Volume 40,   Issue 12                      December  2005

Home Sweet Home?
2006 Forecast
Residential Market Remains the Industry Driver, but Commercial is Rebounding
by Charles Cumpston

After the “stormy” year the country experienced in 2005, it seems as though the home is still where the money will be in 2006. Rebuilding from the hurricanes that hit the southeast and Gulf Coast and the actions of the Federal Reserve in raising interest rates are the two keys to the housing market.

“The 2005 hurricane season was devastating to the people who were victims. Their homes and businesses were damaged or blown away. If there is to be good news out of this, it is that these regions will be strong and busy rebuilding for the next two to three years,” points out Bob Lawrence, president of Craftsman Fabricated Glass Ltd. of Houston. “Depending on how the building code officials and state legislatures for the devastated states react, there will most likely be opportunity for … laminated [products]. Regardless, there will be plenty of business for the glazing trade,” he adds.

Fred Wallin, vice president of marketing for AFG Industries Inc. of Kingsport, Tenn., echoes those words, and says the effects of the hurricanes will stimulate the use of hurricane glass products for both residential and commercial use as the states of Alabama and Louisiana adopt the codes already in place in Florida.

Like many industry suppliers, Bystronic Inc. of Hauppauge, N.Y., has been increasing its activity in the residential market. 

“While the economy may quite likely plod along on the same plateau as in 2005,” states Marcel Bally, sales and marketing director for the company, “we anticipate doing better given the new products that are opening up new market opportunities for us. We anticipate having a strong residential market.” Bally also makes the point that the commercial market has “swings,” which are not present in the residential segment. 

Regional Assessments
According to Lawrence, the regional economy in Texas was strong going into the end of this year, and he says he sees both residential and commercial building momentum holding steady through 2006.
Mike Swanberg, vice president of operations for MTH Industries in Chicago, expects to have a very good first half in 2006.

“And based on all indicators [I] expect that it will continue into at least the third quarter and maybe even the fourth quarter,” he says. 

John Heinaman, president of Heinaman Contract Glazing in Lake Forest, Calif., says the market is stronger in his area, as well. 

“I expect a 30-percent increase next year. Vacancy rates for office space are declining, hospitals in California are being fitted with seismic upgrades, new hospitals are being built to service the population growth and hotels and condos continue to be built in Las Vegas,” he points out.

Arthur Berkowitz, president of J.E. Berkowitz L.P. in Westville, N.J., is cautiously optimistic for the coming year. His market, architectural/commercial in the mid-Atlantic states, will likely see increases in demand and continued increases in pricing as a result of material, energy and insurance costs.

“Our concern is always with perceived ‘inflationary’ price increases and the impact of slowing development and increasing interest rates,” he explains. Berkowitz says this would have a moderating impact on residential and automotive sales which, when they soften, puts more glass capacity in the commercial market, likely softening prices.
Almost everyone with whom USGlass spoke for this article conditions their projections and outlook on the economy remaining relatively steady and the country avoiding catastrophic natural disasters or terrorist attacks. A serious downturn in the stock market or increase in inflation could morph into a lengthy recession. Increasing fuel and energy costs are factors that were also cited as having the potential to impact the industry negatively.

Power Plunge
According to Todd Huffman, vice president of strategic planning for Pilkington Building Products North America in Toledo, Ohio, energy costs will continue to have a major impact on the North American glass industry.

“Unlike in recent years, it will not be solely related to natural gas prices,” he explains. “High and volatile gasoline and diesel fuel costs, which saw dramatic increases beginning in the mid summer, impact freight costs negatively. Total energy costs increased 40 percent in 2004, and another 60 percent in 2005.”

“Ranked from one to 100, energy costs represent the first 99 problems,” states Wallin. “High energy costs reduce profitability, which is used to invest in technology, productivity, new product development and commercialization and employment,” he adds.

On the supply side, Huffman points out that the industry will see more float line cold repairs in 2006. (In a typical year, about three float lines are down out of the 45 operating in North America.)

“In 2006, we expect more than three float lines to be down at some time for repair or rebuild,” says Huffman. The reason for the higher downtime, he says, is some manufacturers delayed cold repairs in order to maintain their capacity to meet the past residential and automotive demands. “Pilkington North America has no plans for cold repairs in its four North American float glass factories. The progressive repair at our Ottawa, Ill., facility will proceed,” he adds.

Lawrence says increasing lead times are becoming an issue, as well. 

“Lead times for high performance glass are becoming embarrassingly extended as [they were] during the late 1970s and early 1980s. That problem will rectify itself quickly as fabrication facilities have added substantial capacity to remedy this situation through 2006,” he explains.

