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Weak Auto, Construction Markets Affect Flat GlassSales for flat glass were generally higher in 2001, but companies reported a gradual slowdown in demand in both the automotive and construction markets toward the end of the year. According to Asahi Glass Co. Ltd., sales of fabricated glass in Japan declined as the Japanese auto industry stayed locked in a harsh market environment marked with poor domestic demand and reduced exports. Demand for flat glass for construction use was also feeble in North America, mirroring the decelerated U.S. economy. Despite these slowdowns, the company was able to expand its market share by reaching new customers. Additionally, the company said that sales of flat glass products—especially high-value-added strategic products, such as tempered glass for automotive applications—increased in Europe, helping to offset lower demand in other regions.
Compagnie de Saint-Gobain saw flat glass sales rise by 7.5% in 2001 due to the strengthening of flat glass prices on most end-use markets, with a marked upswing in the construction sector. In Europe, sales of basic flat glass products and of semi-finished products increased despite softening demand in many markets. The company said that trading conditions were more favorable outside of Europe, with strong sales gains posted in Brazil, India and Korea. Sales volumes in European automotive markets increased moderately as rising export sales spurred activity in the sector. Increased sales of higher value products, such as layered glass windshields, also helped to boost growth. Demand was also sustained in South America (Brazil, Mexico and Colombia) and in Asia (Thailand). However, a downturn in the European construction market and some price erosion was becoming evident by the first quarter of 2002.
For PPG Industries, the impact of the recession was significant. The company experienced continued weakness in many of its North American markets, including automotive original equipment, aerospace and other transportation products, and also saw demand weaken in its key markets in Europe, South America and Asia as the impact of the North American recession broadened. As a result, the company’s sales were down 5.5% for the year. Economic weakness in these markets persisted into the first quarter of 2002, making the outlook for the rest of the year uncertain. “Although some of the economic news this year is encouraging, we have not seen any significant signs of strengthening in our major markets other than North American vehicles,” said Raymond W. LeBoeuf, PPG chairman and chief executive officer.
The slowdown in the U.S. automotive industry also affected Vitro and Pilkington, with both companies reporting slightly lower sales volumes to original equipment manufacturers. However, sales to construction markets were generally higher, despite mixed market conditions and a significant decline in demand in the second half of 2001.
Many flat glass companies have turned to high-added value products to compensate for weaker overall demand. For example, in June 2001, Pilkington became the first manufacturer to introduce a self-cleaning glass product. Called Activ™ glass, the product uses the sun’s ultraviolet rays to gradually and continuously break down and dissolve organic dirt through a photocatalytic effect. The glass also uses a hydrophilic effect to reduce the surface tension of water, causing it to sheet down the surface and wash away dirt to leave windows clean.
By August 2001, PPG had its own self-cleaning glass, called SunClean, which works on the same principles. Vitro’s Automotive Glass division has been pursuing bulletproof glass to take advantage of growing market demand, and Saint-Gobain has said that its research and innovation efforts will be directed toward products such as self-cleaning glass for homes; new grades of anti-reflective glass for applications in automotive, building and home appliance markets; a new generation of solar-reflecting coatings; and electrochrome glass for cars.
According to a new study by The Freedonia Group, Inc.,* demand for advanced flat glass in the U.S. is forecast to grow 9.6% per year to $2.6 billion in 2006 and will represent 22% of the total fabricated flat glass market in the U.S. at that time. These figures encompass solar control glass (low-emissivity glass; reflective glass; and “smart” glass, which can be lightened and darkened on command), security glass (bullet- and burglary-resistant and fire-rated glass) and other emerging niche products, such as heads-up display (HUD) windscreens, ultraclear glass and self-cleaning glass.
Three distinct but interrelated drivers are promoting gains for these products: efforts to improve energy efficiency in buildings and automobiles; heightened security concerns; and increased demand for products exhibiting improved safety and convenience features.
Demand for advanced flat glass will accelerate based on rapid market base expansion for a range of innovative new products. Among the products forecast to see impressive gains are smart glass, particularly electrochromic windows; self-cleaning glass, which is architectural glass that has been coated to improve water sheeting properties and thus reduce (though not eliminate) the need for washing; and HUD windscreens in motor vehicles, which allow critical data to be superimposed on the windshield.
Perhaps the most significant of these introductions is smart glass, where demand is forecast to expand nearly 20% per year to $445 million in 2006, driven by the large-scale commercial introduction of smart windows for homes and commercial buildings. These windows offer unprecedented control, aesthetics and energy efficiency, though high prices and the need to integrate their use with the building’s heating and air conditioning systems will initially relegate them to high-end, custom-built homes.
Market gains also will benefit from stable demand for a range of more established solar control and security products. The market for security glass, particularly bullet- and burglary-resistant types, has seen a sharp but likely temporary spike related to enhanced domestic security measures in the aftermath of the terrorist attacks of September 11. In particular, security glass is being installed in many government buildings, research facilities and laboratories.
