Volume 41, Issue 3 March 2006
by Jim Gresehover
Editor’s note: China’s presence as a world player in the glass industry continues to increase and many North American glass manufacturers and fabricators are concerned about how the country’s growth in the industry will affect the market here.
As part of the Glass Association of North America’s Glass Week, Jim Gresehover, director of international development for Guardian Industries, gave a presentation titled “What’s Next for the Chinese Glass Industry?” His presentation covered the state of the float glass industry in China, including its size, growth, economic issues and what we can expect to see from the country in the future. He recaps the presentation here.
A Closer Look at China’s Float Line Capacity Growth
The number of float plants in China has increased continually over the past 20 years, and is expected to continue as such through 2007.
The Chinese government’s shake out of the building and construction industry has been a catalyst for the country’s current economic environment conditions. In the second and third quarters of 2005 there was a price panic to dump inventories. This is strange since reported capacity was up 20 percent, while usage was up 30 percent.
Also, there is only a small price differential between low- and high-quality float glass products—about $2.07/square meter compared to $2.80 a square meter (see graph on page 68).
Inventory levels have been steady, but generally high. And, China is also faced with increasing export transportation costs.
There is also a great cost to operate a glass plant in China. Heavy oil is the predominant energy source, which costs about $57 to make one ton of glass. Local soda ash is about $220/ton; silica is about $12 to $15/ton. But typically China has not focused much on having high quality silica.
What’s Next for China?
So, where is the Chinese glass industry going?
We expect the expansion to slow and some consolidation to occur. We also expect to see some true change in the industry there. Smaller companies that got into the business now want to get out; they are not making any money.
Roll-ups and consolidation will also continue. One Chinese investment firm, Hony Capital, recently completed a consolidation of three companies: China Glass, Beifang and Haibowan. Although Hony Capital is a catalyst for consolidation, it remains to be seen what the effects of it will be. Consolidation has already occurred in the automotive glass, laminated glass and glass processing equipment segments.
Another Chinese company, Farun, was recently a catalyst for a price change. The company changed its pricing significantly and caused a great deal of price reduction in the market.
And there are now signs of project delay and cancellation of projects, which shows caution by outside investors. Additionally, many companies are undergoing a crisis of identity. They are trying to figure out what type of company they should be and trying to find their niche.
There are also some signs of resistance to consolidation, including the fact that the industry does put scores of people to work who, otherwise, would be supported by the state.
And, there has been some market growth with many companies in the industry just now becoming profitable. Nine float plants bring in $4 million a year in profit.
The future will be very interesting, indeed.
USGlass will continue its look at the Chinese and Asian glass industry in the May 2006 issue.
is director of
international development for
Guardian Industries Corp. in
Auburn Hills, Mich.
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