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One of the biggest problems in all parts of industrial manufacturing for the past few years has been the increase in legislation. This is affecting the epoxy and sealant industry more than most, as the development of new products is a core part of the business. Added to this is that epoxies, adhesives and sealants have an ever growing range of uses, with increasing demands being made on them. It is no wonder that lawmakers focus so much of their time in ensuring that products meet necessary standards and that production techniques are safe.

However, when an industry is on the receiving end of near constant amendments to current legislation, or is faced with wide reaching overhauls of future legislation, such as REACH, the EU’s 849 page chemical regulation, then the impact on business can be severe. This is a point made by Julie O. Vaughn, Vice President, Marketing and Business Development at Emerald Performance Materials, when she said, “We see two challenges in the regulatory landscape that we increasingly must navigate: a new regulatory/legislative landscape for existing materials and tougher registration requirements for new materials. Like many in the chemical industry, we are impacted by both. Emerald currently offers many products that have little to no VOC’s [volatile organic compounds], but continues to expand the available technologies to drive increased performance and address certain unmet needs. There can be significant additional costs involved in terms of time, money and resources to develop innovative new materials and bring them to market. Because of REACH, TSCA SNUR [the ‘significant new use’ rule], TSCA SNUN [the ‘significant new use’ notification], the EU food packaging migration standards EC 10 (2011) and a myriad of other global registrations, the regulatory landscape adds requirements that must be addressed up front and early on in evaluating opportunities and developing new products.”

She continues by noting that, “One of the challenges is that there is no ‘one size fits all’ registration process. Another challenge is that some of the testing protocols are under development. More than ever, we focus on working closely with key customers to fully understand the intended and potential uses of a product, a critical piece to understanding all their requirements. In some cases, we rely on the expertise of firms such as Keller and Heckman and Huntingdon Life Sciences to interpret regulatory requirements, recommend appropriate testing protocols that will align with the requirements, and assist in the registration process.”

Clearly there is much to consider in the field of legislation. Even before a product is designed, regional laws for use, production and supply will need to be factored in, and Vaughn is not alone in taking the topic of regulation seriously.

John Duffy, the Manager at Easterly Research, notes the changes in business that new laws have caused. He said, “Our contract customers have changed how they address the regulatory/legislative landscape in two ways. First, they are centralizing the knowledge base to an individual or department charged with staying up to date, which can be critical with the increasing complexity of the landscape. As long as the designated department has a reasonable understanding of the company’s product line, its applications and customer needs (some of which, paradoxically, are not known to the customer), and the recognition that regulatory compliance has both legal and customer service components, this can be a very effective process. It does require rapid and continuous information exchange within and outside the company.

Second, they participate in the regulation-establishing process itself. Instead of being innocent but complaining bystanders as in the past, more companies are contributing data and opinions to the regulators. This does not detract in any way what we have seen from the activities of ASC (Accredited Standards Committee) or any of the coatings associations.”

It does seem to be logical that as legislation grows in complexity, that the formulation of laws would need to be assisted by the industry itself. Whilst there does need to be a line between legislators and the industry, any meaningful and effective controls must take into consideration the needs of business.

For many, including Greg Bunker, Global Business Director for Adhesives and Functional Materials at Dow Packaging and Specialty Plastics, this is a positive side to extensive lawmaking. He had this to say on the subject. “We view the regulatory environment as a challenge and as an opportunity. While many companies can provide adhesives and sealants, a company of our size has global reach, technical expertise in a vast number of markets, and state-of-the-art toxicology and analytical capabilities that provide customers and brand owners with clarity and confidence when navigating this difficult landscape.

As consumers grow more concerned with clean labels and want to understand what is in their food packaging, our teams’ deep understanding of our technologies at the molecular level and how the regulatory environment impacts them allows us to tailor specific solutions to meet customer and brand owner needs. Dow is also working closely with regulatory agencies as new standards are developed. This understanding can help customers comply with the ever-changing landscape, in the U.S. and around the world.”

But working to comply with legislation, working with legislators to help formulate rules and working to help customers understand the law, is exactly that: work. And that requires money and manpower, as Dan Marvin, Director of Technical Services at MAPEI Americas makes clear when outlining the new roles that his company has taken on, “MAPEI is fortunate to have a dedicated team of individuals that is active in regulatory circles and is able to foresee and react to new requirements such as the Globally Harmonized System of classification and labeling, which impacts most manufacturers’ labeling and Safety Data Sheets.” But he also points out the importance of sharing this workload with other businesses, stating that “We also maintain an active participation in trade groups that monitor and report on upcoming initiatives and allow the industry to have a larger voice in the discussion than individual companies might have on their own.”

This strategy is supported by Scott Coring, Vice President of Sales & Marketing at STI Polymer, when he said, “To address concerns and to stay abreast on the latest information, we turn to associations like ASC and RCMA to keep us informed. STI Polymer is a firm believer in the value that trade associations bring to our business, especially when it comes to being one voice to regulatory groups. Of course, running a polymerization facility comes with its own set of regulatory/legislative issues, so we also maintain dedicated staff allocated to nothing but EHS responsibilities.”

