Recovery within the adhesives and sealants industry appears increasingly favorable as the U.S. macro backdrop improves. For the first time since 2008, all six construction-related indices are pointing in the right direction—a good thing for both adhesives and sealants, as construction makes up over 40% of total consumption.
The construction recovery is expected to be gradual, with weather-related pull-forward occurring in the first quarter, and starts forecasted to remain below the 1 million mark through 2013. The new “normalized” level of housing starts is estimated at 1.15 million units.
While construction has stabilized, industrial production is up across most sectors; auto has picked up, and mining/oil/gas field machinery leads the pack. Public sector spending remains tight amid budget deficits, and private spending has yet to pick up enough to offset this weakness.
Margin outlook is stable and “good.” The cost structure for U.S. adhesive companies became slightly less favorable in 2011 relative to 2009. Within adhesives, raw material costs were 58% of sales, up from 56% in 2009, and gross margin of 32% is down a point. In 2012, adhesives and sealants sales are expected to be up 9% (5% by volume and 4% by price), supported by raw pass-through, but prices could lag raw materials, resulting in slight margin contraction.