The adhesives and sealants industry consists primarily of manufacturers of industrial and household adhesives, glues, caulking compounds, sealants, and linoleum, tile, and rubber cements from vegetable, animal, or synthetic plastics materials, purchased or produced in the same establishment. Establishments primarily engaged in manufacturing gelatin and sizes are classified in SIC 2899: Chemicals and Chemical Preparations, Not Elsewhere Classified, and those manufacturing vegetable gelatin or agar-agar are classified in SIC 2833: Medicinal Chemicals and Botanical Products.
325520 (Adhesive and Sealant Manufacturing)
The adhesives and sealants industry includes two chemically similar but functionally different groups of formulated products, adhesive and sealants. Adhesive products are used to create a bond between two different or similar materials. Sealants are used to create an impenetrable barrier to gas or moisture. Adhesives and sealants are made from precise blends of petroleum-derived plastic resins, synthetic rubber elastomers, and agents or additives used to enhance certain characteristics. The final formulation ultimately depends on the end use. Industries that typically use adhesives and sealants include construction, consumer products, assembly, packaging, labeling, and transportation.
The industry grew steadily albeit slowly throughout the late 1990s, but analysts expected growth to decline in the early 2000s. Individual companies seeking to increase their revenues looked to mergers and acquisitions, particularly in foreign markets, where industry growth was expected to surpass that in the United States. At the same time, foreign companies increasingly invested in U.S. firms, such that the industry became both more globalized and more consolidated.
Major factors influencing the growth of this industry include the stability of other industries using its products, the availability of raw materials, and environmental concerns. Measured by the value of product shipments, the market for natural-base glues—with the exception of most animal-based glues—increased tremendously by the late 1990s; however, synthetics should continue to dominate the industry, particularly water-based products and hot melt adhesives.
The adhesives and sealants industry's development can best be explained by the economy-wide transition from conventional materials (glass, stone, wood, and metal) to lighter and more economical resources, mainly petroleum-based plastics. These new materials mandated new methods of assembly, and suitable bonding components. A generation of new products emerged to service this rapid growth area.
The market for reactive adhesives grew as the automotive industry moved away from mechanical fasteners. At the same time, packaging applications for reactives were on the rise, adding buoyancy to the adhesives industry. In the early 1990s, the reactives sector of the industry was dominated by epoxy and polyurethane systems, with urethanes taking a significantly larger portion of the market. About 100 million pounds of urethane resin went to adhesive and sealant applications in the early 1990s, compared to 28 million pounds of epoxy resin. Urethanes are most often used with flexible materials in high-impact applications, while epoxies are known for their hardness and are used with more rigid substances.
The development of epoxy/urethane hybrids attracted particular interest because of the broad range of demands placed on adhesives used in the automotive industry. Both manufacturers and users of these products were looking for the best of both worlds: combining high-tensile strength and compatibility with flexible materials. The problem was that a sacrifice was usually made in shelf life, toughness, or curing flexibility; the development of these hybrids minimized the number of sacrifices required. Developments in reactive adhesives for the auto industry also brought benefits to other industrial sectors, including appliance manufacturing.
In the latter half of the 1990s, the sealants industry continued to suffer from the vagaries of the construction market, especially in maintenance and repair. Growth was expected to continue at 3 percent per year, especially if the construction market continued to pick up as predicted.
The adhesives and sealant industry grew from $7.2 billion in shipments in 1998 to $7.9 billion in shipments in 2000. The total number of industry employees grew from 21,692 to 22,794 with a total payroll of $979 million. The industry's 13,560 production workers earned an average wage of $15.67 per hour in 2000.
In the late 1990s, the adhesives and sealant market was valued at $9.2 billion, with sales split among these primary groups: industry assembly (24 percent), packaging (23 percent), construction (16 percent), wood bonding (16 percent), transportation (11 percent), and consumer products (6 percent). For adhesives alone, the largest markets were construction and packaging, each with a nearly 40 percent share of demand, as measured by volume (rather than by sales). Revenues in this industry segment had climbed steadily since 1987, and this growth was expected to continue into the twenty-first century.
