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For those players with a toehold in the relatively mature adhesives and sealants market, the word is that business is going very well. While researching this feature I asked many of the major figures in this area how business had been for them in the last year and the reports back have been unanimously positive.
Tony Smith at Sika reports that the company has been doing extremely well in the last year (particularly in the latter half), which comes down to its involvement in the general upturn in construction in Auckland and Christchurch as well as increases in overall market share. Smith feels that Sika isn’t the only one to benefit however, with positive feedback coming from many people he talks to on a day to day basis.
“The market has been pretty good. There’s no doubt that residential permit numbers, even if they are nowhere near what they were in 2006, still seem to be pretty strong. There are still two markets in Auckland and Christchurch, then the rest of the country, so that remains a factor, but I think overall the last 12 months have been a lot better than the previous year and there’s a better feeling out there in the market and you hear less negative comments than last year as well.”
So what part does Sika play in all of this? “If we look at the financial year, we are really happy with our growth and we are well ahead of the 2007 peak before the GFC hit. So we are having milestones all the time and this quarter just gone was our best ever and that’s in a quarter with January where most are on holiday so it’s going very well.”
ORGANIC GROWTH IN A TIGHTER MARKET
Despite his favourable recent results, Sika’s Tony Smith points out that organic growth in such a mature area can be difficult with players in this having to fight it out in a limited space: “Everything we look at would tell us our market share has grown,” he says, adding that major reviews have also had an impact in reducing the number of brands stocked in certain stores and this has obviously favoured some brands and not others.
Bostik also reports good business in the last year with Key Account Manager Paul O’Reilly reporting that along with the uplifts in Auckland and Christchurch the last 6 months in particular have seen “some improvement in the market that’s probably going to continue.”
Henkel’s Callum Fraser has seen similar signs in the market which are making him optimistic for the future: “The market has been really buoyant with excellent signs of growth on the back of high consumer and business confidence and housing consents are still powering along too – I feel the construction industry will lead the way in New Zealand’s economic recovery. I put the industry at about 2-3 years away from the peak right now so I’m looking forward to the next few years,” Fraser says.
It’s not just the familiar, established players who are doing well however. Elliot Guy from Liquid Rubber with its water-based, VOC- and solvent-free products for waterproofing, corrosion and chemical protection, reports that, despite being a relatively new player in the New Zealand market, the company has also seen an upturn in sales in recent months: “We have been around for a little over a year and we are finding business is picking up,” he says, with particular reference to the DIY market.
In which respect Elliot Guy continues that consumers have been adopting a more DIY than DIFM attitude in recent times: “Although the economy is improving, people still like to save money where they can which is why there has been an increase in sales for DIY sealers and glues over the last 12 months and we have had a major increase in our waterproof sealant line as more and more people are finding it a lot more cost effective and easier, to apply our waterproofing products themselves to small jobs around the house or their business.”
WHERE ARE WE AT? WHERE TO FROM HERE?
So if the construction in Christchurch and Auckland is one of the main drivers behind the success of the aforementioned players in the adhesives and sealants game then a close look at the types of adhesives that are being consumed at any given time should give an indication of how things are going, right?
I asked Tony Smith at Sika if the different stages of the construction process can show a noticeable increase in specific product sales? “When the earthquake struck in Christchurch, all of a sudden there was a demand for products we normally didn’t deal with in New Zealand – products for repairing concrete structures to make them structurally sound again that you would only sell in a natural disaster area or a warzone. We sold a lot of those products over the last three years but a lot of that remediation work has stopped now,” Smith says.
With much of this patch-up work now nearing completion Sika is seeing a return to more conventional sales patterns: “We don’t really see big changes with different products but you do have key product lines that are a good measure of how much work is out there – products like basement waterproofing products, wallboard adhesives – where if you put a graph up of permit numbers along with sales of some key products it will pretty much match them.”
But the market isn’t near its peak, at least in this category. Bostik’s Paul O`Reilly adds his 10 cents’ worth on how he feels the rebuild is going and how this reflects in particular product areas: “We are involved in most of the stages from plumbing products through to the building adhesives and sealants through to adhesives for putting cladding on the buildings as well as gap fillers for painting and silicone for the kitchen.
“And construction down there is definitely far off its peak. A lot of subdivisions are starting to be built and the guys that would benefit from that firstly would be anyone using things like plumbing adhesives that go into all your pipes and into the ground first. So we are seeing that the plumbing market is picking up. And then second to that we will probably see more of a spike in the likes of wallboard adhesives, acrylic gap fillers and that’s certainly nowhere near its peak for those types of products.”
LOW VOC: ARE WE THERE YET?
One thing that a boom based on reconstruction does well is sort out which products really are essential to the business at hand. A telling indicator of this is the continued prevalence of solvent-based adhesives over water-based product, despite predictions to the contrary over a number of years.
“We have seen reasonable growth on all technologies with no decrease in solvent or increase in water based products,” confirms Bostik’s Paul O`Reilly, with qualification: “We get asked about low VOC products probably more so in the last 12-18 months than previously so there is awareness there but it’s not dominant, and companies are putting more of that on their packaging but it’s still not the be all and end all.”
Henkel’s Callum Fraser has seen similar trends: “In the past I have mentioned that there is supposedly a decline in solvent-based formulations, but we aren’t seeing it,” he says.
