US HB Fuller notes slow China, strength in engineering adhesives

Source: ICIS News

2019/01/17

HOUSTON (ICIS)--HB Fuller noted general weakness in China but strength in its engineering adhesives business, the CEO of the US-based adhesives producer said on Thursday.

Engineering adhesives are high-performance products used in a variety of end products.

The segment had a blow-out quarter, with operating profit reaching $15.8m, up from $4.50m from the same time in 2017. HB Fuller's fourth quarter ended on 1 December.

"We continue to get strong winds in engineering adhesives," said Jim Owens, CEO. He made his comments during an earnings conference call.

Owens also highlighted some promising end markets, such as electronics.

He noted that cell phones have several adhesive applications. Another highlight is photovoltaics. Owens said. Demand is growing outside of China, opening up opportunities for HB Fuller.

In addition to adhesives, solar panels also use ethyl vinyl acetate (EVA) and polyvinyl butyral (PVB) as encapsulates.

Another good market is the US assembly, he said.

Owens did not elaborate on the assembly market, but the company's annual report describes durable assembly as including appliances and filters.

He did point out that recreational vehicles (RVs) were the one sour note for durable assembly.

Aerospace is another opportunity for HB Fuller, he said.

Since the start of the company's fiscal first quarter in December, HB Fuller has not seen any weakness outside of China and a little bit in Europe, Owens said.

Chinese buyers did take a hit, especially among HB Fuller customers who buy adhesives for products that they later export. "Those are the ones that had pretty dramatic downturns," Owens said.

HB Fuller did see other instances of weakness in China, especially for adhesives that end up in products sold to higher end consumers, he said.

"Our perception of China is across the business community and the population, there is a little bit of hesitancy until the trade and tariff dispute gets resolved."

He added: "People are pulling back generally in the economy."

For raw materials, increases have stopped, Owens said. Weakness in China could further bring down costs.

In fact, HB Fuller is seeing an oversupply of raw materials in China, despite some of the plants that had shut down as a result of that nation's environmental crackdown, Owens said.

Some commodities are falling a little bit, Owens said. However, commodities make up a small portion of the company's raw materials, while specialties make up 87%.

According to HB Fuller's annual report, the company's principle raw materials are tackifying resins, polymers, synthetic rubbers, vinyl acetate monomer (VAM) and plasticizers.

HB Fuller did not elaborate on the tackifying resins, but many of these can be made from pine-based chemicals.

Overall, Owens warned that it is too early to say whether the company will see a big benefit from lower raw materials this year.

The company's shares had fallen sharply on Wednesday in after-market trading after it released it earnings. However, during normal trading on Thursday, shares rose by more than 3%.

(adds paragraph 23)

Photo source: Shutterstock