Hot Melt Raw Material Availability

Some of the major raw materials used in hot melt adhesives have more in common than just their end application. They are also less plentiful, and more expensive, than most manufacturers would wish.

In late January Platt's Global Petrochemical Index reached an 18-month high¹, up nearly 150 percent since the recession bottomed at the end of 2008. While lower prices through 2009 indicated eased supply constraints, they also made producers reduce outputs. Some of these changes are long-term, creating new challenges as demand for hot melts returns.

A key driver behind the Platt's Index rise is the price of naphtha, which rose to $775/tonne, up from $245 in late 2008. Naphtha is cracked to produce ethylene and benzene, the two primary feedstocks for styrene, and generates butadiene as a by-product. The market for naphtha is currently tight, largely driven by downstream demand for ethylene from Royal Dutch Shell's new 750,000 tonne per annum monoethylene glycol plant in Singapore.²

Figure 1 : Petrochemical demand recovers Source: Platts, IEA

This has varying consequences for the supply of backbone polymers providing the spacial framework for hot melt adhesives. For one, increased competition for ethylene supplies has raised ethyl vinyl acetate copolymer prices in recent months. Ethylene prices are more likely to be bad news for styrene producers than users, as overcapacity keeps prices of the monomer low. This is still the case, even after Dow ceased output from its Freeport, Texas, facility as it exited the US styrene monomer production at the end of 2009.  However the increased ethylene production could have driven the reduced butadiene prices seen in Europe and the US at the beginning of 2010.³ Some expectations will have been confounded by this decrease, as shifts to lighter feeds for cracking have been expected to reduce the output of C4 (butadiene) and C5 (isoprene) feedstocks. This led to increasing isoprene prices through 2009, but as the C5 by-product fraction from steam cracking naphtha to make ethylene is 10-15% isoprene, output should increase in 2010. Overall, styrene-butadiene rubber, styrene-isoprene-styrene and styrene-butadiene-styrene copolymer prices had been expected to stabilise in Q1 2010⁴, but recent acceleration of demand from Asia seen by Platts and others now makes that seem optimistic.

Tackifying resins play a crucial role in providing initial adhesion for hot melts. Supply of C5-C9 hydrocarbon based varieties is also being restricted due to the move to light cracking feeds. Not only is less volume of these fractions being produced, but the content of useful chemicals in them has fallen. Tackifier manufacturers must therefore raise input volumes to maintain output. Consequently, one producer has imposed sales controls on C5 tackifiers, and more price increases are expected.

Tight supplies of these products have driven a shift to using rosin tackifiers instead. Rosins come in two main varities: tall oil rosin, which is dominant in North America, and gum rosin, which is dominant in Asia. With the supply of gum rosin seemingly unable to meet demand at the end of 2009, prices rose by around 50%.

Figure 2: Gum rosin, the price of which jumped 50% in 2009

Adhesive manufacturers have, in turn, switched to tall oil rosin. Tall oil is a by-product of the pulp and paper industry, made at the same time as more profitable fatty acid chemicals. The paper industry lowered its output in 2009 in response to weak demand, while fatty acid demand also fell, both of which impacted the supply of tall oil. All of these factors have combined to raise the prices of tall oil rosin also.

Among the performance enhancing and modifying waxes, the perennial pressure on Fischer-Tropsch wax supply eased somewhat due to lower demand in 2009. However Sasol in South Africa, shut its Fischer-Tropsch production site - one of only two in the world - down for six weeks' maintenance at the end of the year. This will be followed by another three week statutory shutdown in March 2010, setting back inventory levels and keeping prices high well into 2010. Meanwhile, exports of paraffin wax from China have slowed due to intentional and unintentional shutdowns at oil refineries. This has restricted supply, and prices have increased in line with crude oil.

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Andy Extance