Perhaps it’s just a matter of time until low VOC products become more of a standard in the industry? That process may be sped up by legislation rather than the pure performance of the products, regardless of recent advances in water-based technology.
“There is a growing interest in Loctite adhesives and sealants which comply with the New Zealand Green Building Council’s (NZGBC) Greenstar rating system which is every single product bar one. And if the final Auckland Unitary Plan uses this rating system it will further influence the demand for ‘VOC compliant’ products,” Callum Fraser explains.
If this does happen it will have implications for more than just the adhesives market and is certainly one to keep an eye on. You can view the NZGBC’s proposal to the Submission on the Proposed Auckland Unitary Plan at this shortened URL http://bit.ly/1ixIe2q.
WHAT ELSE FOR THE FUTURE?
Construction may be predicted by many to keep going strongly for another few years but this doesn’t mean plain sailing, even if business is good now. So what are the main issues going forward for major players in the adhesives game?
Tony Smith at Sika reports excellent business for the company at a local level but still puts the majority of his efforts into predicting product demand: “Forecasting and keeping a real handle on where there’s growth, spikes in growth, and keeping the supply chain full is our number one priority because we know the merchants don’t want to have empty shelves – especially over critical periods – and that’s the last thing we want to do.
“So our DIFOT (Delivered In-Full, On-Time) system is really important to us that we deliver in full as much as we can to the customer. Our own target is about 98% in full on time but there’s a lot of work that has to go on behind the scenes to make sure that that can happen,” Smith says.
For Henkel’s Callum Fraser, consumer education is top of mind looking out there: “Unfortunately many customers still have a difficult time understanding which adhesive or sealant they need and end up selecting one that isn’t exactly right for what they’re working on.
“This isn’t likely to change any time soon because product positioning can be too confusing and this has led to end-users becoming a little inflexible in their decision making, but it’s a very exciting challenge to try and overcome,” he says.
Bostik’s Paul O`Reilly feels that there is more potential for the company to stress its New Zealand made status in future: “65% of our products are New Zealand made and people are getting back to becoming interested in New Zealand made products – the reason being is that there just isn’t any really,” he says.
“And it’s probably something that’s not pushed enough by companies that are manufacturing here and to me more could be made of it as some imported products may not necessarily be designed or formulated for New Zealand specific conditions.”
WHEN ALL IS SAID AND DONE
Despite the concerns mentioned above, the adhesives markets in New Zealand is doing well right now and this should continue for a few years especially with adhesives playing such a fundamental role in construction.
Tony Smith for one is confident that there is plenty more work in the pipeline for those in the business in both the commercial and residential markets: “We have a lot of technical guys out there talking to specifiers, architects and engineers but you still don’t really know when a lot of this stuff is going to come to fruition. For example we have heard that there are around 100 projects of over a million dollars happening in Christchurch.” Smith says.
“Housing is different as there’s still great demand for it. It seems that in Auckland they are being sold as fast as they are being built and they are still talking about a shortage. There’s also the Government wanting to replace old decrepit state housing, which has got to be good, not just for the building industry but also for the people living in those homes.”
So, with plenty of business coming through, it’s now up to the key players in the business to keep their eye on the ball and make the most of it. Easier said than done? Perhaps…
INSTANT EXPERT – GLUES, SEALANTS & FILLERS
US DEMAND CONTINUES TO FAVOUR SOLVENT-BASED ADHESIVES
A report from the US-based research company Freedonia Group forecasts a steady rise in demand for glues and adhesives predicting US demand for these products to rise 2.2% annually through to 2017. Drivers for this are an improved outlook for major adhesives and sealants markets such as paper packaging, motor vehicles and building construction along with trends away from mechanical fasteners toward the increased use of adhesive bonding in product assembly applications.
Reactive and hot melt to grow the fastest
Natural adhesives and sealants will remain the largest product type through 2017. However, natural products will also see the weakest gains going forward, as the bulk of demand consists of low value starch adhesives used in corrugated cardboard production, which is a mature and slow growing market. The most rapid advances are expected for reactive adhesives and sealants, fuelled by the rebounding manufacturing market, as well as by product substitution trends toward higher value materials. Hot melts will also see healthy gains, as their amenability to fast processing speeds will promote opportunities in packaging, while their lack of volatile organic compound (VOC) emissions will continue to make hot melts an environmentally preferable option.
Solvent-based products to outpace water-based types
Despite decades of losing share to alternative formulations, solvent-based adhesives and sealants will see above average increases in demand, bolstered by a turnaround in the US construction sector and product reformulation efforts to lower VOC emissions. More moderate gains for emulsion and dispersion adhesives and sealants will stem from market maturity and competition from hot melts in leading outlets such as case and carton sealing. However, ongoing development of better performing water-based formulations will allow emulsion adhesives and sealants to penetrate new markets going forward.
Construction to be fastest growing market
Among adhesives and sealants markets, the fastest growth is forecast for construction, which will rebound strongly from the sharp declines of the 2007- 2012 period. Construction is an important outlet for sealants, which are widely used in both building and non-building applications. The dominant packaging market will post among the slowest gains, based on weakness in the key paper packaging segment. In the manufacturing and assembly market, the fastest growth is expected for tapes and labels, motor vehicles, and machinery, while nonwoven disposables, furniture, and other outlets will rise at a below average rate.