Volume 40, Issue 1 January 2005
Is the Tank
Half Empty or Half Full?
The glass supply outlook for 2005: Is there going to be a glass shortage? Why?
by Charles Cumpston
It is the beginning of the year and one of the most popular resolutions is to lose weight. Are the glass manufacturers on a production diet? Are they going to cause a glass shortage while the commercial market continues to improve? The answer depends on a variety of factors, and recent conversations with a range of primary manufacturers and fabricators find that some are concerned that the tank may end up half empty, rather than half full.
Overall, there seems to be agreement that there will be more glass usage this year, especially with commercial construction on the upswing.
Also, as always, there will be some tank repairs, and the increasing use of value-added glass (low-emissivity and laminated) will continue to cut into the production time the primary glass manufacturers have for commodity glass.
The weakness of the dollar bodes poorly for imports from Europe. And the Chinese currency, the yuan, is pegged to the dollar, but its domestic usage is exploding even as an ever growing number of float lines are being built.
Soft at First, Tight at the End
Stephen Weidner, vice president of sales and marketing for Pilkington North America Inc., Toledo, Ohio, estimates that float glass capacity utilization will be 92 percent, which is high in an historical perspective.
“Glass will be a bit tighter than last year,” he said.
Fred Wallin, vice president of marketing for AFG Industries, Kingsport, Tenn., agreed.
“There should be lots of glass in the first quarter and it will be tight by the third quarter,” he predicted. “The market continues very strong,” he said, “but the first quarter will be soft and those people who don’t remember the first quarter last year and the year before will panic.
But it is going to get better after that and by the fourth quarter it is going to be sold out.”
He did project, though, that residential construction would be off slightly.
“The National Association of Home Builders has forecasted a drop for the last three years and it hasn’t happened. It is predicting a drop again this year and this time it may be right,” Wallin said.
He expects commercial construction to be
up 8 percent, which will more than cover the slight decline in housing. The auto
market should be about the same as last year, which would make it flat, but at a
very high level. In the specialty market Wallin expects some rebound in the
mirror market. “I don’t know if that is a statistical fluke or not,” he
Pilkington’s Weidner also sees a slight cooling from the historically high levels seen in the last few years in residential with new construction declining by 4 percent (but with each new home using more glass) and renovation and remodeling remaining stable or increasing slightly.
He sees continued growth (a gain of 6- to 8-percent this year) in the commercial sector and the specialty sector as well. While automotive builds are expected to slightly decline from historically high levels, glass consumption will remain strong as SUVs and utility vehicles consume more glass per vehicle.
Looking from an international perspective, Wallin is uncertain if there will be more imported glass from China.
“I’m just not sure how this will be because of their domestic demand and their ability to get float lines on-line.”
Weidner also pointed out that there has been a significant decrease in imports of float glass from outside the North American market (which includes Mexico) over the past 12 months. He sees no change in this.
Bob Lawrence, president and owner of Craftsman Fabricated Glass Ltd. of Houston, agreed that glass will be tough to get at certain times this year.
“However, at the end of the year, we feel that the supply will have met demands because there are a few new float lines in North America that should relieve normal growing demands from a stronger economy.”
A bigger issue that affected everyone last year, he said, was the shortage of drivers and rigs. “Rising fuel and insurance costs for those guys has certainly made it difficult to squeeze a profit out of jumbo glass pack equipment because they often have to run a lot of empty miles before getting to the next load. This affected the ability of all carriers to recruit drivers and some equipment. We understand now, from one major carrier, that it is investing heavily in aluminum framed trailers with wider dumpster-style tires so that it can increase its load and revenue per trip,” said Lawrence.
Weidner also sees transportation as a problem affecting all aspects of the industry. “There is a shortage of transportation equipment and drivers. Customers at all levels need to plan ahead as lead times will be affected by this issue,” said Weidner.
He continued, “At the float level, energy costs continue to plague the industry. The cost of energy to melt sand is a real problem that is not going to disappear in the short run. Other cost increases (health care, insurance, fuel, wages, raw materials, etc.) are also creating an inflationary environment.”
Another problem that Weidner sees in the industry is “the disconnect between the high-capacity utilization at the float level and the over-capacity environment at the fabricator level in the commercial arena.”
The Fabricator Perspective
Arthur Berkowitz, president of J.E. Berkowitz L.P. in Westville, N.J., said that as an independent, regional glass fabricator, his company’s business plans for growth (particularly after three soft years), are half from continued increases in pricing, driven by increases in component materials, labor and energy and health care costs, and the other half from ‘real’ growth in terms of actual square feet of glass processed.
