Natural gas is the primary driver & is up 34% in 2 months
Many adhesives market raw materials are derived from natural gas
Very disruptive outages across the globe in other raw materials
- Old plants in N.A. being shut down or causing unplanned outages restrain supply and increase pricing
A number of factors are contributing to an unprecedented escalation in raw materials costs. ln the past. oil and natural gas prices were largely responsible for the observed fluctuations in raw materials pricing. This is no longer the case as the world's economy now appears to be entering a new paradigm of price pressures - one that relates more strongly to supply and demand rather than directly to energy prices.
Quick Raw Material Review
The waterbase, hot melt, PSA & other adhesives produced by the adhesive manufacturers are in most cases derived from a basic building block of petrochemicals called ethylene. Ethylene & its by-products are then used to help produce products adhesive manufacturers purchase such as: VAE, VAM, PE, hydrocarbon resins, and various rubber products.
The petrochemical chain:Natural gas > ethane > ethylene > adhesive raw materials
Acids, glycols, butadiene, acrylics, polyols, dextrins, FT & other waxes, aromatics, block copolymers, APAO’s, polyamides, and both natural & synthetic hydrocarbons are all at or near 2 year highs in pricing and moving higher while most finished adhesive prices haven’t kept pace in the same time period.
$$ Currency $$
To complicate matters, the US currency has dropped in value more than 29% on average vs. major currencies in the past 10 years.
This means that our economy is less attractive for importing many adhesive raw materials that would help close the supply/demand gap. While this makes it easier to sell our products overseas, it has a negative impact on prices in the U.S. as the supply of key raw materials become insufficient to keep up with demand
GDP growth in the US has rebounded from a -2.6% in 2009 to a +2.8% in 2010. As general industrial activity in North America has shown signs of recovery in the last 18 months, prices for the most of the petrochemical-based raw materials used in the production of adhesives have increased sharply from lows seen in 2009.
A primary driver for this increase in North America has been a 34% increase in the price of natural gas and to a lesser extent, and a 21% increase in the price of crude oil from recent lows.
Added to this is a reduction in available North American adhesive raw material production capacity. In North America petrochemical producers have idled as much as 30% of available capacity, as many downstream industries have done as well. This is a result of decisions by producers to close or mothball plants during the past 5 years. In 2010, this led to a substantial and in some cases a severe inability of raw material suppliers to ramp back up as the general economy rebounds from the 2009 lows, which has continued into 2011.