Specialty Glass Markets Struggle as Tech Sector DeclinesThe slump in the high-tech and electronic industries drove demand for specialty glass products downward, especially in the fourth quarter of 2001. Corning, Inc. reported that its fourth quarter sales were less than half of the $2.1 billion reported in the fourth quarter of 2000, primarily due to sales and earnings declines in the telecommunications segment. The segment reported sales declines of 65% versus last year and operated at a loss for the quarter. Optical fiber and cable sales also decreased significantly as demand for optical fiber was extremely weak in the quarter. This prompted significant slowdowns in cable manufacturing operations and the idling of most of the company’s fiber manufacturing facilities in November and December.
Corning said that fiber and cable sales continued to be negatively impacted by the global slowdown in the telecommunications sector in the first quarter of 2002. However, shipments of optical fiber to cablers grew 10 to 15% compared with the fourth quarter, and continued demand for notebook computers and flat panel desktop monitors drove a 16% sequential increase in volume of liquid crystal glass in the quarter. While the company believes that the telecommunications sector has bottomed out, it is going ahead with restructuring efforts to improve its profitability—including possible workforce reductions across all operating functions and corporate staffs, consolidation of organizational structures, plant closures, elimination of some research and development facilities, technical spending cuts, and centralization of administrative functions into shared services. Corning also said it would consider divesting several small businesses, investments or equity companies as part of its restructuring efforts.
Osram Sylvania also announced plans earlier this year to consolidate its glass operations. The company will move glass production for fluorescent lamps from Central Falls, R.I., to its primary fluorescent glass plant in Versailles, Ky., and will also move glass manufacturing for incandescent lamps to its main incandescent glass plant in Wellsboro, Pa. The company’s Central Falls plant would continue to produce its other primary product, borosilicate glass, for high-intensity discharge (HID) lamps.
“Rapid and dramatic change in the global marketplace for our glass business over the last three years has resulted in significant underutilization of Osram Sylvania’s three North American glass plants,” said Asahel Parmelee, executive vice president and general manager of the company’s worldwide Precision Materials & Components division. According to Parmelee, lower-than-projected demand for finished lamps, consolidations in the lamp-making industry and the importation of lamps manufactured outside of the U.S. contributed to the current situation.
Not all specialty glass segments have declined, however. According to both Saint-Gobain and Schott Group, sales of glass-ceramic cooktops have remained strong in both the U.S. and Europe. Schott’s Optics and Opto-Electronics divisions, as well as Special Glass Tubing, were also able to maintain momentum.
Container Glass Boosted by Beer, Wine SalesThe global economic slowdown has so far missed the container glass segment; in fact, most companies in this sector have reported increasing sales and continued strengthening in the near future. According to Owens-Illinois Inc., the leading glass container producer in North America, lower energy costs, improved pricing in certain product lines, and higher North American glass container unit volumes have contributed to a favorable climate for continued improvement. The company’s sales finished up by 3% in 2001, and it also expects sales to be higher for 2002. The company’s acquisition in October 2001 of the Canadian glass container assets of Consumers Packaging Inc. is also contributing to improvements in its bottom line.
According to Owens-Illinois, major product conversions from glass, such as soft drinks and isotonic beverages, are now largely finished. Other products that may convert are relatively small and should be offset by growth in wine and malt beverages, including beer and ready-to-drink low-alcohol refreshers.
Beer is by far the largest product category for glass containers in the U.S. and Canada. This has been a growing market due in part to a continuing shift by brewers from cans to glass. In 2001, glass captured 45% of the packaged beer segment in the U.S., up from only 32% in 1991. The company believes that this trend will continue. The U.S. beer industry also expects to experience increased demand over the next several years due to favorable demographic trends.
At the same time, the introduction of a new category, ready-to-drink low-alcohol refreshers, or “malternatives,” has created a significant new source of demand for glass containers in the U.S. and Canada. The popularity of these new products has also improved supply-demand conditions for glass containers.
Demand in international markets also continues to grow, driven by several long-term factors—including the growing popularity and availability of branded, prepackaged foods and beverages; the conversion of returnable bottles to recyclable glass bottles; and the growth of several regional wine industries, especially in Australia and Italy. In addition, demographic and economic trends in certain developing regions are creating a favorable environment for long-term growth in demand for glass containers.
Vitro’s Glass Containers business also did well, with the soft drink, beer and liquor segments performing much better than the company expected. Saint-Gobain’s Containers Division also remains on the upward trend it experienced in 2001, drawing on sustained demand and price increases in both Europe and the U. S. Both companies anticipate continued sales growth in these segments.
Editor's NoteThe foregoing information, except where noted, was compiled from publicly available information in annual reports and news releases, as well as from interviews with companies listed in the 2002 Glass Giants.
*“Advanced Flat Glass: Smart, Self-Cleaning, Security & Other Value-Added Products,” published in June 2002, 194 pages. The report is available for $3700 from The Freedonia Group, Inc., 767 Beta Dr., Cleveland, OH 44143-2326. For further details, contact Corinne Gangloff at (440) 684-9600, fax (440) 646-0484, e-mail email@example.com or visit http://www.freedoniagroup.com.