STATE OF THE ADHESIVES AND SEALANTS INDUSTRY: Industry at a Crossroads

As we approach the halfway point in the first decade of the new millennium, the adhesives and sealants industry stands at an exciting crossroads. On the one hand, the industry shares many of the sobering challenges faced by other sectors of the North American chemical industry. Such issues include the following.

Increasing prices. It's the new reality that a large number of adhesive companies are being forced to raise prices to help offset run-ups in raw material pricing. Feedstock pricing continues to rise, impacted by escalating costs of crude oil and derivative petrochemicals, which are also impacting availability of key monomers in some markets.
Declining profits. Companies are faced with rising raw material prices, higher utility rates (natural gas pricing continues to climb as well), and increases in overhead costs such as health insurance and environmental/regulatory compliance.
Globalization of customer base. Entire customer bases have migrated to Southeast Asia. Furniture and textiles are just two examples. Couple this with the dizzying pace of China's economy (is India next?) and it becomes clear that companies that want to achieve true organic growth must go where the customers are. More and more companies are playing in the international arena, yet must compete with the realities of low-cost regional foreign companies, which have a leg-up on their U.S. counterparts due to significantly lower wage rates and the absence of many regulatory and other overhead costs that American firms must bear.
Industry consolidation. Today, perhaps spurred on by the prospect of a strengthening economy, the industry is beginning to see increased M&A activity, which appeared to have taken a hiatus over the past several years. Larger players, many flush with cash, are acquiring smaller and mid-sized formulators to bolster market share and complement their existing technology portfolios.

On the bright side, however, opportunities to replace mechanical and other fasteners with adhesives and sealants do exist. Never before has there been a broader array of product formulations and new chemistries available to the product designer. However, one of the industry's challenges lies in how effectively it can communicate and educate different generations and future designers, engineers, and architects who have no formal training in adhesives, and who harbor various misperceptions about our products. To remedy this condition, the industry must develop and promote new training tools to help its customers feel more comfortable and secure in selecting adhesives and sealants as the preferred bonding alternative. In addition, the industry must address the longer-term realities of little formalized training in undergraduate engineering programs to educate the next generation of designers. This grassroots work is crucial in helping to grow the industry.

Current Market Conditions

Let's first examine the global fastening market (see above). It is valued at some $350 billion, of which adhesives and tapes account for just 9% of the total demand. Of this, adhesives account for $21 billion. Annual growth rates are forecasted at 4-5% through 2006.

Next, if we narrow our focus to the global formulated adhesive and sealant product demand by region, demand data from 2003 is valued at $26.9 billion on volumes of 20.6 billion pounds (see above). North America alone accounts for about a third, comparable to Western & Eastern Europe combined. Annual global growth rates are expected to be 3.0% through 2006.

In the United States alone, adhesive and sealant sales total $8.51 billion on volumes of 6.34 billion pounds (see above). This is based on a formulated ‘wet' basis, and accounts for both merchant and captive sales (thus, sales of PSAs for tapes are included). Annual growth rates are forecast to be 2.2%, below the forecasted U.S. GDP growth of 3.4%.

Looking at the 2003 sales of the top 10 merchant U.S. suppliers above, Henkel, H.B. Fuller and National Starch lead the list. Bostik Findley, 3M, Rohm and Haas, Sovereign (acquisition by Henkel is pending), Forbo, Borden, and GE Silicones round out the list.

A breakdown by end-use market and by technology for adhesives, along with forecasted growth rates for each through 2005 can be found on this page.

Note that paper, board and related products comprise more than half of all demand. This includes the fast-growing flexible packaging segment. Assembly, which accounts for just under 9%, includes higher-margin products typically sold into the electronics and medical products segments.

Overall growth forecast is 2.2% per year through 2005. When looking at the consumption data by technology, one can see that solvent-based chemistry is expected to decline, with hot melt adhesives leading in growth potential.

The figure to the right shows breakdown by technology and end-use market for sealants. Note that the combination of silicone, modified-silicone and urethane chemistries accounts for just under 3/4 of the total market. These technologies have clearly established strong inroads in the marketplace.