Filtering Out Trends In The Filtration Market

August 17, 2005

a segmented business where manufacturers are finding their niche

air and liquid filtration have become highly segmented businesses
where more and more manufacturers are finding their niche

A wise person once said, “Keep your friends close and your enemies even closer.” In the disposable baby diaper market, where an ever-diminishing number of players are calling the shots, the once clear distinction between friends and enemies—or, for that matter, customers and competitors—no longer stands. At the raw material level, a select number of producers are supplying a limited number of increasingly large manufacturers. In the superabsorbent area, for instance, the vast majority—98-99%—of global volume comes from the hygiene market, with two companies using two-thirds of the supply. In addition to capacity constraints that have competitors supplying competitors, vertical integration has turned customers into suppliers. Even more ironic is that in some corners of the market, share wars, shrinking profit margins and intense price pressures have created a “We’re All In This Together” mentality—even among rivals.

Offsetting this theme of a “Small World” is the fact that —with about 16 billion units manufactured annually—the $4 billion disposable baby diaper market is anything but small. Business potential is so big in fact that suppliers at all levels continue to invest in research and development as well as product and equipment upgrades to keep on top of market changes, technology innovations and new customer requirements.

While many diaper component suppliers are also involved in smaller, related hygiene markets such as fem care and adult incontinence—with many even trying their luck in the packaging and industrial sectors—the majority agree that, in terms of volume, the most profitable roads lead to the baby diaper market.

C Is For Consolidation
One important factor leading the way toward a shrinking marketplace is consolidation. According to Jean-Baptiste Roques, superabsorbent product manager for Elf Atochem, Paris, France, consolidation is happening at all levels—from superabsorbents and fluff pulp to roll goods. “It is even more worrisome on the end product side. With forthcoming consolidation at the distributor level, there will be only five or six purchasers of diapers in Europe. There’s been a concentration of power across all channels, from raw materials straight through to the supermarket,” he said.

Cullen Cooper, technical sales representative for Stockhausen, Greensboro, NC, agreed. “There are definitely fewer customers and they are getting bigger and bigger. As suppliers we need to be on board with everyone because you never know who’s going to buy whom.”

David Kearney, product manager nonwoven applications for Globe Manufacturing, Fall River, MA, also commented on acquisition activity. “At the end product level, acquisitions are changing the face of the business as we know it. The customer base is shrinking, so that 20 customers have boiled down to seven.” Mr. Kearney pointed to several examples including the purchase of Breger Gibson by Arquest, both based in N. Wales, U.K.; the acquisition of Confab, King of Prussia, PA, by Kendall Company, Mansfield, MA; and La Verne, CA-based Paper-Pak’s recent purchase of the “Attends” adult incontinence business from Procter and Gamble, Cincinnati, OH, and—separately—Wyant Health Care, Somerville, NJ.

Backward integration has caused further downsizing of the supply base, especially on the superabsorbent side of the market. According to Ian Davenport, business director acrylic acid/superabsorbents for Dow Europe S.A., Horgen, Switzerland, “Going forward, it is more and more important to backward integrate. As superabsorbents are trending toward typical chemical industry products, the market is moving toward the big players.” He continued, “These companies have achieved scale in the chemical industry and will go after raw material integration because it makes sense as a means of achieving economies of scale.” Mr. Davenport added that Dow has initiated plans to enter the acrylic acid market through the launch of a new plant based in Berlin, Germany, which was expected to start up last month. The new venture—which is a joint undertaking with the Global Basic Chemicals Division of Hoechst AG, Frankfurt, Germany—will produce 80,000 metric tons of acrylic acid annually to feed both glacial and Butyl acrylate. The new facility will be the major raw material source for Dow’s European SAP plant but will not supply the merchant market.

Similar plans are under way at Stockhausen, which formed a global acrylic acid partnership with Rohm and Haas, Philadelphia, PA, in June. Complementing its integration in Europe, the 50/50 joint venture is expected to be fully operational by the end of 2000, with a combined capacity of 330,000 metric tons per year. Commenting on the arrangement was Mary Jo Lilly, Stockhausen’s group manager-personal care sales, absorbent polymers. “Backward integration is very important for us. It offers us security of supply and the ability to keep pricing stable. It also improves our position via our competitors. The key players have backward integrated and companies that haven’t are facing questions regarding their longevity.”

