09 April 2007 00:00 [Source: ICB]
Adhesives may have been used for thousands of years, but they are certainly not stuck in the past. While around 75% of the market is made up of commodity products, a growing portion of technical and specialty products are commanding healthy margins.
"I don't know any adhesive maker that is struggling. Most are enjoying double-digit growth," says Jurgen Wegner, European director of consultancy ChemQuest.
The total world market for adhesives, sealants and surface treatments is about €50bn ($68bn), with the industrial adhesives market claiming about 44% of the business. Across a wide range of industries, from automotive to medical to electronics, adhesives are enabling significant advances to be made in efficiency, both in the production of goods and operation of finished products.
In cars, the amount of adhesive now used is around 12-15kg/vehicle (26.5-33lb/vehicle) - double the amount used just 5-10 years ago, says Wegner. Adhesives allow the use of lighter body panels that could not be welded together without the weld showing. Adhesives have also been developed that offer wider benefits. For example, they not only attach items such as windscreens, but also contribute to sound proofing and provide vibration resistance.
Adhesives are also replacing fastenings such as nails in construction and screws in electronics. And in the medical sector, Wegner says, the annual market for specialty adhesives used to close wounds instead of stitches is set to rocket from around $100m to more than $1bn since the US Food & Drug Administration approved their use.
Technological progress, says Wegner, means the sector is looking buoyant. He adds that a great deal of innovation is driven by environmental and energy conservation trends, led particularly by the EU and Japan. However, he notes: "While adhesives are a vital part of technical progress, they only contribute a small percentage to the overall price of goods - usually less than 1%. And it is only when materials fail that you see how vital they are!"
In the industrial sector, designing adhesives is critical for producers. Not only are they looking at the life expectancy and cycle of the finished products and the conditions of use, including compatibility with other substances, such as cleaners, but how they are applied in the production of goods. Building solid customer relationships is critical to understanding the demands on an adhesive.
Arnd Picker, who is responsible for corporate development of adhesives at Henkel, the world's largest adhesives producer, says: "Gaining innovation leadership in the market segments that we serve is a key strategic objective. Our ability effectively to identify individual customer needs provides the basis for the development of new, market-aligned solutions, and we therefore place high priority on the associated research."
Traditionally, Henkel Technologies offered adhesives, sealants and surface treatment products for a wide range of sectors, industries and engineering applications. "Our approach is to combine our advanced technologies in devising tailor-made solutions for our customers," says Picker.
The company merged its two adhesives businesses this month (see page 22). It says its global presence and product portfolio will enable it to provide a full range of services to customers. "We are continuously extending our leading market positions in high-growth markets - particularly in eastern Europe and Asia - through regional expansion based on organic growth and selected acquisitions," notes Picker.
Above-average performance in research and development (R&D), production and process technology, supply-chain management and marketing, selling and distribution provide the cornerstone for the company's close and long-lasting customer relationships, says Picker. Turning to the consumer sector, Henkel says it offers differentiated products for home and professional users.
Drive to innovate
"Our activities in the market for adhesives and adhesive tapes for [the] home, school and office are aligned to our extensively established international brands Pritt, for bonding and correction, and Loctite, based on cyanoacrylates," Picker explains. Expansion in these businesses is primarily organic, driven by innovation and their increasingly international nature.
"In the case of our adhesives and sealants for construction, do-it-yourself [DIY] and craftsmen, by far the greatest market potential is in the segment serving professional users. Expansion of this segment is of particular importance for us. In addition, a strong position in the craftsmen market provides us with a competitive advantage in the DIY business. In many emerging economies, moreover, there is still no significant DIY market. Expansion in these [economies] can therefore only be achieved via the craftsmen business," says Picker.
Jochen Krautter, executive vice president, Henkel Technologies says: "Henkel helps change the way people do things for the better. In addition to supplying innovative and reliable products, the company aims to be a development partner, offering solutions based on extensive know-how of its customers' businesses, demands and processes."
Meanwhile HB Fuller, ranked the fourth largest adhesives maker globally, has also realigned its businesses. In an effort to focus on customers and maximise internal synergies, the company has incorporated its Global Adhesives and Full-Valu/Specialty groups into four geographic regions: North America, Europe, Latin America and Asia Pacific. The Full-Valu operation specifically offers integrated solutions to add value for the company's customers and end users.
"Over time, Full-Valu/Specialty has continued to deliver on its value-added strategy and has successfully maintained its specialty focus. Over the last two years Global Adhesives has made great progress in transforming its business from a commodity to a specialty profile and today is in line with Full-Valu/Specialty from a strategic and profitability perspective," says Michele Volpi, HB Fuller president and chief executive officer. "Our realigned structure will better facilitate the execution of our strategy, enabling us to be highly focused on our customers, while maximising synergies throughout the company."
HB Fuller is also focusing on innovation, and aiming to provide a centralised strategy and direction for global accounts. "This realignment will better position the company for future growth and profitability," says Volpi. "By aligning the structures of both Global Adhesives and Full-Valu/Specialty we will create a more nimble and more focused organisation, leveraging respective strengths and sharing best practices. This is the logical next step for the organisation and we are excited about the future."