Lawrence continues, “Here is how this is being done—which is so typical of the glass industry. The nation’s leading fabricator is adding an entirely new fabrication plant to satisfy its goals for growth and service to the western United States. Another large northwest company is just opening a new plant in the southwest. My own building in Houston was recently expanded to 227,000 square feet, and by the end of 2005 another double-bay convection furnace and advanced support equipment will be in operation.”

Fabricators all over the country may be adding equipment and planning expansions, but Lawrence does not expect to see the under-capacity situations leapfrog to overcapacity in 2006.

“But it is at that point when new capacity will start to outpace demand,” said Lawrence. “There will still be a large back log and 12 to 18 months of extended lead times gradually working back toward normal.”

More Competition, Sir 
And that’s not the only market segment which is poised to get more heated. At the retail level competition is increasing. According to anecdotal evidence and postings on the Industry Message Forum website for AGRR magazine, a USGlass magazine sister publication, a number of companies that have been doing only auto glass work are now looking to get into the residential glass market.

Profits have been hammered in auto glass through a combination of less favorable pricing and more price squeezing from insurance companies. A growing number of companies find that they’re not making enough money to stay in business. So their thoughts turn to the logical residential glass market. 

Full-service shops that offered both auto and flat glass had largely died off in the 1990s when a majority of businesses offering both services got out of the increasingly less profitable auto glass segment. 

However, the auto glass owners inquiring about moving into flat glass are being warned that while profits may be better, and owners have more direct control over their businesses, it is specialized work that requires a learning curve, or hiring experienced glaziers.

Finding experienced employees is a chronic industry problem. Heinaman says that the shortage of qualified labor is the “most significant problem we expect to encounter.”

Swanberg agrees. “As an industry, we do a poor job of training our people. Years ago, Kawneer, PPG and, to a lesser degree, Amarlite, were the ones training most of the people in our industry. With foreign competition and other market factors causing them to reduce their costs, I understand why they could no longer afford to have the training programs they once had. As an industry, we need to figure out how we can better train the next generation if we’re to succeed in the future,” he states. 

Kawneer Hits the Century Mark in 2006
Architectural aluminum product supplier and systems manufacturer Kawneer Co. Inc. will celebrate its 100th anniversary next year.
The company is currently finalizing plans to mark the event throughout the year.
Like most stories, this one began humbly. In 1906, an architect, inventor and entrepreneur named Francis Plym, working from a sheet metal shop located “near the Kaw” River in Kansas City, was awarded his first patent. It involved a new way to support window glass in construction, an idea that would change the face of storefronts throughout the United States. More than 400 patents would follow in the decades to come.
Plym’s designs were put to the test with the first Kawneer project that set the company apart: the use of aluminum curtainwall in the construction of the U.S. post office in St. Paul, Minn. in 1932. It was an unqualified success, and one that put Kawneer on the map as a company that would enable architects to bring their visions to reality.
The years following the Great Depression would have been difficult for any company, and Kawneer was no exception. But Kawneer had the advantage of a founder’s supreme confidence in his country’s future and even during these difficult times, he and the company continued to grow and enjoy success—just in time for a mid-century boom in construction.
After Pearl Harbor, Kawneer turned from making storefronts to helping on the battlefront. Between 1942 and 1945, every inch of the Kawneer plant was devoted to making airplane parts. The postwar period was a time of American renewal in architecture and construction, and Kawneer played its role. Kawneer introduced stock and custom-built entrances, anodized aluminum finishes and the first unitized curtainwalls to be used in new construction.
Developments continued in the 1960s and 1970s. As energy awareness and conservation became part of the national consciousness, Kawneer responded with products to improve efficiency. More recently, the company has increasingly committed itself to sustainable environmental solutions that look to a more earth-friendly future. 
Since its beginnings in 1906, the Kawneer philosophy has been to balance experience with innovation by listening to its customers and by giving them the tools they need to succeed. The company looks forward to the next century, and providing the solutions its customers need to face the future.


Which Float Companies are Planning Cold Repairs in ’06?
Float glass production lines run 24 hours a day, seven days a week. And while they don’t always happen often, on occasion a line shut down in necessary for repairs, that is, a cold repair. Who’s making plans for repairs in 2006? USGlass got the scoop on which float plants will be doing such next year.
• AFG Industries does not have any cold repairs scheduled for next year.
• Cardinal has cold repair plans for its Menomonie, Wis. plant in March.
• Pilkington North America has no plans for cold repairs in its four North American float glass factories. The progressive repair at its Ottawa, Ill., facility will proceed.
• Guardian Industry’s Richburg, S.C. float plant, built in 1988, will undergo a rebuilding in the first quarter of 2006. 
• Visteon (now called ACH) has plans to rebuild its line in Nashville, Tenn.
* Information was unavailable from PPG.

Charles Cumpston is a contributing editor for USGlass magazine.


USG
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