Ceramic Industry

<strong>GLASS MARKET OVERVIEW</strong>: Opportunities Abound in Flat and Advanced Glass; Container Glass Market Struggles

December 1, 2006
A strong commercial building market is boosting sales of flat glass, while advanced glass is benefiting from increased demand in electronics and telecommunications. Meanwhile, the container glass industry continues to face challenges.

Commercial solar control glazing. © Glaverbel. Used with permission.


Companies in today's glass industry face a wealth of opportunities. Despite a housing slowdown in the U.S. and challenges in the U.S. automotive industry, flat glass manufacturers are enjoying significant gains in product demand due to a strong commercial construction market and innovative product offerings. Likewise, demand for advanced glass in markets such as electronics, telecommunications, health care and aerospace is on the rise. Container glass manufacturers have not been quite as fortunate; however, higher demand outside the U.S. is giving companies in this market an optimistic outlook. Following is an overview of these key sectors of the glass industry.

Commercial Construction Boosts Flat Glass Demand

Flat glass manufacturers are seeing robust growth in sales volumes, particularly in the commercial construction sector. "The nonresidential construction markets we serve remain strong, as seen in our backlog and bidding activity," said Russell Huffer, chairman and chief executive of Apogee Enterprises, Inc. "We are feeling good about the strength that the architectural business is bringing to Apogee's performance this fiscal year." The company expects this strength to continue into 2007.

According to Fred Wallin, vice president of marketing for AFG in Kingsport, Tenn., "The commercial market remains robust, growing at about 4 to 8% annually, and I expect this to continue for the near term [next three years]... We have a good market, not a fabulous market, but historically one of the best in recent years," Wallin adds. "I get the sense that next year will be similar to this year, although it will be slower early in the year and finish stronger."1

The National Glass Association believes that the nonresidential construction industry in the U.S. will see two or three years of growth in most sectors, led by the Southern region and featuring an increasing demand for curtain-wall systems.2

A recent study from The Freedonia Group indicates that the flat glass market in the U.S. will continue to see solid growth prospects for the next several years, with demand projected to expand nearly 6% per year to $7.7 billion in 2010.3 Gains will be due to a resurgent growth in nonresidential building construction activity, continuing rapid growth in a variety of emerging technologies (such as smart glass and self-cleaning glass), and strong gains in laminated glass used as hurricane glass, ballistic glass and burglary-resistant glass. Solid advances for certain niche products in the large motor vehicle market will also contribute to growth. In the residential construction market, expanding market penetration of self-cleaning and smart glass products will offset a weak new housing environment.

The Freedonia Group predicts that solar control advanced flat glass products will post the fastest growth through 2010, while the dominant safety and security segment will experience much slower growth. Other flat glass products will post above-average growth due to rapid gains in heads-up display (HUD) windscreens and self-cleaning glass. Among the most rapidly growing advanced flat glass products is so-called "smart glass." These products can alter their own levels of light transmission automatically via the application of an electric current. The dominant application for smart glass technology to this point has been electrochromic mirrors for motor vehicles. These products are making rapid inroads in the automotive market, reflective of the overall trend in motor vehicle design toward the greater use of electronics to improve vehicle safety, navigation, communications and comfort. Looking forward, significant growth will be provided by other smart glass products, primarily in architectural markets, as electrochromic and suspended particle device (SPD) technologies advance into window applications.



Bottles produced by Anchor Glass for Shakka Liqueur, manufactured by Reisigl Associates. The clear flint glass bottle, acid etched with a mask to leave a clear area around the heel, is accompanied by a metallic pressure-sensitive shoulder label and topped with a Stel closure that is colored to match the "lava-like" product offering within. The bottles won the Glass Packaging Institute's 2006 Clear Choice Award in the "Distilled Spirits" category.

