article examines the state of the adhesives and sealants industry, including
the current impact of raw material and feedstock prices.
The ParticipantsGeorge Cramer
Vice President – Marketing and Commercial Development, Adhesives Research Inc.
Richard “Max” Maksimoski
Vice President of Research & Development, Elmer’s Products Inc.
Vice President – Marketing, Henkel Corp. – Adhesive Technologies
President, The Reynolds Co.
Market Development Manager for Functional Chemicals, LANXESS
1. What are your predictions for the adhesives and sealants industry in 2009 and beyond? George Cramer
: I read that U.S.
housing starts are down by 27% and light vehicle sales are at their lowest
point in over 10 years, yet at the same time some industries - health care and
consumer electronics, among others - have remained reasonably strong. We are
optimistic that Adhesives Research and the rest of our industry will do well in
2009 and beyond, benefiting from the recoveries of these two large industry
sectors and continued innovation in others.
: We’ll see continued growth at
or above GDP levels. As the economy
recovers and housing efforts re-start in early-to-mid-2009, commercial and
consumer applications/usage will revive to stronger levels.
: We expect the industry to have another
challenging year in 2009 with general market conditions being flat. Auto build
will continue to suffer, and the shift to fuel-efficient and foreign automakers
will continue. Housing has yet to bottom out, affecting construction-related
businesses and businesses supporting home appliances and white goods.
Recreational vehicle and marine businesses tied to discretionary spending will
also continue to be challenged. Aircraft build rates remain strong, industrial
factory maintenance is steady, and energy and medical sectors are
expanding. So there is opportunity for
the adhesives and sealants industry in the U.S. economy, but we’ll have to be
properly positioned to exploit it.
We also anticipate continued pressure from raw material increases, availability
of supply and discontinuation of raw materials with the exiting of some suppliers
from the market.
: Up to this point, I believe the
adhesives market has remained fairly robust, however I cannot help but believe
that our market will be negatively impacted by what is going on in the broader
economy at some point. We are not out of the woods yet, and I expect it will be
some time before we see improvement in the overall economy. My biggest hope is
that the economy will not get much worse.
: 2009 will be a challenging year, as
much of the industry is linked to housing and automotive. Business will pick up as soon as we see a
positive turn in these industries.
2. Where do you see the greatest opportunities for growth in the adhesives markets? Which chemistries are increasing in demand?Cramer
: The opportunities for
growth are related to trends that affect virtually every industry in every
sector. There are opportunities for adhesives related to rapid increases in
global demand for consumer products, generally older consumers in need of improved
cost-effective healthcare, and changes in the ways we manage and consume energy
in our homes and cars.
Chemistries that offer improved functionality with simpler and cleaner use
before and after application will be in demand.
: Elmer’s is a category leader in the
consumer market, and we continue to see strength in this area. Our recent
efforts in children’s activities have expanded the use of “school” glues in
creative activities. We have expanded
our efforts to leverage strong character licenses (Disney, Nickelodeon, etc.).
This has allowed us to provide added value on products that had become more
commoditized and utilized as retail loss leaders.
: We see new growth opportunity in structural
bonding, especially in areas of lightweight metals, plastics and composite
materials. We also see tremendous opportunity to develop sustainable and
environmentally responsible products and solutions for our customers. The
chemistries to satisfy these opportunities are left to the ingenuity,
imagination and innovation of our research scientists.
: That is a very good question, though I
know there are certainly areas of opportunity out there. Obviously, the key is
finding them and then capitalizing on them. Times of great challenge, such as
the one we find ourselves in today, can present good opportunities. People may
be looking for new ways to adhere things, particularly if the new method comes
with an overall reduction in cost. Given all that we have seen lately, it is
this impact on costs that will create tomorrow’s opportunities.
I continue to see opportunities in the use of hot melts and reactives.
: From our perspective, we see the greatest
growth in polyurethane-based adhesives. These adhesives will contain
environmentally friendly components. Chemistries such as phthalate-free
plasticizers and halogen-free flame retardants will increase in demand. There
will also be an increased demand for biocides that exhibit low toxicity.
3. Do you see an increase or continuation in off-shoring for production of adhesives and sealants?Cramer
I wouldn’t expect to see continued significant increases in off-shore
production. The cost benefits are not as pronounced as they might have been,
and it’s often difficult to manufacture highly technical adhesive products
offshore and be assured that the appropriate controls are in place. Rather than
outsourcing, most companies might consider investing regionally to meet local
: Actually, we see stabilization and a
potential decrease in off-shoring of products.
