SCUP Report

Table of Contents

Abstract

This report focuses on the supply/demand and business aspects of the higher-value synthetic adhesives and sealants as opposed to the long-established commodity products, typically of natural origin such as animal- and plant-derived adhesives.

The polymer dispersion/emulsion adhesives category is the largest because of their versatility and moderate price, followed by solvent-based adhesives. Consumption of solvent-based adhesives is declining in developed countries primarily because of VOC emission regulations, but is growing strongly in developing countries such as China following the rise of shoe manufacturing.

Silicone products dominate the sealants market, followed by polyurethane products. Polysulfide sealants are losing market share to these products and to commodity sealant products. Silicon-modified polyether sealants have expanded beyond their Japanese production base to the larger markets in North America and Western Europe.

Specialty adhesives and sealants compete more on performance than price, as compared with general-purpose or commodity products, although major adhesive and sealant producers may produce a full range of products including specialty and general-purpose products; their products are typically branded. Producers command a premium for specialty products, while general-purpose products typically also benefit from branding, with more of a premium than less powerful brands or generic products.

The following pie charts show world consumption of adhesives and sealants.

Significant increases in petroleum-derived feedstock prices have impacted adhesive and sealant producers. Commodity producers tend to operate with smaller margins and have a greater share of production cost in raw materials, while specialty producers have cited feedstock prices as reasons for recent price increases and surcharges. Typically producers with valuable brands have exercised pricing power and tried to maintain margins during rising raw material prices although this was exceptional during the economic recession in 2008 since raw material price increases tended to outpace adhesive and sealant price increases, particularly in the first half of 2008.

Consolidation in the adhesives and sealants industry has built depth in vertical integration and broadened product lines in some major companies such as Henkel, while other companies have closed, or spun off poorly performing or less related businesses or reduced the array of products offered, such as General Electric and H.B. Fuller. However, the industry remains highly fragmented, with numerous small and medium-sized companies with a relatively high level of customization and service, particularly in the highest-value adhesive and sealant segments.

The cost of producing adhesives and sealants is attributable primarily to the cost of the raw materials plus the necessary service component of training customers and helping them resolve manufacturing issues. Adhesives compounding equipment is typically installed in multipurpose units that are seldom dedicated to a specific product. Important strengths in manufacturing are flexibility, low-cost production units and appropriate quality control.

In general, the adhesives business is highly competitive, especially in the commodity sector. Prices and margins vary, depending on the specific adhesive or sealant, market segment, and regional market. In general, gross margins for adhesive products commonly range from 15% to 25% for commodity products, while specialty products can range to as much as 45–50% or more. Producers in the mature commodity markets compete on price; customers often request bids from competing producers. For premium products, adhesives are selected and priced based on their performance characteristics. Product performance and level of service are seldom identical among different producers so pricing is typically differentiated by the needs of the customer. Also, formulation changes or reformulations may reduce the impact of raw material price increases. But ultimately, pricing power is strongest for unique products in high demand.

Environmental regulations continue to increase as more VOC emission sources are targeted for reduction or elimination. Some producers have switched from targeted solvents to other solvents only to find they must switch again with new regulations, or have changed to lower- or no-emission technologies. Waterborne products continue to push into commodity markets, but their penetration into specialty segments has slowed because of the formulating difficulties and performance challenges in the solventborne segments. Although the consumption of solvent-based adhesives is continuing to decline in North America, Western Europe and Japan, this category is growing steadily in China and the rest of Asia, following the growth of relocated industries such as shoe manufacturing. Overall, hot melt technologies have seen the greatest growth globally, because they offer very low or no emissions, work on a variety of substrates, and are easy to apply. Also, new low-temperature and reactive hot melt products have expanded the possible end-use areas for these adhesives.