Adhesives and sealants go greener, but risk profitability

11 June 2007 00:00  [Source: ICB Americas]

ADHESIVE AND sealant producers should be great at multitasking. With the various innovations, changes and issues facing the industry, these producers can't afford to have a one-track mind.

As with almost every other sector of the chemical industry, adhesive and sealant producers are struggling to become greener, but are doing so while trying to meet new construction guidelines, trends and demands and in the midst of a housing construction sector slump.

Can they go greener while staying profitable and will the housing slump start to turn around? These are questions producers are facing on a daily basis.

The path to peak performance won't be a straight one for the adhesive and sealant makers, but it should be an interesting one.

Construction questions

Several chemical sectors have felt the pains of the housing construction market decline. Adhesive and sealant producers have been dealt a particularly hard blow.

"The construction sector accounts for 20% of total adhesive and sealant demand, which is significant," says Daniel Murad, president and CEO of ChemQuest Group, a Cincinnati, Ohio-based consultancy. "January and February this year were bad months for the industry. We saw a little recovery in March, followed by a strong April and May. This was due to a wet winter and bad weather in general."

Adhesive products are used intensively in the construction of housing and buildings for many different applications. According to IBISWorld, a Los Angeles-based market research firm, the construction sector accounts for almost 35.4% of adhesive market demand.

There is a broad recognition throughout downstream construction and manufacturing industries of the cost effectiveness of replacing mechanical fasteners with adhesives that have the same physical properties, according to IBISWorld's report.

However, the slowdown in the construction market is evident. But have the effects been felt by the adhesive and sealant producers yet?

"The slowdown in construction has definitely been a challenge," says David Hemm, who is vice president of performance adhesives at Hexion Specialty Chemicals.

In challenging times, however, Hemm says having a competitive difference is critical, so it is important to work with customers on adhesive systems that improve product and process efficiency.

"Our customers that participate in these markets have seen a slower first quarter in conjunction with the housing construction slowdown," says John Channon, North America marketing director for Rohm and Haas's packaging and building materials business. "As a result, we have seen lower demand for some of the products that support them. The slowness varies by customers and product end use."

The road ahead

Producers are trying to cope with the decline, but are also looking at the short-term and long-term outlook to find any kind of hope.

"The second half of the year is typically stronger in seasonality for construction. Additionally, the commercial construction sector is strong," says ChemQuest's Murad. "But I don't believe these factors will be enough to overcome the weak housing sector and frankly I don't see a recovery in housing for some time."

Rohm and Haas's Channon says there are a number of dynamics coming together now in the housing market that will continue to support slowness in new home construction and repair and remodel spending.

"We believe that the market is in a trough and is bottoming out," Channon says. "Our current best estimates suggest that this will be a broad trough and expect to see improvements in first quarter of 2008, at least from a housing perspective."

The immediate outlook isn't as sunny as adhesive and sealant producers could hope for, but companies are working to improve competitive abilities through other means.

"Hexion as a company is also quite bullish on the industry's future regardless of short-term conditions," says Hexion's Hemm. "We've recently completed the acquisition of the forest products resins business of Australia-based Orica Limited and announced our intent to acquire Arkema's German resins business."

Taking the LEED

Although adhesive and sealant producers are facing a slow home construction market, in the meantime many are striving to meet LEED (Leadership in Energy & Environmental Design) requirements to secure the most end-use demand and stay ahead of the curve.

"LEED design is becoming more and more important," says ChemQuest's Murad. "Many of the solvent based formulations can meet today's 250 gm/liter VOC [volatile organic compound], but going the next increment which will likely be within the next three years will be highly problematic."

LEED certification has further increased environmental awareness in the construction market and pushed builders to seek out low-VOC-emitting products to earn points. Although it is a fairly new program, the increased focus on environmentally friendly alternatives could propel the program to new heights in the future.

"The LEED program is still in its infancy and, as yet, has had little impact on our business," says Hexion's Hemm. "However, Hexion has been a leader in reducing emissions from adhesives for decades, and we have products that meet LEED requirements. We believe it's important to offer customers a broad range of solutions so they choose what's right for them."

Many federal agencies and state and|local governments are working to ensure that any new construction on their part is done through LEED-certified methods as well as suppliers.

Regulations that have already been passed in Europe will eventually be discussed in the US and increase green drives in the adhesives and sealants market.

"Isocyanate-free monomer content, which is a major issue in Europe prompting considerable switching to silane-based hybrids will become a driver in the US as well," says ChemQuest's Murad.

The level of regulation in the adhesive manufacturing industry is heavy, according to IBISWorld.

The emissions of hazardous air pollutants (HAPs) is a primary concern of the adhesive manufacturing industry due to the gases emitted when chemicals are blended together to produce adhesives and sealants.

While VOCs are found in most adhesives and sealants, they exist in higher amounts in solvent-based products compared with waterborne formulations, according to IBISWorld's report.

Can they go greener?

With the LEED certification program and new regulations streaming in from Europe, the question at hand is: How much greener can adhesives and sealants get?

Rohm and Haas's Channon says the green movement for adhesives and sealants has essentially just begun.

"We are just at the front end of the green movement in adhesives and sealants," Channon says. "We've seen the trend building over the past several years. Now, we are finally at a point where green products and technology are becoming a viable part of the portfolio."

However, industry analysts predict that there is a point when green can essentially go further than it should and profitability becomes a question.

"There is definitely a point of diminishing returns," says ChemQuest's Murad. "Unlike other industries, adhesives inception was 100% natural and didn't get into synthetics until the discovery of oil and its derivatives. I suppose theoretically we can get back to 100% green, but the cost to do so is ludicrous relative to the benefit. Adhesive and sealant output of solvents into the atmosphere is miniscule and already we are at a limit of diminishing returns."

Some adhesive and sealant producers agree that the industry has reached a point where going greener may not make sense.

"Adhesives and sealants are beginning to approach the point where, making marginal improvements in 'green' qualities such as lower emissions are entailing a significant cost in formulation or diminished performance," says Hexion's Hemm. "This cost/benefit question is one which the industry and regulators must continually assess, and which the marketplace will play a significant role in answering."

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