Higher oil prices have resulted in the emergence of new applications that previously did not use adhesives and sealants, such as wind turbine assembly.
Figure 1 (top). Adhesives and Sealants Growth Trends 1996-2007
Figure 2 (bottom). Year-Over-Year Growth Trends
The North American adhesives
and sealants industry is heading toward the $15 billion mark in sales revenue.
It has been a bumpy ride since the beginning of the new millennium.
Manufacturers face multiple diverging challenges in their business, each
requiring thoughtful analysis and precise maneuvering.
As illustrated in Figures
1-2, the industry reached $14.5 billion in revenue in 2006 and 8.9 million dry
lbs., reflecting year-over-year growth of 3.7% in volume and 5.5% in revenue,
respectively. However, 2007 has been more challenging. The economy is sluggish,
with consumer spending down, the housing sector in retreat and the U.S. automakers
dipping below 50% market share. As a result, we are forecasting modest revenue
growth - 3% - due to price actions passing through raw-material increases.
However, we are forecasting a 2% decline in volume, with a prospect for further
decline if the construction market forecasts continue to worsen.
Following are the top 10
challenges manufacturers said they will face in 2008 and through the remainder
of the decade:
- Rising raw-material costs - how high will oil go and how soon will it
- The ability to continue to raise prices.
- The condition of the U.S. economy.
- Product innovation - finding higher margin markets and/or dealing
with the changing face of regulatory requirements, such as health, safety, and
- The availability of key raw materials. The rate at which emerging
economies, such as China,
continue to gobble global demand. China is absorbing 25% of global
- Maneuvering changes in competitive landscape due to continued consolidation.
At press time, ICI had announced an agreement to sell its business to Akzo
Nobel, which subsequently will sell National Starch to Henkel.
- Perceived commoditization in the eyes of the customers.
- Dealing with offshore markets - deciding whether to partner with
foreign suppliers and manufacturers and/or follow the customer to emerging
- Changes needed to the sales approach.
- Focusing on core business by reducing product lines and/or
While oil prices are a major concern for the industry, the news is not all bad.
In fact, I think that high oil pricing may actually drive adhesives and
sealants growth at a faster rate. In addition, adhesives and sealants have
always been valued considerably lower than the importance they deliver to the
final product; typical value in use is 1-2%.
We are already beginning to see four positive results as a result of high oil
- Engineers are designing for better fuel efficiency: more composites,
down-gauging and downsizing to improve fuel efficiency. This trend heavily
favors greater use of adhesives and sealants at the expense of industrial
fasteners and welding, as demonstrated by Boeing’s Dreamliner and Airbus’s
- Emergence of new applications that previously did not use adhesives
and sealants, such as wind turbine assembly.
- Acceleration of adhesive and sealant penetration into energy-saving
applications such as insulated glass and window films.
- Margin discipline among manufacturers is driving toward a
much-deserved higher value.
Aiding in this higher value perception, the industry experienced a rare phenomenon in 2006, where raw material pricing de-coupled from the price of oil. Key raw materials were in short supply due to a balance of demand. Examples include vinyl acetate monomer (VAM), acrylic esters, methanol and isoprene.
ChemQuest forecasts manufacturers’ margins in the range of 30-40% on a gross profit basis, as illustrated in the Table.
Manufacturers have done a good job of recouping lost margins, but on average still lag about 3-6 months and need to recoup an additional six points of margin. In a soft economy led by housing declines and lower automotive sales, this is very difficult and may in fact obstruct needed pricing actions.
Adhesive and sealant manufacturers will continue to meet these never-ending challenges by improving internal efficiencies, finding product niches, developing new markets and competing in a changing paradigm, but in the end it comes down to maintaining their margins. Without a healthy bottom line to support these influencing factors, top-line growth will be a challenge. For more information, phone (513) 469-7555 or visit www.chemquest.com.