Pressures from transportation costs, China labor law changes and the
appreciation of the RMB have all decreased the large advantage of Asian
production. Though there is still a cost
advantage, strategic selectivity and utility are such that China is not
the immediate answer to sourcing questions.
: The off-shoring of production, especially
is a trend that we feel will continue. We are also seeing a strengthening of
production in Mexico
in certain segments.
: I think one has to look at this question
from two perspectives: finished adhesives and raw materials. On the finished
side, I don’t see much off-shoring in the production of adhesives (yet),
however the challenge is going to be the continuing loss of our end-customers
to off-shoring. As for raw materials to our industry, the Asian economies are
having as much difficulty as we are with procuring raw materials at competitive
prices. We use some off-shore sources of supply, but, realistically, the
situation is not a whole lot better than the domestic stream.
: We currently are not seeing an increase in
off-shoring. Actually, with a weaker
dollar we have seen some opportunities to export North American-based adhesives
and sealants to South America.
4. How are raw material/feedstock price increases affecting product development and your bottom line? Will this activity continue through 2009?Cramer
: There certainly is raw
material pressure on the bottom line, and this has forced a more diligent product
development/raw material selection approach. A “lean” approach to product
development should take into consideration the impact of raw material supply
during the product’s entire life. These considerations were not as prominent in
many past product development projects.
: Obviously, the impacts of commodity
costs - especially petroleum - have had a dramatic impact across all aspects of
development and the supply chain. Some
costs are capable of being passed along while others are not. Margins are being squeezed, and we are
striving to find ways to be more productive and efficient with this dynamic
: Raw materials have been a tremendous
challenge for the past several years. Responding to rising costs and raw
material availability has been especially challenging for our Product
Development groups, which are chartered with delivering breakthrough innovation
and value to our customers from building blocks that are increasing in cost and
decreasing in availability. We feel that we have been very successful in
delivering innovation in the face of these challenges, and the effort will
definitely continue into 2009 and beyond. Raw materials have obviously had an
impact on our bottom line, but through creativity, innovation and delivering
quality and value, we are managing through a very difficult time.
: Everyone’s bottom line has been
negatively impacted by the cost of raw materials today. Show me someone who
denies this fact and I will show you a poor liar!
There are continuing shortages of raw materials that will plague us all for
some time to come, unless, of course, we see a tremendous worldwide slowdown,
which certainly is a possibility.
Product development continues to go forth. In fact, we probably rely more on
our product development efforts to work on alternative formulations and raw
materials so we can keep our customers “fed” and hopefully reduce some of our
: A lot of emphasis has been placed on how
“blends,” or combinations of products, can enhance performance. Yes, this activity will continue. Many of the
raw materials for our active ingredients and formulations are petroleum derivatives,
so we expect the price of these materials to remain high.
5. What affect has China had on the global adhesives and sealants market over the past few years? How does this affect your company in particular?Cramer
Increased demand within China
has helped to drive up material costs and has compromised the availability of
certain raw materials. We see some of those availability problems easing up,
but the supply/demand issues, as China continues to grow, may keep
costs high. This brings more attention to our longer-term sourcing strategies,
particularly how we manage and negotiate supply contracts.
: China has presented tremendous
opportunities and challenges to the global adhesives and sealants market.
Henkel has embraced the opportunity through the expansion of its local Chinese
manufacturing footprint, developing partnerships and acquiring local Chinese
adhesive and sealant technology companies, and dramatically increasing its
product development and technical customer service presence in China. We are
very pleased with our business development activity in China.
: China’s growing pull from the raw
material stream has affected all of us. It has created shortages of key
feedstocks and raw materials that will impact everyone for years to come,
subsequently raising our prices to unprecedented levels.
: With a construction boon taking place in China,
demand for raw materials that go into adhesives and sealants has increased over
the past few years. Our company supplies several raw materials to Chinese producers
and joint ventures.
6. How important is it to have a "green" presence in the adhesives and sealants industry? What steps has your company taken to raise its green profile?Cramer
: Our industry’s
viability requires that all involved take a “green” outlook at all points of
the supply chain. We are now moving beyond regulatory compliance and
certifications with ISO 14001 and are aggressively looking to be more proactive
about the environment. Our internal environmental theme is CPR (Conserve,
Protect and Recycle). The CPR program will help guide “green” behavior for
Adhesives Research associates at the workplace and at home. Also, our Global
EHS director is leading a regulatory committee charged with developing a green
policy for our industry trade association, the Pressure Sensitive Tape Council
: Consumers are very interested in
“green” products. However, only two
factors will make sustainable initiatives sustainable: (1) cost efficiency of
the product/package, or (2) dramatic value improvement that will justify a
higher price in the consumer/customer’s eyes.
