Volume 43, Issue 9 - September 2008

The State of Glass Production in the United States

While Residential Remains Weak,
Architectural Glass Users Ask “What’s Next?”
by Megan Headley

There’s absolutely no hiding the fact that the residential construction market has had a troubled year. But the question now haunting many architectural glass professionals is: will the commercial construction market follow? USGlass sat down with several glass manufacturing professionals for their insight into how they’re preparing for the year ahead.

“The commercial [market] tends to follow residential eventually,” points out Mauro DiFazio, vice president of float glass sales for Zeledyne in Tulsa, Okla., “but so far I haven’t seen it. Maybe a little bit, but not dramatically.”

While DiFazio say he’s seen signs of a very “slight slowdown,” some of this could be the result of an industry that expects further tightening. “We continue to hear from major forecasting institutions, such as Global Insights, forecasting a downturn in 2009. I will be honest with you, our book of business is still very strong in the commercial market,” says Vicki Holt, senior vice president of glass and fibgerglass for Pittsburgh-based PPG Industries. “Now we’re realists; there’s bound to be a slowdown around the corner, but I will tell you we have not seen it yet. Our plans for 2009 do incorporate Global Insights’ projections, which do have demand slowing down for next year. So far we just have not seen it in our book of business.”

“Speaking generally, commercial [construction] has been strong last year, continues to be strong,” adds Russell Ebeid, president of Guardian Industries Corp.’s Glass Group in Auburn Hills, Mich. “I do see it starting to taper off slightly, looking ahead. I think for this year we’re pretty well locked in as an industry—I’m not talking Guardian per se, but as an industry I think this year’s pretty well locked in. I think next year things will be a little bit softer but not as dramatic as residential has been this past year as a half.”

“We see some of those leading indicators dipping but we also see others that are still strong,” says Rob Struble, manager of business communications for PPG. “We’re hoping for the best—and we’re prepared for softening.”

“There is no industry consensus regarding the future of commercial construction,” says John Hughes, commercial segment manager for AGC Flat Glass North America in Alpharetta, Ga., adding, “AGC forecasts a slight downturn, but growth of other segments and capacity adjustments that have been implemented should have no significant impact on AGC’s supply and demand.”

While these manufacturers remain confident that commercial construction isn’t on the verge of dramatic slowing, that brings up another question. If demand is expected to remain steady—what about supply?

Is There a Glass Shortage?
Could a glass shortage really be on the way? Rumors of such have been growing for months.

“We are hearing the rumors,” comments Christine Shaffer, marketing manager of glass fabricator Viracon in Owatonna, Minn. “We do take them for what they are. We keep our focus on providing accurate material forecasts to our suppliers to minimize supply constraints.”

At this point rumors seem to be just that, since there is some question as to how a shortage could be possible when residential construction remains so low.

“[Production of] housing and cars has been down dramatically in the United States. Despite that, though, this industry was running at 88 percent capacity,” Ebeid says.

The key word being “was.” Has there been a change?

“It’s pretty obvious. Asahi Glass. Co. has taken three tanks out of the industry. There was a huge surplus of clear. There is not anymore. My understanding is … that the clear market is sold out,” says DiFazio.

Beginning in April, AGC Flat Glass North America’s (AFGNA) parent company, Japan-based Asahi, closed the doors of float glass facilities in Victorville, Calif., and St. Augustine, Quebec, and one production line at its Greenland, Tenn., manufacturing plant (see May 2008 USGlass, page 16). According to a press release issued by the company, the move was expected to reduce Asahi’s production in North America by approximately 40 percent.

“The downturn in the residential market resulted in a significant overcapacity situation,” explains Hughes. “This supply/ demand situation resulted in AGC temporarily reducing its capacity.”

Others worry about what may happen should residential market begin to pick up while commercial holds steady.

“With the downturn of [AGC] and shutting down of three of their float lines we’re now running at about 98-percent of capacity as an industry,” says Ebeid. “So any little blip is going to affect supply of glass to the trade. Looking forward, it’s hard to see housing getting any worse than it is and it’s hard to see automotive getting worse than it is. So, unless there’s new capacity coming on, I believe this will get tighter and tighter. And any little hiccup in the industry, where you’ve only got two percent slack, is going to affect the customer base with timely deliveries,” says Ebeid.

Hiccups such as the torrential rains in August that left parts of Wichita Falls, Texas, under as much as 15 inches of water—and left PPG minus one float glass line. Rains flooded the plant’s basement and damaged critical process equipment, temporarily halting production (see page 18).

“This has the potential to impact all PPG glass customers in all segments nationwide,” Struble says, adding “our logistics groups and sales groups are working with our customers to minimize the disruption nationwide.”

The disruption came shortly after the company began making repairs to other lines.

“We actually took down one of our two tanks in Carlisle, Pa., early,” says Holt. “We shut it down in April. That tank is scheduled to be repaired next year but with the demand as weak as it is in the U.S. market we just didn’t need that capacity right now, and taking it down allowed us to better utilize our remaining capacity.”

