The glass industry supply chain consists of three main components: upstream raw materials and fuels, midstream glass manufacturing, and downstream glass consumption. Since the beginning of 2024, cyclical factors have resonated across all stages of the supply chain, significantly increasing operational pressures for companies by the end of the third quarter.
The primary raw materials for glass production include various oxides such as silica sand, limestone, dolomite, soda ash, and feldspar. The fuels required to melt these materials in furnaces, reaching temperatures up to 1600°C, mainly consist of coal, natural gas, and petroleum coke. On the cost side, the prices of raw materials, particularly soda ash and coal, have fluctuated significantly in recent years. Since the beginning of 2024, fuel prices have remained relatively stable, with soda ash prices being the key factor influencing glass production costs. The continuous increase in soda ash production capacity has led to a supply-demand mismatch, causing prices to drop to a three-year low in mid-September, resulting in rapid industry losses. The ongoing decline in soda ash prices has reduced the marginal cost of glass production, creating substantial devaluation pressure on glass inventories.
In the glass manufacturing segment, demand expectations weakened rapidly after the 2024 rainy season, and since the third quarter, industry profit levels have consistently declined, culminating in industry losses by late September. After eight consecutive years of significant profits, the glass industry still hopes to maintain positive annual profits in 2024, although demand-supply expectations have weakened markedly. From the supply perspective, the float glass industry’s daily melting capacity has remained around 165,000 tons, but the expanded losses have not significantly curtailed supply. In terms of demand, the primary end-use sectors for glass include real estate, automobiles, electronics, and furniture, with the real estate market having the most substantial impact. According to data from Zhuochuang Information, demand for construction glass in the real estate sector accounted for over 70% of total glass demand in 2023, making the housing market’s influence on glass demand quite pronounced.
Data from the National Bureau of Statistics reveals that from January to August, the area under construction by real estate developers was 709.42 million square meters, a year-on-year decrease of 12.0%. The residential construction area was 496.05 million square meters, down 12.6%. The newly started construction area was 49.47 million square meters, down 22.5%, with residential projects seeing a 23.0% decline. The completion area of buildings was 33.39 million square meters, a decrease of 23.6%, with residential completions down 23.2%. With supply remaining high and demand weak, glass production companies are accumulating inventory, which reached 63.81 million weight boxes in key monitoring provinces by September 26, an increase of 1.52 million weight boxes from the end of August, marking a 2.44% rise, and a 60.25% increase year-on-year.
The cyclical downturn in the glass industry poses significant challenges for deep processing enterprises. With increasing competition in the deep processing sector, shrinking order volumes, declining raw glass prices, and risks of delayed payments in downstream projects, seizing market opportunities has become a pressing issue for every deep processing company.
On a positive note, glass futures and options tools offer valuable means for the glass supply chain to tackle cyclical challenges. In late September, glass futures rose due to various macroeconomic factors and pre-holiday restocking. During the holiday period, spot prices for glass increased, narrowing the industry’s loss margins. However, subsequent declines in futures reflect fundamental supply-demand dynamics, primarily driven by hedging and arbitrage activities by glass producers and traders.
It is essential to note that current seasonal fluctuations in supply and demand may struggle to absorb the historically high inventory of raw glass. Although temporary spikes in production and sales might be expected, significantly improving cash flow for glass companies remains challenging, and the price and profit impact could be limited. Trading in both the spot and futures markets remains active, but the market may shift from price increases to inventory accumulation.
Overall, the widespread losses in the glass industry may fluctuate but are unlikely to reverse before effective supply reductions occur. Any unexpected recovery in profits might be temporary for a supply chain burdened with high inventory and weak demand. Companies not participating in futures hedging may see profit levels lagging behind those that do. The industry’s difficulties are likely to persist until policies related to glass capacity and carbon emissions are implemented. It is advised that glass production and trading companies look for selling hedge opportunities when futures prices significantly exceed spot prices.