Pricing Pressure Piques Producers
In addition to consolidation, another leading issue in the diaper component market is tremendous cost pressure, which—in the superabsorbent area—goes hand in hand with sold out capacity levels. Dow’s Mr. Davenport described the current supply situation, “There’s good evidence that some of the major suppliers are tight,” he said. “This could mean that material is short and they’re looking to source elsewhere. Many suppliers are looking to put capacity in but there are one or two producers that are still struggling.”

“Everyone is sold out,” added Nicolas Barbieri, sales manager for SNF Floerger, Saint-Étienne, France. “The problem may partially stem from concern over the Y2K issue,” he suggested. “There’s a huge demand and SAP suppliers just can’t meet everyone’s needs.” Mr. Barbieri added that although there have been several capacity expansions announced, few actually happen. “This is a world of rumors,” he said.

Commenting on pricing was Cheryl George, director of sales, North America for Chemdal Corporation, Palatine, IL. “While we’re supplied by multiple suppliers and the situation is stable, there’s a possibility that prices will go up. Superabsorbents are approaching a historical high. In the first quarter of 2000, propylene prices could go up and this has a big impact on acrylic acid pricing. We’re expecting these prices to come down in the second or third quarter of 2000.” Ms. George added that the supply situation is finally in balance in North America and has achieved nearly a balanced state in Europe, with an excess in Asia that is being taken up. “We are looking at a very tight market at the end of the first quarter and into the second quarter of 2000. There could be a global SAP shortage, which would be a very significant event,” she predicted.

According to Elf Atochem’s Mr. Roques, “With the two leaders, P&G and K-C, buying 60% of the supply, there’s a lot of pressure put on pricing. Converters expect price fluctuations for nonwovens and fluff pulp but not SAP. In 13 years, the price of SAP has not increased; the best case for suppliers was that it stayed constant from the prior year.” He added, “It’s hard to make customers understand that a price increase could actually happen, but with acrylic acid shortages and price increases, there’s no room for an alternative scenario.”

“Polypropylene prices are on an increased slope,” said Stockhausen’s Dr. Lilly. “Prior to this, prices had been coming down consistently. We are waiting to see what will take place, but I suspect a price increase is inevitable. No one really knows where it’s going.” Dr. Lilly added that in response to the tight supply situation, the company plans to add 35,000 tons of capacity at its Greensboro facility, which is expected onstream by the first quarter of 2000.

“Pricing is a key issue,” agreed Mr. Barbieri of Floerger. “The Asian producers have been very aggressive, offering low pricing in South East Asia and the Middle East, but they have not established a presence in Europe or the U.S.”

Pricing pressure also exists on the Latin American front, according to Carlos Carrasco, sales director of hygiene products at Adelbras Industria E Comercio De Adesivos, Valinhos, Brazil. “The Brazilian market has suffered strongly since the recent devaluation of the Real. The key issue today is that the market demands a very low priced product in order to allow new potential consumers to use diapers. In an attempt to increase penetration, retail diaper prices have not increased since the last devaluation of almost 40%, which puts diaper manufacturers in difficult position as well as their suppliers who often buy abroad.” As a possible reaction to this, he added, more companies are producing adult incontinence products, which give better returns.

Pricing is a different animal in the area of superabsorbent fiber, which can cost as much as three to four times as much as powder. Commenting on this disparity was Mike Shaltry, director of sales and marketing for Technical Absorbents, North America, Charlotte, NC. “For customers, it comes down to a three-way equation—cost/performance/process. For superabsorbent fiber, however, cost is not an issue. It’s more expensive, which generally means that if it can be done with powder, manufacturers will do it that way.” He went on to say that the company’s goal is to target markets with requirements that can’t be achieved with powder. “Fiber is a niche-type product that fits certain segments of the hygiene industry such as feminine care,” he added.

Ian Cheyne, president and CEO of Camelot Technologies, Alberta, Canada, also conceded that superabsorbent fiber is a more expensive option. “Until the volume is there, it will cost more for fiber than powder. There are obviously different economics because there is more demand for powder.” Mr. Cheyne explained that fibers have broken into areas where powders cannot be used as effectively such as ultrathin sanitary pads. “In feminine hygiene and adult incontinence applications, powders offer better and faster absorption, high surface area, fast dryness and increased security,” said Mr. Cheyne. The company is also exploring opportunities such as food packaging materials and protective apparel.