Advanced Glass Offers Growth Opportunities

The solar energy, electronics, optical, healthcare and aerospace markets are all showing significant opportunities for glass consumption. A shortage in polysilicon due to high demand for solar panels is boosting the use of glass in this market, at least in the short term. Piper Jaffray analyst Jesse W. Pichel said he expects the solar industry to grow about 10% in 2006 and 20% in 2007, but that these figures are far less than would be possible if polysilicon was more plentiful. He estimates that current demand for solar panels is twice as great as available supply. The expected growth over the next two years will be driven largely by thin-film technology, which uses glass instead of silicon, as well as other methods that cut out or greatly reduce the need for polysilicon.

In the electronics industry, electronic displays such as liquid crystal displays (LCDs), cathode ray tubes (CRTs) and gas and vacuum discharge displays account for nearly 90% of the $8.7 billion global market, with LCDs showing the best growth prospects.4

Corning said that it expected a 10-15% increase in sequential LCD glass volumes, and an 8-12% sequential LCD glass volume growth at Samsung Corning Precision Co. in the third quarter of 2006. The company noted that demand for LCD notebooks, monitors and TVs remains robust. "We believe that normally stronger seasonal demand for both monitors and TVs, as well as supply chain replenishment, will allow the overall LCD glass market volume to grow between 40 and 50% this year," said Corning's Chief Executive Officer Wendell P. Weeks.

BCC Research forecasts that LCDs will see market growth of more than 16% per year through 2010. However, this growth comes at the expense of cathode ray tubes (CRTs), which are expected to decline nearly 7% per year in global value through 2010. Demand for large-display substrates for televisions and computer monitors is expected to increase. By 2010, LCDs will account for 74% of the market, while CRTs will account for only 22%.4

Optical glass is also showing significant opportunities for growth. Corning reported that it is seeing significant increases in its telecommunications business, driven by strong demand from U.S. and European carriers for fiber, cable, hardware and equipment products.

Other markets poised to increase consumption of advanced glass include health care and aerospace, which are expected to show average annual growth rates of 9.3% and 5.7%, respectively, through 2010. BCC Research predicts that worldwide sales of all advanced glass and glass ceramics will reach $17.6 billion in 2010, with an average annual growth rate of 7.3% from 2005 levels of $11.3 billion.4

Container Glass Market Faces Numerous Challenges

High energy, material and labor costs have had a significant impact on the U.S. container glass industry over the past year, and manufacturers have only been able to recover a portion of these higher costs through price increases. High inventories have also pressured earnings. According to the U.S. Department of Commerce, production of glass containers rose 1.9% from January to August 2006 compared to the same period last year. At the same time, shipments dropped by 0.5%. While demand for glass beverage containers has remained steady, sales to the food sector have declined, presumably losing market share to alternative packaging materials such as aluminum and plastics.

Future trends remain uncertain. Two recent surveys paint a rosy picture based on consumer preferences. An independent survey conducted by Newton Research of Norman, Okla., of 753 randomly selected consumers from across the U.S. revealed glass packaging is the overwhelming first choice of consumers for preserving the quality, purity, and taste of food and beverages. The survey revealed that almost 78% of consumers choose glass packaging for maintaining the purity of a product. When it comes to ensuring the quality and healthiness of foods, more than 82% believe that glass packaging is the best choice. Americans also choose glass packaging for maintaining the shelf life of a product over aluminum and polyethylene terephthalate (PET) plastic by three-to-one (62%). The survey also revealed that glass is the preferred packaging choice of those questioned for beer (75%), wine (96%), sauces/condiments (65%), jellies (87%) and baby food (90%). When asked about general packaging preferences, the organic consumers' preference for glass increases more than two-to-one from 17% for non-organic shoppers to 45% for organic shoppers.

The results from a second Beverage Package Survey conducted in July by Dragon Rouge, a leading international global brand design company, confirmed that consumers have a strong preference for glass packaging. This survey of 100 consumers revealed that 98% of respondents prefer their beer come in glass bottles. In addition, 46% of those questioned said they had tried beer in plastic bottles (mostly at sporting events) and 85% of those said drinking beer from plastic bottles was less desirable than glass. Of those that were dissatisfied, 37% said the beer did not stay cold in plastic and 40% said the beer did not taste as good.5

However, a recent report from beer manufacturer Anheuser-Busch reveals aluminum could become a serious contender for beer packaging in the future. The company said that consumers' ongoing desire for aluminum bottle packaging across its product range has driven an "overwhelmingly strong demand." Last year, the demand for aluminum bottles was so high that nightclubs and restaurants were selling out-which led the company to double its production capacity for the package later that fall. This year's first-quarter sales of the package increased more than 600% over the 2005 first quarter sales. In an effort to reverse an industry-wide slowdown of beer sales, the company expanded its sleek aluminum bottle design to its Michelob Ultra and Michelob Ultra Amber brands in June 2006. For glass manufacturers that rely heavily on beer market sales, this trend is worrisome, to say the least.