Products showing the greatest growth in the late 1990s included natural-base glues and adhesives—specifically, those made from natural gums, shellac, lacquers, and varnishes; hot melt adhesives; epoxy adhesives; rubber cements; and sealants. Pressure-sensitive adhesives also increased. Products with declining sales included several kinds of synthetic resin and rubber adhesives, rubber and synthetic resin combinations, and protein and dextrine vegetable natural adhesives. Nonetheless, when measured by value of product shipments, synthetic resin and rubber adhesives held 58 percent of the market share (this group includes epoxies, hot melt adhesives, rubber cements, and pressure-sensitive adhesives).
Into the twenty-first century, products expected to see the most growth included electronics adhesives for printed wiring boards, hot melt systems, and automotive adhesives. In the late 1990s, the U.S. hot melt adhesives market was valued at $1 billion, and was expected to grow 3 percent per year. The most common end-uses for hot melt adhesives were packaging, with 38 percent of the market, and disposable and pressure-sensitive products, each with 15 percent of the market.
Growth, however, is controlled by the availability of raw materials. Hot melt adhesives—favored among most industry watchers as the most likely product to outstrip the market with its growth—require hydrocarbon resins; demand for those resins was expected to increase by 2.6 percent annually through the early 2000s. Many manufacturers were attempting to expand their production capabilities to keep up with the growth of the raw materials market; demand was expected to increase at a rate of 4 percent annually. Even if supply remains adequate, prices were already rising, meaning that the largest companies would be best positioned to compete for available raw materials.
Despite heightened industry consolidation in the late 1990s, industry watchers did not expect the larger companies to push out smaller competitors altogether. As specialized applications for adhesives increase in demand, smaller firms should be able to carve out their own unique niches. Nonetheless, larger companies began to take a larger portion of market share. As of the late 1990s, over 55 percent of the market was controlled by the top 20 companies, compared to 50 percent in 1982. According to Bill Broxterman, president of ChemQuest, "All a small entrepreneurial company needs to do is to maintain a relationship with one or two customers to stay in business. Small companies will always be there; it is the medium-sized ones that are more likely to disappear."
Because the adhesive and sealant markets depends greatly upon secondary industries, trends in other sectors of the economy can have a big impact on this industry. One sector showing increasing interest in adhesives and sealants was the automotive industry. Several U.S. automakers joined with adhesive and sealant makers to develop industry-specific applications that will cut costs, reduce weight, and even increase recyclability of cars made with these products. David Freeman, president and CEO of Loctite, said in Chemical Week that for automakers, "using chemical methods is cheaper than mechanical methods, so the component suppliers are using more adhesives." Freeman reported a 20 percent increase in volume for 1997, the result of such outsourcing, and predicted 25 percent growth in automotive sales through the early 2000s. More conservative estimates for growth in sales to the automotive industry averaged around 6 percent.
Concerns over the environmental impact of adhesives and sealants increased following the passage of the Clean Air Act Amendments of 1990. Under that legislation, the Environmental Protection Agency (EPA) was required to set standards for volatile organic compounds (VOC) content and emissions reduction. In 1999, the agency proposed a regulation that required adhesives products purchased by consumers to have a VOC content of 10 percent or less. Because the regulation was based on California guidelines already in place, most companies with a nationwide market were not expected to be greatly affected. Such regulations increased the production and demand for water-based and hot melt products, although water-based adhesives may still contain toxic residues.
In 1997, the adhesives and sealants industry was comprised of more than 692 U.S. establishments employing approximately 21,737 people, just 12,000 of whom were production personnel. Many of these establishments were small business—of the 692, just 39 percent had more than 20 employees. Ranked by the number of production workers, the top five states in 1997 were Ohio, Missouri, Michigan, California, and Illinois.
According to a survey by Impact Marketing Consultants in 1998, these were the largest corporations in the industry, as ranked by market share: National Starch and Chemical Company and H.B. Fuller, each with a 5.0 percent share; Henkel, with a market share of 3.5 percent; 3M, at 3.0 percent; and Reichhold, Morton International, and General Electric tied for fifth place, each with 2.5 percent. Other top companies included Sonoco Products, Hercules Incorporated, and Borden Inc. Cytec Industries was the leading aerospace adhesives producer in 1998. Industry analysts mentioned Fieldco Industries and Devcon as two smaller companies with the potential for growth in the specialized adhesives market.