Mr. Barbieri also pointed to potential for superabsorbent fibers. “While they’re not a main competitor for powders, fibers do represent an alternative. One day there will be a breakthrough in fibers but for now there are many disadvantages—poor absorption under load, higher priced freight, low density and inconvenient application. Fibers have uses in other fields but not immediately in hygiene, barring a major technology breakthrough,” he said.

Dazzling Diaper Designs
Speaking of technology breakthroughs, nowhere is the drive toward heightened efficiency, aesthetics and performance more evident than in current baby diaper designs. These days, a premium-level diaper is equipped with so many state of the art “bells and whistles”—and performs so effectively—that the average consumer may be left wondering what all the fuss is about. What else is left to upgrade?

According to Victor Day, sales and marketing manager for Fulflex, Middletown, RI, technical challenges continue with the use of elastication in components such as waistbands and breathable side panels. “An increased push toward comfort and fit—as well as a drive toward thinner products—have changed the dynamics of elastic requirements. This push is opening up considerable new opportunities. We are seeing fewer ends and smaller cross sections in baby diapers.”

Another supplier reporting increased demand for diaper elastics is Elastotec, N. Charleston, SC. “We are seeing growth outside the U.S.—in South and Central America, the Far East, Africa and Europe,” said Bill Fields, director of sales for the company. “Domestically, the market has virtually disappeared due to the shift toward ‘Lycra’ by the major producers. However, we saw this coming and, in response, are looking at other potential areas of growth for the future. We made a conscious decision to diversify three years ago. This year was outstanding, but long-term the market may not be there. Constant diversification is the engine driving our long-term planning.”

Gregory Kalscheur, North American business manager, personal care, DuPont Lycra, Wilmington, DE, explained that the company is not resting on its laurels when it comes to its leading position in the diaper market. “While we certainly benefit from the recognition of ‘Lycra XA’ as an ingredient brand with a strong position in leg and inner cuff diaper applications, this is a highly competitive, mature market. The way I look at it is: you have to earn it every day. Our strategy is to offer customers technology leading solutions to elastication needs. In addition to offering highly consistent products suitable for processing at ever-increasing line speeds, we offer multiple solutions for elastication of additional diaper components such as waistbands and side panels.”

Globe’s Mr. Kearney also cited an increased use of spandex. “More and more elastics are being used to improve fit, function and strength in diapers and training pants. Spandex thread meets the challenges of a thinner product. We’ve seen a major shift over the last five to seven years away from rubber, which has been driven by improved functionality and economics and better design availability. Today the diaper market is 90% spandex.”

“Despite this perception in North America,” clarified Fulflex’s Mr. Day, “there is significant volume of both synthtic and natural rubber used globally.” He also pointed to a trend toward improved comfort and skin care (as seen in aloe vera and “Rash Guard” offerings). “The same trend applies in elastication. The effect on the skin is very important,” he said, adding that the company’s new “Comfi-Fit” synthetic elastic tape—which can be used in waistband, leg cuff or side panel applications—is designed to offer soft, high elongation with low stress on babies’ skin and tender, aging skin.

Also pointing to skin health was Dr. Lilly of Stockhausen. “We are seeing more in the way of odor control and skin friendliness, which is starting to become a larger issue. This indicates a move beyond functionality—straight fluid management, for instance—toward other customer demands,” she said.

Taking Tapes To Task
Design upgrades are also evident in the tape segment where suppliers are offering an unprecedented level of customization and flexibility. One such advancement is pre-combined nonwoven tape, which combines the advantages of both hook and loop and stretch tape fasteners. “These all-in-one products increase the functionality of mechanical fasteners by increasing their peel value,” commented Thomas Göller, director sales department, Koester GmbH, Altendorf, Germany. He added that the company’s “Comfort Plus” products, which feature a soft nonwoven tape carrier, are designed to offer better comfort and decreased skin irritation. “We were the first to launch this technology in the baby diaper market and today we offer third generation nonwoven materials that feature the softness of a textile-like backsheet along with tear resistance and loft.”

