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2016 Raw Materials and Chemicals RoundtableLeading materials and chemicals suppliers and industry leaders sharetheir thoughts on this complicated but vital aspect of the industry.

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April 1, 2016

Teresa McPherson

Adhesive and sealant formulations depend on raw materials and chemicals. So what’s happening in

this often turbulent industry?

To nd out, we reached out to leading materials and chemicals suppliers, industry leaders, and the

ASI online community. Following are their insights into this complicated but vital aspect of the

industry.

 

How is the increasingly global economy impacting raw materials/chemicalssupplies and/or suppliers?

 

David E. Anderson, Global Vice President of Marketing, Green Biologics: A growing global economy

is impacting suppliers by creating a situation of overcapacity in many regions.

 

Christine Bryant, Senior Vice President, Commercial Operations, Coatings, Adhesive and

Specialties, Covestro LLC: The increasingly global economy is forcing raw materials suppliers to

think more broadly. The bene t for our customers is that they have access to greater supply options,

which strengthens competition between raw materials suppliers. This means that suppliers have to

be more nimble and aggressive to maintain or grow market share. Companies with a global footprint

have an advantage in that we can “think globally, act locally,” providing local supply solutions to

customers around the world.

 

Chris Chrisa des, Commercial Vice President, Dow Polyurethanes, North America: Driven by our

rapidly expanding global population, we ensure our unique chemical, physical, and biological

science capabilities work together to provide innovative products and solutions, where they are

needed most. Regionally focused technical and commercial teams keep our efforts aligned with

these needs of the local market, while a robust global production and supply chain enables delivery

of our innovation.

 

Daniel S. Murad, President and CEO, The ChemQuest Group Inc.: A combination of global and

regional factors is constantly at play and requires balancing. Let’s look at the feedstock slate rst. In

the U.S., nearly 80% of slate is lightweight (natural gas, shale gas, ethane) and heavy-weight

feedstocks (naphtha based), compared to China, where nearly all the crackers are based on naphtha.

Light feedstock is signi cantly lower in yield of the C4-C10 or higher raw materials that contribute

critical performance characteristics for the adhesives and sealants industry. As a result, supplies

and pricing equilibrium must be restructured to balance between the global imports and locally

available supply.

Second, quality is an issue. For a number of specialty raw materials, the technology and quality of

Southeast Asian sources still are unequal to Western standards. As a result, the supply and demand

for these raw materials are typically managed closely based on global capacity and utilization.

Present oil pricing and oil excess supply is providing ample supply of materials on a global scale, as

well as ample opportunity for adhesives and sealants manufacturers to increase their margins.

The economic cycle is also at play. China and the European Union’s slowdown further exasperates

supply availability far in excess of demand.

Should the oil oversupply and economic slowdown persist, the industry will have to structurally

adjust its capacities, analogous to the Great Recession of 2008-2010.

 

How does your company address the constantly changing landscape ofregulation/legislation?

 

Anderson: In addition to our own internal monitoring at both corporate and site levels, we are an

active member and participant in The American Chemistry Council (ACC).

 

Bryant: We have a cross-functional advocacy team dedicated to monitoring industry regulations

and public policy issues affecting our business. By engaging with state and federal governments,

industry associations, non-governmental organizations and the media, Covestro is taking a

proactive stance to ensure that we’re in compliance with regulations, while also educating

legislators on the bene ts of chemistry so they can make informed policy decisions. We think and

act regionally, but watch for global changes. Regulations are applied at a local or regional level, but

we need to be mindful of what is happening in other parts of the world.

 

Chrisa des: We realize change isn’t easy, which is why we proactively monitor and understand the

regulatory climate facing our industry. We collaborate closely with our end users to develop the

science innovations needed to address regulatory needs and changes. Of equal importance, we also

work with regulators to ensure that the feasibility and timing of new regulations are realistic. Our

experts are available to help our customers to ensure smooth and seamless transitions during these

times of change.

 

Murad: We continually monitor leading countries such as Germany and the U.S. (particularly

California and the Ozone Transport Commission states) for indicators and patterns. Likewise, we

monitor scienti c studies, non-government organizations and media activities.