PPG certainly is not alone in its need for repairing the long running lines as continuous upgrades must be made to furnaces around the world. But for companies such as PPG where, Holt points out, “the residential segment is actually the largest user of glass, in terms of tonnage,” now may be just the time to repair lines when less demand is being heard from the residential sector.

“We’ve been taking steps as well to better match our capacity to the demand in the marketplace,” says Holt. “I think the glass industry is taking steps to make sure supply and demand are in balance. I think it’s very important that supply and demand be in balance because this is an industry that’s also being faced with significant inflation in terms of energy, batch ingredients—which are also tied to energy—the transportation of that, and then also transportation and freight … all three of those categories are highly impacted by fuel, by natural gas and electricity cost. Therefore it is critical that this industry begin moving pricing to pass that on and to do that it’s usually best to have supply and demand relatively in balance,” says Holt.

She adds, “You’ve already seen all the announcements with Asahi’s capacity rationalization.”

Indeed, at the time AGC president and chief executive officer Brad Kitterman had commented that “these decisions were made to minimize the impact of ongoing market trends, by eliminating glass overcapacity and non-core product segments.

Among those trends was the continued decline of the North American housing market. A company press release stated: “the earnings structure of AFGNA excessively depends on clear float glass—general-purpose glass that is difficult to differentiate from products of competitors. This, combined with higher costs driven by a price surge in raw materials, has been squeezing Asahi Glass’ profitability in the region.”

Hughes adds, “AGC will be bring up the lines once demand warrants it.”

While the decision was a necessity for Asahi, “Three tanks made a huge impact on availability of glass,” as Di- Fazio points out.

Energy Costs
In addition to the demands on available supplies, energy costs are proving to be a challenge across the board—and are providing yet another reason for rising prices on the glass that is available.

It’s a concern for nearly every industry and glass manufacturing is no exception, as Holt pointed out above.

“We have active, aggressive transportation teams that are constantly reviewing how our product is moved, where it is moved and, frankly, even what business you take or don’t take with respect to the transportation costs as it becomes a bigger and bigger piece of our overall costs,” Holt says. “Distribution costs play into a lot of our decisions around our mix and the customers we serve.”

“Obviously the cost of containers and freight and trucking and diesel charges have all been increasing quite a bit,” Ebeid adds. “What that means is you want to ship your product closer to home to minimize the cost. That’s closing the patterns of trade in this industry.”

According to Ebeid, “Ideally you’d like to ship your product within 500 miles of where it’s being manufactured.”

In addition to distribution costs, the cost of manufacturing itself is an energy intensive process and, from the cost of running a furnace to the price of raw materials, and these costs must be passed onto customers as well.

“Glass is a big consumer of natural gas as well as electricity, and those costs have gone up dramatically. The cost of glass, energy-wise alone—irrespective of raw materials—has gone up pretty dramatically,” Ebeid says. “To some extent, some of our raw materials have gone up because they have been fuel-based as well.”

“Manufacturers continually work to reduce costs associated with the melting and distribution of glass products—although cost improvements have not been offset due to increased energy and raw material costs,” Hughes adds.

“Obviously energy costs is a huge concern for all of us,” DiFazio agrees. “We use a lot of energy as an industry, and as a manufacturer we’re constantly looking for ways to reduce our costs. [But] it seems like with all of the efficiencies that we keep seeing, the increase in [energy] costs is more than gobbling up the efficiencies we come up with. It’s just gone crazy.”

Greening Manufacturing
Despite the seemingly endless chase of struggling to reduce energy costs with new technology and upgrades, only to have costs rise further still, glass manufacturers have slowly begun turning attention to remaking their energy intensive manufacturing process. For an industry where much of the product development is focused on improved energy efficiency, it seems a natural step for the manufacturing process itself to become more energy-efficient.

“You’re starting to see more and more investment in technology that allow you to use less energy when making the glass,” says Holt. “Oxygen firing within glass plants is one of those.”

Holt adds, “We continue as we repair all of our tanks we deploy the latest technologies that reduce mostly our gas consumption but also electricity.” As Ebeid points out, it’s a continual process “and there is constant improvement.”

Perhaps it is a natural step, but it’s not an easy one. It’s also a slow process, since in most dramatic instances a furnace must be taken offline temporarily for updates and repairs. “These furnaces generally last, depending on the manufacturer, from 12 to 18 years,” Ebeid says. “So even if you have a good idea you cannot implement it until the furnace wears out, and then you repair it. And then when you repair it, you obviously put in the latest updates and efficiencies.

“It’s just like there are newer cars coming out with better car mileage. Do you change your car every year? No, only when it wears out or you’re tired of it or what have you. Then you upgrade,” he says.

According to DiFazio, these upgrades are more of a necessity than ever.

“With the cost of fuel going up we have to figure out ways to be able to offset some of those increases by making our processes more energy-efficient so we can stay competitive,” he says.

 

USG
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