Evidently there is much to consider with regards to the law in the chemicals industry. Whilst teaming up in trade associations may help, it seems that dedicated legal staff is a must. Given the large number of changes in legislation over the past 20 years and the cost of well-informed staff, it is unclear if smaller companies can survive these added pressures.

Whatever industry you work in, you will have noticed how so very much smaller the world is. The modern businessman has contacts in Mumbai, suppliers in Guangzhou, buyers in Brasilia and a head office in Houston. We are cursed with globalization.

At the same time, you will also have noticed, how very much larger markets are. You can find someone to buy your products in every corner of the planet, and with the markets in the East (especially construction markets) booming, whilst Europe and North America stagnate. We are cured by globalization.

The adhesive, sealant and resin industries face similar pluses and minuses of survival in a modern world. Where suppliers and buyers are on different continents, lead times and sourcing snags can result in big price differences. As JP Kuijpers, Business Unit Director of Adhesives at Eastman Chemical Co. explains, “Raw material prices and sourcing are ongoing issues for any manufacturer. Shortages lead to price volatility, which is not desirable for anyone.”

And yet this negative situation also leads to positive outcomes, as he continues to outline one advantage Eastman has made from the price swings. “One example of this is in the hygiene construction adhesive market. Price volatility for some raw materials, along with product availability, is leading formulators and manufacturers to look at alternative technologies for these hot-melt adhesives, which has resulted in a share shift away from styrene block copolymers toward polyolefin solutions. Customers are more receptive to testing new materials when the existing solutions become unavailable or more expensive. As formulators and brand owners seek out new material solutions, Eastman is developing the next generation of sprayable olefin-based hot-melt polymers.”

Dan Marvin, Director of Technical Services at MAPEI Americas also sees the benefits from larger markets and a larger pool of suppliers. He says that, “This is probably a net positive for the U.S. market as global producers look to us for price stability and growth vs. a world economy that is anything but stable. We’ve been able to bring purchases back to U.S. producers in many cases as suppliers expand production or slot more of their production for the domestic market. Although it’s hard to predict where the next supply disruption may come from, having qualified backup sources for critical raw materials is always a wise idea.”

Other industry heads see less impact through globalization, such as Julie O. Vaughn, Vice President, Marketing and Business Development at Emerald Performance Materials, who notes that, “As a raw material supplier to the adhesives and sealants industry, we have not experienced any raw material supply issues as a result of the fluctuating demand in the global economy.” But she does continue with a cautionary voice, “That being said, forecasting and managing supplies to appropriate levels can be more of a challenge. Additionally, recent issues with production and availability of vinyl acetate monomer—a key feedstock for adhesives and sealants—has created stress for manufacturers to navigate. As a result, it is even more critical to have a close working relationship with customers and supply partners.”

Greg Bunker, Global Business Director for Adhesives and Functional Materials at Dow Packaging and Specialty Plastics agrees, saying, “We see very little impact, because adhesive and sealant products are unique in the sense that most contain a large number of very different raw materials in specialized formulations. With the drop in oil prices, we hope to see an increase in demand for goods like packaging, automotive and construction due to consumers having more disposable income.”

Susan Renner, Business Development Manager at Kowa Chemical, also sees oil price volatility as an area having great impact. According to her, “While crude continues to drop, in downstream materials there isn’t the same movement. Some commodities like solvents are dropping. More customers are using VOC-exempt solvents to lower costs and reduce VOC’s. Eventually, we expect to see some smoothing, as the balance of manufacturing adjusts.”

The impact of fuel prices is certainly key to any large company, but possibly more so for sealants, resins and adhesives, as oil based stocks are such an integral part of the supply chain. As a result, the ‘Shale Gas Revolution’ has had a bigger impact here than in other industries, as Scott Coring, Vice President of Sales & Marketing at STI Polymer notes. “The ‘shale gas revolution’ has ignited the building of petrochemical manufacturing plants in the U.S. With the addition of new PDH [propane dehydrogenation] facilities and the expectation of more being built and coming on-line in the near future, chemical prices will remain unbalanced. For the near future, this is good news for adhesive manufacturing raw materials; however, big swings in chemical feedstock costs are never good long-term.”

Seemingly, there is some disagreement over the benefits and drawback of globalization. Whilst new oil or gas sources can spur new growth (and a new demand for products) it can also provide instability in feedstock prices. This can inhibit investment in new manufacturing plants, but also encourage research into more price stable alternatives.

Whatever your outlook is on this subject, it seems that accurate forecasting and price analysis, as well as calculated prediction is vital to ensure that supplies remain flowing. Failure to predict price hikes or to have back up suppliers at the ready can cause serious damage to businesses. This leaves the question not ‘How do you handle globalization?’ but, ‘How do you analyze price data?’ and ‘Where do you find new raw material suppliers?’