The cost for complying with regulations continues to rise, and it puts signi cant pressure on small-

and medium-sized enterprises. Companies address these demands through various means,

including trade associations, industry forums such as the “sustainability summit,” American

Chemistry Council initiatives, regulatory consultants, collaboration with buying cooperatives,

adding internal resources, and others.

 

How important is a collaborative relationship between rawmaterials/chemicals suppliers and manufacturers/formulators in theadhesives and sealants industry?

 

Anderson: Green Biologics is committed to building strong collaborations across the value chain to

shift the dialogue away from price to value-added solutions for our customers.

 

Bryant: Collaboration is core to what we do at Covestro. In fact, it is the basis of our new company

name (collaboration, well-invested, strong). The collaboration between formulators, manufacturers

and other players along the value chain is essential to driving innovation. We work closely with our

customers and their customers to better understand their needs so we can deliver a customized

solution that ultimately bene ts the end user.

 

Chrisa des: Collaboration between chemical suppliers and formulators, as well as downstream

brand owners, is critical in the adhesives and sealants industry to ensure innovation thrives.

Formulators provide a critical piece of the voice of the value chain, which allows raw material

suppliers to develop novel backbones that enable value-add throughout the value chain from raw

material supplier to end use consumers.

 

Murad: Collaboration is critical. Adhesive manufacturers and formulators do an excellent job of

compounding raw materials to deliver value-added solutions. While some adhesive manufacturers

are backward-integrated into developing and producing their own raw materials, that function is

typically served by raw material suppliers.

 

Performance requirements are increasingly becoming more sophisticated, with new substrates and

multi-functional characteristics. As a result, adhesive manufacturers need to communicate these

new critical-to-quality requirements, speci cations and unmet needs to their suppliers in order for

raw material suppliers to manipulate the molecular architecture of their respective raw materials.

Similarly, raw material suppliers must stay abreast of leading macro drivers, trends, and substitute

materials to initiate robust and novel approaches. Likewise, they are striving to mimic the end-use

requirements in their laboratories in order to fully understand the needs and communicate the full

capabilities and limitations of the molecule.

 

What factors are driving innovation for raw materials/chemicals producers?

 

Anderson:We are a leader in the development of renewable specialty chemicals, but we realize that

a green premium is not always going to be achievable. Rather, we focus on improving performance

rst and let the renewable aspects of our technology be an additional bene t to our customers’

sustainability objectives.

 

Bryant: There is a greater push for sustainable solutions in the markets that we serve, and

sustainability and innovation go hand in hand. We work with players along the value chain to

gather input for unsolved market needs. For the adhesives and sealants industry, sustainable

solutions can be translated into the incorporation of bio-based and renewable materials, or the shift

to increased waterborne solutions, which is what we’re seeing with high-performance adhesives for

automotive interiors. For many of our customers, innovation can even include more sustainable

packaging concepts for their nal products.

 

Chrisa des: Global challenges such as rapid population growth are creating drivers across many

market segments: provision of adequate and affordable housing remains a key priority; the need for

sustainable consumer goods is increasing at a dramatic rate; durable infrastructure for

transportation, utilities, energy, waste management and telecommunications are needed; keeping

up with the needs of the fast pace of urbanization and a growing middle class; needs for lighter,

ef cient and reliable vehicles to match demand and reduce emissions. Finally, we are challenged to

learn how to feed more people with less farming land in a sustainable way. Innovative adhesives,

sealants and binders will provide solutions for many of these challenges, and the solutions will rely

on innovation both by the formulator and by the raw material provider. This is achieved by

improving the manufacturing of our materials, as well as their performance for the marketplace.

Understanding these downstream requirements and incorporating them into our materials is key.

 

Murad: There are many sources for innovation within the adhesives and sealants industry. Macro

drivers include resource constraints, such as depleting water and food sources; population growth;

population demographics, such as aging; and urbanization.

Energy ef ciency has resulted in lightweighting by use of plastics, composites, lightweight alloys,

etc., as well as higher insulation requirements. Substrates have become diverse and dissimilar;

these combinations are constantly changing. Substitution of other fastening methods continues,

such as industrial mechanical fasteners; welding, brazing and soldering; and others.

Regulatory concerns also continue, such as volatile organic compounds; hazardous air pollutants;

REACH; halogens; bisphenol-A; and more. Sustainability issues include lifecycle analysis (cradle to

cradle, cradle to grave, etc.), recycling and compostability, waste reduction, and others.

