As spot and futures prices continue to decline, the glass industry faces widespread losses. However, capacity reduction remains slow, with daily melting rates still high, and inventory hitting new yearly highs. One reason for this is the high cost of cold repairs, which involve significant energy loss and furnace cleaning expenses. Additionally, halting production makes it difficult to resume operations in the short term, and with the fourth quarter being a traditional peak season, manufacturers are reluctant to shut down.
Slow Capacity Reduction
The industry’s worsening losses have led to a gradual reduction in glass capacity, but the pace has been slow, with no large-scale cold repairs. As of September 12, 2024, China’s float glass production capacity was 167,200 tons/day, a 0.07% increase from the previous month and a 0.80% year-on-year decline. Solar glass capacity was 99,100 tons/day, down 2.07% month-on-month but up 7.58% year-on-year. The operating rate for domestic float glass was 80.80%, down 0.24% from the previous month and 0.18% year-on-year. Since September, three production lines have been shut down for cold repairs, reflecting the slow pace of industry adjustments.
Overall, glass production remains rigid, and the capacity clearing cycle is long. Although supply has slightly decreased in the short term, it remains at historically high levels.
Weak Downstream Demand
The real estate sector continues to show weak demand, as reflected in July data. By the end of July, the cumulative transaction area of second-hand homes in 18 key cities had decreased by 1.3% year-on-year, and transaction growth has slowed. Additionally, housing completions and sales of commercial properties have continued to decline. From January to July, the completed housing area was 300.16 million square meters, down 21.8% year-on-year, and the sales area of commercial properties was 541.49 million square meters, down 18.6%.
Real estate, the main downstream consumer of glass, has underperformed, directly impacting demand. The fulfillment of the “guaranteed delivery” policy has not provided strong support, and cautious land acquisition by real estate companies, along with fewer new projects, has led to weak completion demand.
Inventory Continues to Rise
Manufacturers have continued to build inventory, with overall sales and production remaining weak. As of September 13, 2024, total inventory at China’s sample float glass companies reached 72.40 million weight cases, a 1.31% increase from the previous week and a 74% increase year-on-year. The inventory turnover period extended by 0.3 days to 31.4 days.
In the short term, the supply-demand imbalance is expected to worsen, continuing the trend of inventory accumulation. Cold repairs on production lines are happening gradually, with slow capacity reduction. At the same time, the traditional “Golden September” peak season has not materialized, and both rigid and speculative demand remain weak. With high inventory levels, there is limited upward momentum for glass prices in the short term.
Shrinking Industry Profit Margins
After months of losses for natural gas-based production lines, coal gas-based lines also slipped into negative territory last week, further deteriorating the industry’s overall profitability. As of September 13, 2024, profits for coal gas-based glass stood at -82.77 yuan/ton, with costs at 1,188 yuan/ton; petroleum coke-based glass profits were 17.53 yuan/ton, with costs at 1,104 yuan/ton; and natural gas-based glass profits were -301.76 yuan/ton, with costs at 1,622 yuan/ton.
Profit margins across the glass industry chain continue to shrink, with coal, natural gas, and petroleum coke profits hitting their lowest levels in a year. If demand does not show substantial improvement, glass prices will likely continue to search for lower support.
In terms of supply, daily melting volumes continue to decline, but capacity reduction has been insufficient, leaving production at historically high levels. On the demand side, the traditional “Golden September” peak season has been lackluster, with weak downstream demand and no signs of significant improvement in either macro or micro indicators. Inventory levels remain high due to the worsening supply-demand imbalance, and the off-season accumulation trend is expected to persist. While the short-term outlook remains bearish, market sentiment improvements during the traditional peak season could influence glass price trends.
