences as customers seek to lower VOCs or replace raw materials classified as SVHCs or associated with certain health, safety or environmental risks with safer alternatives. We have focused on developing technology that fits into these categories—reducing or eliminating VOCs and offering non-phthalate plasticizers and bisphenol A alternatives—while seeking to improve performance features and deliver value.
Customers almost always have alternative choices, and healthy competition can also drive innovation in the industry. We continually seek ways to do what we do better, including new formulations and technology, and expanding our technical service and applications capabilities to assist customers in reaching their goals. For example, our technical service team works with customers in the area of structural adhesives, which are increasingly used vs. mechanical fasteners in applications such as automotive and aerospace, and require superior performance properties such as t-peel and lap shear strength.
What does the future hold (near- or long-term) for the supplies and/or suppliers of raw materials/chemicals?
Bunker: According to The Freedonia Group Inc., the demand for adhesives and sealants in the U.S. by 2017 will increase by 2.2% per year—that’s 9.8 billion lbs and $11.9 billion. With a shift from bonding technologies such as metal fasteners to modern adhesives, the industry has experienced steady growth, challenging our scientists to continue to develop materials that push the envelope in performance, sustainability, and cost effectiveness. While many in the past may not have given adhesives a second thought during the packaging design phase, packaging designers are moving toward a more holistic approach. Large brands like Wal-Mart and Target are enforcing sustainability guidelines, demanding value chain partners deliver sustainable raw materials. The Freedonia Group study also goes on to state that natural adhesives and sealants will represent 40% of the industry’s demand, with hot melts and solvent-based adhesives and sealants.
As stated before, the current polyethylene costs in the U.S., combined with the fact that the packaging industry remains the largest segment for Dow’s adhesive business, has provided Dow with the exciting opportunity to invest in its U.S. facilities. Dow is introducing a comprehensive investment plan to increase our ethylene and propylene production, which will benefit adhesives raw material supplies as well. The new assets, as well as the improvements to our existing facilities that support the adhesives portfolio, will help customers and other value chain members continue to push the envelope in adhesive technologies for packaging.
Robert L. Culp, V.P., Procurement, Emerald Performance Materials: We do not anticipate issues with raw material supply during 2014. In some cases, we are backward-integrated into key feedstocks, such as benzoic acid used to make our non-phthalate plasticizers, and continue to invest to increase capacity in feedstock production as the demand grows. For purchased raw materials, we aggressively manage raw material supply to ensure cost-competitive terms, source strategically, and enter into agreements with suppliers globally to assure continuity of quality supply and mitigate risks. However, as we transition into the first quarter, costs are increasing for several basic building block chemicals, such as benzene, toluene and propylene, which may translate into higher prices downstream.
Vaughn Biege: Environmentally friendly manufacturing will continue to be a focus. As a manufacturer, we have focused on reducing our emissions and carbon footprint and will continue to invest in this area. From a raw material perspective, while most of our raw materials are petrochemical-based, we continue to look at sustainable, bio-based feedstocks and use them when they can meet both performance and economics criteria. We have several examples of products based on renewable resources, and we recently developed several zero-VOC defoamers based on renewable resources.