Never in the history of epoxies, sealants and resins has the business climate been so difficult. The world economy, oil prices, complex logistics, higher spec demands from end users and ever changing legislation mean that the industry is under more pressure than ever before. The growing number of producers, suppliers and traders, and products, on a global scale, makes finding the right business strategy harder than ever before.

So what challenges do industry leaders envisage in the coming months and years, and how are they planning to cope with these new problems?

Certainly feedstock sourcing is more complex than ever, but the industry is also under pressure due to tightening of regulations, as well as a recent spate of M&A’s that has altered the market landscape, plus there has been a steady flow of new products and the impact of globalization.

This article will analyze each of these topics in order, and note the advice given by many experts in the sealant, adhesive and resin industry in how to face these challenges.

How Can Businesses Handle the Effects of Mergers & Acquisitions in the Sealant, Adhesive and Resin Industry?

For many years now the sealant industry has had a wide variety of smaller players, but recently there have been a number of M&A’s that have transformed the market in one way or another. For many employees, hearing the news of a takeover can be a worrying experience, but most industry heads believe these changes to be a positive influence. For example, Patricia C. Souza, the Market Segment Manager at Lanxess Corp. thinks that, “Consolidations in the raw material industry can be very positive due to synergies achieved through this process, such as better product portfolio (additional lines and chemistries), higher investment in R&D and regulatory affairs, and better raw material costs. Overall, economies of scale will have a positive effect at the production chain for raw material and adhesives producers.”

Keith Olesen, Field Marketing Manager at Arkema Coating Resins, can also see many reasons why sealant companies would wish to buy others out, noting that mergers can become a means not just to grow in size, but also to broaden into new markets. He states that, “Larger, more integrated suppliers can bring economies of scale, security of supply and the ability to invest in assets. As companies expand geographically through M&A, it is important as a supplier to the industry to be able to offer products of interest to our adhesives and sealants customers locally in the regions where they operate.” He continues by giving an example of how his company has adapted a buying strategy, saying, “Arkema has been investing in high-growth economies, which are target regions for many of our customers. In recent years we have added manufacturing assets in China and Brazil to support our customers’ growth in these regions.”

Julie O. Vaughn, Vice President, Marketing and Business Development at Emerald Performance Materials, also thinks that acquisitions allow a short cut to diversification for a business, either by expanding into new territory (as Arkema has) or into new fields and sectors of the sealant trade. She notes the positive affect that the mergers have had saying, “The adhesives industry has gone through significant consolidation over the years, with a good track record for successes. Recently, we have seen companies broaden their portfolios by acquiring companies with complementary products. As these companies expand into profitable niche areas, add new technologies or fill gaps in their portfolios, this may serve to further stimulate innovation in new ways. We see this as very positive.”

This is something that Greg Bunker, Global Business Director for Adhesives and Functional Materials at Dow Packaging and Specialty Plastics, agrees with. He notes that, “Traditionally, the adhesives and sealants industry has been a very fragmented market. As we see more M&A occurring, I think it suggests companies want a bigger footprint that increases the number of markets they can serve and provides customers with a broader set of technologies. This shift is why Dow is operating under a foundation of ‘Science that Connects.’ It reflects how Dow has adhesives serving the packaging, automotive, building and construction, and consumer sealants markets, and we are also a large supplier of a broad base of chemistries and technologies that deliver the ability to develop new adhesives.”

However, mergers are not without their downsides, as Marc Benevento, Managing Director of Industrial Market Insight notes, “Chemical supplier consolidation often leads to product line rationalization and discontinuation of products used in adhesive formulations. This can require downstream products, such as adhesives and primers, to be reformulated, triggering a lengthy and costly requalification process for many applications. Ultimately, this consumes resources at adhesive manufacturers and their customers, who spend months (even years) reinventing the wheel rather than advancing technology.”

Whether you are a pessimist or an optimist when reviewing the large number of M&A’s in the industry, it is always worthwhile to consider adapting a new strategy should the situation arise in your sector. As Scott Coring, Vice President of Sales & Marketing at STI Polymer says, “For adhesive manufacturers, M&A’s indicate fewer competitors, but ultimately they are creating larger companies with diverse product offerings spanning a variety of markets. Strategies will need to be adjusted to recognize a new playing field, one consisting of larger players with boundless purchasing power, but with restricted flexibility.”

So whilst the smaller business may be concerned at the spending that larger corporations are able to take on and the R&D resources that they have to develop new products, it seems that mergers also leave niche markets where specified demands of end users can be profitably met by business savvy manufacturers.

Given that the modern business world is filled with M&A’s, and that the sealant and epoxy industry contains so many smaller firms, it is certain that they will continue to happen in the years ahead. Whether one sees them as a positive or negative influence may be a moot point. For good or bad they exist, so instead it is perhaps best to ask yourself, ‘Can they be turned to my advantage?’