Outside the U.S., demand for glass packaging in a variety of applications is on the rise. Owens-Illinois, Inc., is building a new glass container manufacturing facility in Lurin, Peru, based on existing and growing demand in the local glass container market and region. Construction began in October 2006, and the plant is expected to be operational in the second half of 2007. The company said that the new plant will "further realign O-I's global footprint with demand in its fastest growing region in Latin America."

Saint-Gobain's Packaging Sector has just gained control of BO Glass Containers SA, which has begun construction of a wine bottle plant in Rosario, located in a winegrowing region south of Santiago (Chile). Saint-Gobain said that this acquisition will allow the company to become the second largest wine bottle manufacturer in Chile, and will also speed up its growth "in one of the world's most dynamic wine industries."

As in other industry sectors, diversification and innovation are key to remaining successful.

Low-e residential glazing. © Glaverbel. Used with permission.

SIDEBAR: Flat Glass Worldwide

Central Europe
The market for flat glass in central Europe is booming and is expected to grow by 7-8% per year over the next few years. In response to this continued growth in demand, Glaverbel has decided to build a third float glass line at its Retenice plant (Teplice) in the Czech Republic that will have a production capacity of 700 metric tons per day. Construction work was due to begin at the end of 2006, and the new float plant-Glaverbel's third in central Europe and seventeenth in Europe-should be operational by the beginning of 2008.

China
According to a recent study from The Freedonia Group, construction expenditures in China will increase 11.6% annually through 2010, reaching ¥5.8 trillion.1 In real terms, spending will grow at a 9.7% annual rate. Although growth in Chinese construction expenditures will moderate from a blistering 2000-2005 pace, the country will continue to outperform other major national construction markets through 2010. Nonresidential construction expenditures are forecast to rise 9.4% annually (in real terms) through 2010, stimulated by increases in consumer spending, accommodative government policies, and foreign direct investment. Residential building construction activity will advance at a 9.1% annual pace in real terms through 2010, spurred by government efforts to boost average per-capita living space and private home ownership.

Just how is this construction boom affecting the glass industry? A recent report from the Chinese Ceramic Society provides some clues. During the fourth peak period of China's flat glass industry, which started in 2004 and ends in 2006, 60 new float glass lines have been built, with an average of 20 lines per year. High-quality float lines increased from eight to 25, with output volume climbing from 10 to 23% of total production. The largest production scale amounts to 900 tons per day. Solar-control, low-E, self-cleaning and extra-clear float glass are now being produced in China, which reportedly will allow the country to compete on quality terms along with price.2

Middle East
The flat glass industry is a future growth area in the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) due to the recent substantial growth in the construction sector that is expected to continue for the next few years, according to a recent report by the Gulf Organization for Industrial Consulting (GOIC). The report states that the investment size in flat glass production in GCC member states exceeded $564 million in 2005. The growth rate in glass products in the last three years in GCC countries was about 8% and is expected to increase to 10-12% in the coming three years. Total investment in the construction sector in the GCC countries is expected to be more than $80 billion over the next five years.3
  1. Construction Outlook for China (published 05/2006, $4900), The Freedonia Group, Inc., 767 Beta Dr., Cleveland, OH 44143-2326; (440) 684-9600; fax (440) 646-0484; www.freedoniagroup.com.
  2. Wenyi, Mo, "Review and Prospect of the Glass Industry in China," June 2006, www.glassonweb.com.
  3. "Flat Glass, a Future Growth Area in GCC," Arab News, April 9, 2006, www.menafn.com.