Emerging applications include energy sources, such as wind and solar; smart buildings; point-of-

use water puri cation; new medical and/or electronic uses; and many more.

 

What does the future hold (near- or long-term) for the supplies and/orsuppliers of raw materials/chemicals?

 

Anderson:The major issues facing the chemical industry and the global economy in general are

clearly the situation with oil, continued and escalating instability in the Middle East, overcapacity,

and economic slow-down in China and Brazil. The future comes back to the core principle of

innovation. Companies that are committed to driving innovation, proactive development of

customer solutions, and a solid scal responsibility with investments will overcome these

challenges.

 

Bryant:Here in the U.S., the affordable and abundant supply of natural gas has been a game changer

for manufacturers. Many sectors, including the chemical industry, are making the most of this

energy advantage, investing in new facilities and expanding existing plants. I think we can expect to

see this trend take greater hold in the short term.

The shale gas boom bene ts raw materials companies like ours, because we use it as both a fuel

source and a raw material. In addition, like many U.S. manufacturing companies, we bene t from

the overall economic vitality created by low-cost energy.

What may be counterintuitive is that while low natural gas pricing is a game changer, this has not

slowed the movement toward increased environmentally friendly and sustainable materials. That

type of innovation will be ongoing, and we will continue to engage with our value chain to meet the

needs of the market. Of course, we’ll closely follow the situation in the U.S. and elsewhere, aligning

our global operations so that we leverage evolving market conditions for the bene t of our

customers and shareholders.

 

Chrisa des:We in Dow see it as a promising future. As we have outlined in this conversation, global

megatrends such as clean water, abundant food supplies, energy, and infrastructure will

continuously need innovation and new materials. Examples include durable pipe coatings for water

transportation and strong adhesives and sealants for infrastructure build/repair. While existent

materials may deliver against some needs, there is no doubt that new materials will have to be

invented for the more demanding and sustainable requirements. Just in the U.S., the federal

government has approved $305 billion for road and bridge repairs over the next ve years, and this

brings short-term opportunities for our industry. The same dynamic is occurring in other countries

where infrastructure was built after World War II.

 

Murad: The future for supplies and suppliers is multi-faceted. Globalization is shifting the

economic balance to the East. This requires new supply chains and new competition, and adds to

the complexity of managing global supply and demand dynamics.

Consider 500 years ago, when Asia dominated the world. China and India made up approximately

50% of world GDP, while Western Europe and the EU and North America accounted for 20%. But the

industrial revolution changed the balance of power.

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Teresa McPherson is Editor of Adhesives & SealantsIndustry. She has held several editorial positions duringher more than 17 years with BNP Media. A Michigannative, McPherson is a graduate of Eastern MichiganUniversity with bachelor’s degrees in English andjournalism.

In 1950, Western Europe, the EU and North America represented 50% of world production. China

and India fell to 8%, and Japan emerged as the major Asian economic power. By 1980, the world was

dominated by the advanced economies.

In 2050, we expect that China and India will regain their original status from the year 1500 and

account for half of the world’s production. With Africa and Latin America’s ascent, the advanced

economies will be relegated to minority status. Asia-Paci c will contribute over 60% to the total

growth in chemical demand until 2050, whereas North America and Western Europe will contribute

only 24% to the total growth.

In addition, a “Battle of Empires” will ensue to balance the hydrocarbon-related vs. bio-based

businesses. New empires will provide renewable and agriculture-related companies with access to

arable land and/or renewable feedstock and/or sources from waste streams. Old empires will include

hydrocarbon-related companies.

Raw material volatility will continue to increase, as investments in cracking lightweight feedstocks

yields lower amounts of high-molecular-weight intermediates and investment in naphtha crackers

becomes primarily focused in the Middle East and/or Southeast Asia. Elongated, complex supply

chains inhibit response time to customer demand and become susceptible to disruption.

Regulatory implications will provide similar challenges to detect, comply and develop preventative

measures while simultaneously provide opportunities to develop new, unique solutions. In addition,

new product development activities will provide opportunities based on the “innovation” drivers

described previously.  

For more information, visit www.greenbiologics.com, www.covestro.com, www.dow.com andwww.chemquest.com.

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