HB Fuller, which formulates and markets adhesives, sealants, coatings, paints and other specialty chemical products, had fiscal 2006 net revenue of $1.47bn.
3M, the world's second largest producer of adhesives and tapes, serves markets as diverse as construction and aerospace, as well as in critical applications in the electronics and medical equipment industries. The company's products are developed using a wide range of technologies, including epoxies, acrylics, urethanes, cyanoacrylates, hot melts and anaerobics.
The company is looking to grow its industrial adhesives product portfolio. Earlier this year, the company bought the Rite-Lok brand from Chemence, a specialty chemicals and adhesives firm with manufacturing plants in the US and the UK. "The addition of Chemence's industrial adhesives sold under the Rite-Lok brand broadens our robust industrial adhesives product portfolio," said Patrick Deconinck, division vice president, industrial adhesives and tapes. "Rite-Lok complements 3M's product line and expands the depth and breadth of our offering in the area of specialty structural adhesives."
The complete Rite-Lok brand product line includes anaerobic threadlockers, retaining compounds, gasket makers, thread sealants, structural adhesives, and specialty cyanoacrylate instant adhesives for industrial use such as metal bonding, plastics and rubber. The product line also includes high-temperature, low-odour industrial adhesives, and rubber-toughened flexible adhesives.
In addition, towards the end of last year 3M acquired NorthStar Chemicals, an innovative adhesive manufacturer, which has grown over 70% annually for the past four years.
Bostik, owned by French oil company Total, has a five-pronged strategy for growth in the adhesives sector. It is looking to increase its differentiation through product and marketing innovation and provide tailor-made bonding solutions to increase the performance of its customers' processes. Bostik has also identified the need to follow the globalisation of its customers while maintaining strong local organisations and is targeting growth in emerging countries.
The company's four core product areas are hot melts, including web and film adhesives reactive, including silane-modified polymers and polyurethanes, water-based and formulated cementitious adhesives.
Bostik's main drivers for research include developing functional adhesives, which have additional features besides sticking things together and it is working on adhesives with additional benefits to replace traditional mechanical fastening methods. Examples include adhesives that are lightweight and durable in transport applications and withstand extreme conditions, such as crashes. In construction, Bostik is developing products with good durability, performance, and which reduce labour costs.
For automated processes, the company is aiming to improve performance-to-cost ratios in existing applications by achieving lower adhesive use, increasing line speed, decreasing downtime and making application faster and easier. Another key area is the reduction in use of non-renewable resources, where Bostik is proactively promoting technologies that are safe to use and harmless to man and the environment.
IMPLICATIONS OF REACH
Henkel is affected by the new European chemicals policy Reach mainly as a downstream user of chemical substances and will integrate assessing product ingredients under the future Reach regulations into its processes.
Company-wide project groups have been set up to prepare for and implement Reach.
The company adds that, although the legislative framework has been finalised, many technical details remain open and have to be clarified over the next year. Several thousand pages of guidance documents are already available as drafts and several thousand more are in the pipeline, demonstrating the complexity of the regulations.
The company says it is important that the guidelines for Reach implementation follow a more pragmatic approach. Henkel is actively participating in the process of formulating suitable proposals on a European level.
MERGING TO ACCELERATE GROWTH
On 1 April 2007, Henkel merged its two adhesive business sectors - Henkel Technologies and Consumer and Craftsmen Adhesives - to form the new Adhesives Technologies business sector, with sales of €5.5bn ($7.4bn) in fiscal 2006. "The strategic rationale behind the merger of these two businesses derives from the advantages of a unified market approach", says Ulrich Lehner, chairman of the management board of Henkel.
"We expect this move to enable us to utilise better the core competences of both business sectors and to accelerate growth significantly in all regions of the world."
Henkel will continue with its dual growth strategy of organic business expansion supplemented by selective acquisitions. Recent major acquisitions include Alba Adesivos, the market leader for craftsmen adhesives in the important Brazilian market.
The market segments served by cyanoacrylates, modern assembly adhesives, sealants and building adhesives are particularly attractive for Henkel. "We will therefore be providing these areas with above-average levels of investment," adds Lehner.
"We intend to further expand our businesses in the growth regions outside western Europe, with the focus on eastern Europe, Asia and Latin America, North Africa and the Middle East," adds Arnd Picker, responsible for corporate development of adhesives.
Henkel's business is healthy. The return on capital employed last year was 16.9% with respect to its consumer, craftsmen and building adhesives business and 15.4% for its industrial business. The bulk of Henkel's adhesives, sealants and surface treatments, some 65% by sales, are for industrial markets, followed by trade and consumer products, at 26%, and building adhesives, at 9%.
In the consumer, craftsmen and building adhesives business, Henkel says household and office accounts for 22% of sales. Do-it-yourself (DIY) provides 26% of sales, while the professional market represents 52% of sales. Its biggest single brands are the DIY Ceresit product range, with 2006 sales of €215m, and Pritt with €130m.
In the industrial adhesives, sealants and surface treatments business, Henkel's eight top "power brands" account for 60% of its sales-these include Loctite, Teroson, Hysol, Technomelt, Liofol, P3, Adhesin and Bonderite.
For more information, visit www.henkel.com, www.hbfuller.com, www.bostik.com, www.3m.com
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