Because most products in this industry are based on commonly held formulas and because of the high cost of overseas shipping, exports are not a large part of this industry, with the exception of some high-performance, application-specific products.
U.S. firms instead worked to increase global market share via international acquisitions. For example, Reich-hold purchased two firms in Italy (one in 1996, and one in 1996), while H.B. Fuller purchased three European firms in the United Kingdom and Germany. Foreign firms also provided growth opportunities for midsize U.S. companies; among the firms that took advantage of that opportunity in the late 1990s were Sovereign Chemical Company and TACC International. Sovereign also purchased a portion of former industry leader B.F. Goodrich's adhesives and sealants business. At the same time, European companies increased investments in American firms; major foreign firms included Imperial Chemical Industries, Henkel, and Elf Atochem. As of 1998, Henkel was considered the top-selling company in the industry worldwide.
Gaining a foothold in the global marketplace was crucial for companies seeking larger scale growth. In 1998, the United States represented just under half of the worldwide consumption of adhesives and sealants, and growth in foreign markets was expect to outstrip domestic growth for the industry. Some analysts suggested that Latin America was a region ripe for market development. A study by the Freedonia Group predicted demand in that area would increase from 885,000 metric tons in 1997 to 1.1 billion metric tons by 2002. According to Freedonia, leading markets for the industry include Brazil, Argentina, Chile, Colombia, and Venezuela.
Adhesives and sealants manufacturers are counting on proactive research and development to keep them one step ahead of environmental regulators and market demands. Among the challenges faced are regulations aimed at reducing volatile organic compound emissions and bolstering pollution prevention measures.
Newer areas of technological challenge in terms of bonding are glass-reinforced polyesters. One emerging plastic technology is resin transfer molding (RTM). This is a polyester material, based on resin, that is being used in lower volume auto and truck applications such as sporty or upscale car models.
A growing number of players in the adhesives and sealants industry have expressed a desire to move away from the use of primers in adhesive systems because of their flammability and volatility. Such a change, however, presents difficulties in getting the right adhesion to certain materials. Physical and chemical changes can be made to the surface of these materials, but the focus of new development is to make adhesives and sealants that will incorporate the function of a primer. Environmental mandates on chlorofluorocarbons, volatile organic compound emission standards, and other ecological considerations are thus forcing adhesive formulators to nudge solvents out of their products and find alternatives. Research continues on meeting high-performance parameters such as water resistance, durability, and humidity resistance without using such solvents.
In addition, a number of large users of solvent-borne adhesives have already installed equipment to recapture and recycle, or properly incinerate, solvent and are less likely to change to solventless products. Already, adhesive manufacturers have moved production of industrial adhesives away from solvents to 100 percent solids, epoxies, and urethanes. With respect to pressure sensitive adhesives such as duct tape and heavy-duty industrial tapes, manufacturers have raised solid content to 65 percent, from as low as 35 percent.
A growing area of research in the late 1990s was soybased adhesives, particularly for wood-bonding applications. Trials in 1996 and 1997—some sponsored by Borden Chemicals—found that adhesives made from soy hydrolyzate created a waterproof bond that exceeded industry standards for strength. The United Soybeans Board hoped to develop adhesives to replace both ureaformaldehyde and phenol-formaldehyde. Such products would also have a reduced volatile organic compounds (VOC) content.
Developments in cloning technology may also hold potential for the creation of new adhesives. Seeking an improved waterproof adhesive, scientists at the University of California, Santa Barbara, studied mussels. According to the Department of Energy's Idaho National Engineering and Environment Laboratory, "the 'feet' of mussels secrete a viscous substance—a protein with adhesive-like properties—that hardens into attachment threads in about one minute. Unfortunately, it takes about 10,000 mussels to produce just one gram of adhesive." Scientists hope to clone the proteins to make their production economically feasible.
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