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?’