Only economically advantageous green initiatives will survive.
Elmer’s has undertaken some very aggressive initiatives that support consumer
and retail customers’ needs. Our Elmer’s
Glue Crew RecyclingTM
program is an effort in schools to
link recycling of glue and glue stick packages with classroom curriculum that
allows teachers, students, and our retail partner (Wal-mart®
to reduce waste. Our production facility
in Statesville, NC, has an aggressive campaign to reduce
waste and improve multiple sustainability factors for the facility and
associates. We are continually
re-evaluating all of our packages and products to optimize design, improve
efficiency, and minimize excess materials so the consumer receives a great
product experience with minimal environmental impact.
: Green is a very strategic initiative for
Henkel and has received tremendous focus over the past several years. However,
Henkel has been committed to sustainability and social responsibility
throughout its 132-year history.
In 1959, Henkel introduced regular ecological quality checks for detergents and
household cleaners. In 1971, we set up a central department for environmental
and consumer protection. 1982 saw the publication of “Principles of
Environmental and Consumer Protection” as a corporate objective. In subsequent
years, the company started worldwide safety, health and environmental audits
(1997), joined the United Nations Global Compact (2003), expanded corporate
objectives to include all aspects of social responsibility (2004), and
established a “Code of Corporate Sustainability” (2005).
Our most recent focus has been to provide sustainable solutions to our
customers that deliver value in terms of financial benefit to the customer
while enabling them to meet their environmental and social responsibilities to
the communities in which they operate.
: This is an area that has gained
considerable recognition in the last year alone. I am honestly very surprised
at how much attention it has gotten. We, like many, are working on the use of
some renewable raw material resources; however, as is always the case, this is
easier said than done.
: The green presence will become more
prominent as more and more building codes are re-defined and the construction
industry looks for alternatives to the way it has traditionally done
things. Our company has taken a drastic
step to eliminate from its portfolio a product line that contains phthalates
and emphasize products and alternatives that do not contain phthalates. Our
biocides group is focusing on actives and formulations with low toxicity and
minimal environmental impact. We also are emphasizing products based on their
overall safety and ease of handling.
7. What other challenges does your company currently face? What is being done to address these issues? Cramer
I don’t think the issues facing Adhesives Research are particularly
unique. However, we need to be able to
maintain our resource investment in our true purpose, custom product
development, and at the same time keep operational expenses in check. This
requires all of the things we talked about above - managing energy costs,
reducing waste and managing raw materials more aggressively. It also requires that we keep the project
: Because of its focus on products that
are used by children, Elmer’s has been challenged by the recent regulations/standards
that have arisen over the last year at state and local levels. We made the decision earlier in 2008 to go to
a “Zero Tolerance” policy on potentially regulated components. The recently signed Consumer Product Safety
Law has potentially eliminated much of the discontinuity between prior federal
and new state regulations/standards.
Because of our business and brand, we will continue to strive to be a
leader in product quality, safety, and confidence for all of our consumers.
: Those of us living in North
America are going through some very challenging times. With the
development of Mexico as a
competitive labor market for high-volume manufacturing and the emergence of China as an
economic power that is absorbing our adhesive and sealant assembly and
manufacturing opportunities, Henkel is well positioned to support the design
and implementation of its technologies in all regions of the world. However, the U.S.
will have to build a sustainable business within our region. We are doing this
through a focus on the macro-trends that are shaping tomorrow’s world, on
breakthrough innovation that will meet the technology needs of our future, on
sustainability and environmental responsibility (which are becoming competitive
advantages in the market and drivers for innovation), and by being smart with
our resourcing and investments. Because
we’ve listened to our customers and put our scientists close to the market, our
future in North America looks bright.
: Our single biggest challenge has been
the dramatic increase in raw material costs and their availability. We have
taken a very aggressive stance in passing our own increases along to our
customers and, to be quite honest, I think we are ahead of the curve in this
regard. There are many in the industry who continue to lag in their efforts to
do what I call the right thing, and as long as they do, this industry will
continue to suffer. I simply do not understand why there is so much inaction
from so many people. The reality is, if you can’t get increases through now,
you never will. It is incomprehensible to me that something so simple could be
so difficult to do. I just don’t get it.
: The two most significant challenges we
face are escalating raw material costs and the state of the housing market in
Many initiatives are in place to counter this situation, from cost control to
diversification of portfolios. In addition to the rising cost of raw materials
and slowdown in the housing industry, we have also experienced large increases
in freight costs, and we see the slowdown in the U.S. economy as another challenge.
We continue to look for ways to produce and ship products more effectively to offset
some of our extra costs.