“Our domestic suppliers have been
signaling a potential tightness of supply, due to continued robust demand in
automotive and residential, and finally, the signs of renewed demand in the
commercial markets,” said Berkowitz. “With little new domestic capacity, and
the normal cycle of planned float line rebuilds, this may contribute to their
predictions of tighter supply.”
As far as glass imports go, Berkowitz said that his company does buy a small amount of float glass, from both the European and Asian markets.
“Normally, not to supplement our
domestic supply, but typically for proprietary and or specialty glasses, not
available domestically.” With a very strong Asian market, a European market
that has rebounded and exchange/currency issues related to the dollar and the
EURO, he agreed that importing will also grow more difficult and less
Max Perilstein, director of marketing for Arch Aluminum and Glass, headquartered in Tamarac, Fla., also said an adequate glass supply looks iffy this year.
“The supply looks tight. Last year things got somewhat hairy when the busy season kicked into high gear, and there’s no reason not to think the same will happen this year.”
Perilstein said the primary glass manufacturers are being “very frank” in their assessments.
“The vibe I get is things may get rough and we need to be proactive and prepare for any scenario that comes down the pike.”
He also said that Dan Wagner, Arch’s supply chain and logistics manager, has “worked very hard to make sure that our branches fully understand the ebb and flow of glass availability.
Our folks know that they need to be proactive; they need to communicate with their customer base so that no one gets stuck short on a job. The possibility of a shortage has made us ramp our communication up to a much higher level.”
Perilstein sees the economy improving
throughout the country, which will impact glass usage.
“We added two locations at the end of 2004 (Denver and Houston) and plan on expanding further in 2005. We also feel confident that the commercial sector will continue its upward trend. As long as we continue to service our customers with the quality they have come to deserve, we’ll move material.”
He continued, “The manufacturers also have more flavors to offer so that has an adverse effect on line time as well.”
But what if supply gets squeezed? Berkowitz has an answer:
“Our operating philosophy, with regard to our domestic suppliers, is to treat them fairly, discount our bills and make it ‘supply easy’ to do business with us. In return, we expect and have historically been taken care of during times of tighter supply, in getting sufficient materials on a timely basis.”
Fact or Fiction
Maybe it is just regular business tactics, but a number of people in the industry have expressed the belief that the primary manufacturers are using the specter of a glass shortage to raise the price of commodity glass.
“As a small midwestern dealer/distributor, we saw an approximate 7-percent price increase from September to October from the glass primaries because their freight, personnel and manufacturing costs have been going up, just as all of ours have,” said Rod Van Buskirk, president, Bacon & Van Buskirk in Champaign, Ill. “To date, we’ve not heard of increases [for] 2005, but we expect them.
“It’s hilarious to me that there would be a price increase based on ‘glass shortages,’” he continued. “When you look at the increase in the number of manufacturing and fabricating facilities that have been built and expanded domestically and internationally in the last 30 years, the capacity of the glass manufacturers is more than enough to meet any demand. Any so-called ‘shortage’ would be artificial. Supply overcapacity of primary glass products is holding down prices and should for decades, except for specific value-added glass products.”
Arch’s Perilstein disagrees, “I do not believe the possibility of tight supply is something that is artificial. There are too many factors that are involved here. The stronger economy, float lines needing repairs and line time being affected by a significant number of new products are huge issues. While there are some who may see a conspiracy theory, I do not.”
Time for a Rebuild?
USGlass magazine has learned that several of the six U.S. primary float manufacturers are planning rebuilds for some of their plants.
In Carlisle, Pa., PPG’s plant is expected to go down the first or second quarter of the year for repairs. Carlisle’s capacity is approximately 600 tons of clear per day.
Cardinal’s Wisconsin plant is expected to go down for repairs in the first quarter, as well. Its new Durant, Okla., plant will probably take up that slack.
Guardian has no current plans to take down any of its plants. If needed though, the company could possibly bring glass from its Queretaro plant in Mexico, which produces clear glass at the rate of 700 tons per day.
It’s uncertain what AFG might be anticipating, but it has access to clear glass from its Mexicali, Mexico, plant should that be necessary.
Visteon is not expected to have any furnaces out of service.
Pilkington’s Lathrop, Calif., plant had a planned repair scheduled for the second week of January, but still expects to be over 90 percent capacity for the year in commercial glass.
Primary Things to Watch for in 2005:
• The impact of Cardinal FG’s new float plant in Durant, Okla., which processes 600 tons of glass per day and has a tempering operation. It is designed primarily to supply the company’s Waxahachie, Texas, coating and IG plants.
• A move by Mexican float producer Vitro into the Southwest area because it will now have extra capacity not consumed by domestic use.
• Whether or not the Visteon line in Nashville is shut down for repairs. It was scheduled for an overhaul a couple of years ago.
Charles Cumpston is a contributing editor for USGlass magazine.
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