Growth in the area of pre-combined tapes was also on the mind of Katrien Ruysschaert, product manager consumer products, Avery Dennison Specialty Tape Division, Turnhout, Belgium. “While pre-combined tapes have always been the standard in the U.S., this was not the case in Europe. Now we are seeing the European market move in this direction. For instance, smaller private label manufacturers benefit from purchasing pre-combined products because they are able to hand the complexity over to us as the specialists,” she said.

Another company offering pre-combined adhesive diaper tapes is Atika Systems, Colmar, France. “We are seeing more in-line processing of fasteners on the converter end,” said Gregg Fous, president of HPT Plastics, Fort Meyers, FL, which is a representative for Atika. Specifically, he said, there is a trend toward nonwoven tape products and integrally designed backsheets made to work with loop material.

On the other hand, Koester’s Mr. Göller suggested that, for manufacturers, doing everything on-line is just not efficient. He drew a parallel between the diaper and automotive markets. “In both cases there is a move to assemble as few units as possible in-house. Many customers that once assembled their own fasteners are now buying pre-combined tapes.” He added that the products—available on cross-wound spools—can be run more economically with fewer stops and splices. “Just put it in the machine and it runs,” he said.

Mr. Carrasco of Adelbras agreed. “Where in the past producers would glue frontal tape in line, today the price incentive to do so is marginal and this trend seems to be turning. The key demand today remains a low priced functional product that assures good runnability on the diaper lines.”

HPT’s Mr. Fous also cited a demand toward less expensive hook and loop materials. “We see an immediate need for lower cost mechanical fastening systems in advanced product markets,” he said. HPT also serves as a representative for Libeltex, Meulebeke, Belgium, which has recently begun supplying needlepunched loop material for mechanical fastener landing zones. “This is a very interesting area as it represents a way to lower costs. Normally it is a material that must be laminated to film—either in line on the diaper machine or by a converter,” said Mr. Fous.

Avery Dennison’s Ms. Ruysschaert also pointed to a push to lessen the price gap between standard and hook and loop systems, which can cost as much as 30% more than their adhesive counterparts. “Most of the market currently uses mechanical tapes and we are seeing interest in the Middle East, Latin America and Asia. This will happen first in the premium lines and once the standard is set by the branded players, then it will spread. The interest is there but it will take time.”

The Composite Core Craze
Composites are not only playing a key role in the area of diaper fasteners, they are also expected to open up a variety of possibilities as a replacement for existing absorbent core technology. “The move toward composites is a continuation of a long-term trend. The absorbent core is a logical fit for composites and an area where we’ll see higher superabsorbent loadings,” said Dr. Lilly of Stockhausen. “On one level this would affect us in that it would convert many two way relationships to three way relationships. The bottom line is that superabsorbent performance is still key because it would continue to effectively define product performance.”

Ms. George of Chemdal also addressed this issue. “We’ve been hearing about air formed and air laid diaper cores for a long time. There are still manufacturing, cost and supply issues, however, and there remains a need for other components to perform acquisition and distribution functions.” That said, she added that the company has included diaper cores in its development activities and pilot work. “While air laid manufacturers are doing a lot to bring costs down and improve this technology, it’s not yet clear just how much SAP will go into this application,” she said.

“Air laid absorbent cores will come,” said Floerger’s Mr. Barbieri. “It’s a long-term possibility that we will someday be selling to roll good manufacturers rather than diaper producers, but this is not for tomorrow. It is easy and inexpensive to apply SAP through current dosing systems, so a change-over is not going to happen quickly or easily.”

Looking at a possible market breakthrough from the perspective of superabsorbent fiber was Richard Heath, sales and marketing director for Technical Absorbents, Grimsby, U.K. “With upgrades set to bring additional capacity in 2001, we are positioned for the core breakthrough. Fibers will participate in this but to what extent will depend on end user price requirements—what will they be willing to pay? An air laid core could include fiber, powder or a combination of both,” he said.

Camelot’s Mr. Cheyne agreed. “There has been a lot of development work done and in the future we may see a combination of fibers and powders used. In fact there is a version with fiber and powder being worked on now. Pre-manufactured air laid cores are an application where fibers will play a role. Fibers are in the early stage of development and people are still trying to understand how they work.”