MIAMI (May 29, 2008) — The value of U.S. sales in the adhesives and sealants market will grow faster in the next few years than the volume of shipments because of higher prices and the shift toward higher-value products.
That was the crux of the report from David Nick, president of DPNA International Inc., during the World Adhesive Conference & Expo, hosted by the Adhesive and Sealant Council April 20-23 in Miami.
Despite the “very real” concerns for a recession in the U.S. this year, Nick said for one reason or another the adhesives and sealants sector generally has proven to be somewhat recession-proof over the years. When one area of the economy falters—such as the current housing and construction downturn—then something else tends to pick up.
On the sealant side of the market, he said last year the dollar value of U.S. shipments stood at $1.8 billion with growth forecast at 4.2 percent annually through 2010. Conversely, he expects volume, which stood at 680 million pounds, to grow only 2.6 percent a year during the same period.
Silicones and urethanes will continue to be by far the top two materials for sealants, followed by others such as latex and butyl rubber.
The top market will continue to be construction, followed by transportation, consumer goods and assembly. But while the construction market is soft now, opportunities in transportation are growing, according to Nick. He mentioned sealants' role in noise, vibration and harshness applications as one key area of growth.
For adhesives, he placed the 2007 market at $9.5 billion with annual growth of 6 percent expected through 2010. Volume increases, however, will lag behind at 3 percent annually from the 2007 base of 6.6 billion pounds.
The top market was paper and related products, followed by construction, assembly, woodworking and transportation. Growth for the paper segment is projected to be the most robust at 3.8 percent, while most of the other large segments are expected to increase more in the 1.5-2 percent range.
The consultant also said the export market for adhesives and sealants is fairly attractive, particularly given the weak dollar.
“A lot of small companies think they can't do much in the form of exports, but that's not really true,” he said. “It's not that complicated.”
He especially sees export potential into China and India. While these regions do have active adhesives industries, most of it is for low-tech products, leaving an opening for those providing more specialized materials.
“Smaller companies specializing in those areas may actually have a better chance for exports than some of the big companies with commodity products,” Nick said. “It's just recognizing the opportunity.”
More consolidation in the industry also is likely, he said.
Henkel KGaA's recent purchase of Akzo Nobel N.V.'s National Adhesives and electronic materials businesses made Henkel an even stronger No. 1 in the global adhesives and sealants market. And Hexion Specialty Chemicals Inc.'s pending acquisition of Huntsman Corp. is a complementary deal, according to Nick.
“I don't think consolidation has ended,” he said. “I believe now the race is on to compete with the size of Henkel.”
A number of factors—both from inside and outside the U.S.—will impact the market to varying degrees.
Most companies will take a wait-and-see approach to the outcome of this fall's presidential election. Should the Republicans prevail, it likely will mean a more conservative stance toward the economy.
“If the Democratic Party is elected, they figure they will have to make some impact to change the course of the country,” Nick said. “That could be good or bad.”
The continued movement of the customer base to offshore locations also will remain a major influence. While a lot of labor-intensive production has moved to low-cost regions, domestic markets in areas such as India and Vietnam will continue to grow. “They're starting to develop a middle class and, as that middle class develops, their demand for consumer goods will increase.”
Increases in the cost of raw materials also will be a growing concern, particularly because 80 percent of the cost of adhesives and sealants comes from the materials.
Externally, Nick sees the coming REACH regulations in Europe as the most important market driver. He sees the new rules as a trade barrier because they are oriented to the European Union and not harmonized with other international standards.
That may leave the world's chemical-related firms to deal with three very different standards—those covered under REACH, those in place in the NAFTA region and a third favored by Japan and China.
“It requires different testing in the three primary market areas,” he said. “It's going to create a bit of a mess to be able to market products. That's a concern for a lot of companies because the inability to supply product can become a real problem unless you undergo thousands of dollars in testing.”