Home > News > Industry News > Soaring production costs are putting the glass industry under pressure

Soaring production costs are putting the glass industry under pressure

Post Time:Nov 24,2021Classify:Industry NewsView:1028

Despite a strong business recovery, rising raw material and energy costs make the current economic equation almost unbearable for the most energy-consuming industries, especially when their margins are already tight. Although it is not the only one to be hit, the European glass bottle industry is particularly impacted, as the managers of the companies interviewed individually by Premium Beauty News [1] confirmed.

The enthusiasm created by the recovery in the consumption of beauty products is hiding tensions that are pushing to caution the main players in the market. Around the world, production costs have skyrocketed in recent months, whereas they had fallen only slightly in 2020. This is due to the increase in the price of energy, raw materials and maritime transport, as well as various bottlenecks that make it difficult or expensive to obtain some ingredients.

The glass industry, which is very energy-demanding, has been hard hit. Simone Baratta, Business Perfumes Beauty Unit Director of the Italian glassmaker Bormioli Luigi, considers that, compared to the beginning of 2021 the increase in production costs is considerable and that it is mostly due to the explosion in the costs of gas and energy in general. He fears that this increase will continue in 2022. A situation not seen since the oil shock of October 1974!


"Everything has increased! Energy costs of course, but also all the components that are necessary for production: raw materials, pallets, cardboard, transport,..." confirms étienne Gruyez, CEO of Stoelzle Masnières Parfumerie.


A sharp upturn in production

For the premium glass industry, this increase in costs is occurring against a backdrop of a sharp increase in production volumes.


"We are seeing an increase in activity with a return to pre-Covid levels," notes Thomas Riou, CEO of Verescence. "However, we believe that we should remain cautious. The market, which has been depressed for two years, has not yet stabilised at this stage."


To deal with this increase in demand, the Pochet Group restarted a furnace, which had been shut down during the pandemic - and "hired and trained some personnel," notes éric Lafargue, Sales Director of the Pochet du Courval Group, "although we had no certainty" that this high level of demand would be maintained over the long term.


The question is therefore to know what part of these costs will be absorbed by the margins of the different players in the sector and if a part of them will be passed on to the selling prices. Glassmakers interviewed by Premium Beauty News are unanimous in saying that volume increases will not be sufficient to compensate for the rise in production costs and that the sector is now in danger. Most of them, therefore, confirm they have started negotiations with their clients to obtain an adaptation of their purchase prices.


Erosion of margins

"Today our margins have been severely eroded. Glassmakers lost a lot of money during the crisis, and we thought we would be able to recover thanks to the return of volumes at the time of the recovery. We see that the recovery is there, but not profitability," emphasizes étienne Gruye.


"The situation is very critical after a penalising 2020 year with high fixed costs," confirms Thomas Riou.


The analysis is identical in Germany or Italy.


For Rudolf Wurm, Sales Director of the German glassmaker Heinz Glas, the industry has now entered "a complex situation where our margins are seriously jeopardized".


"The paradigm according to which volume growth could be sufficient to compensate for rising costs no longer works at all. We need to generate margins, with the help of the market, if we want to maintain the same quality of service and products," explains Simone Baratta, for Bormioli Luigi.


This sudden and unexpected change in conditions of production has led to the mobilisation of industrialists who, for the most part, have already launched cost-cutting programmes, while also alerting their customers to the risks of sustainability of the sector. Agility, inventory carrying, energy savings, preservation of the peripheral business fabric, major players have put in place various action plans.


"Our priority is to protect small businesses that depend on us. These VSBs/SMEs are indispensable in the ecosystem," declares Thomas Riou for Verescence.


Passing on costs to preserve the industrial fabric

If all players optimise their operating bases, the crisis will only be overcome through negotiations that take into account the specificities of the glass industry. A revision of prices, a review of the storage policy or the taking into account of cyclical delays, or all together: each supplier has its own priorities but all of them have entered into negotiations.


"We have strengthened our exchanges with our customers to optimise our capabilities and control our stocks. We are also negotiating agreements with our customers to pass on all or part of the sharp increases in energy and raw material costs, etc.," says éric Lafargue.


Although the approach demands clarity and pedagogy, a consensual outcome seems essential for the future of the sector.


"In some cases, when a customer refuses to accept a price increase, despite the detailed information we submitted to him, we may have to refuse to produce because it would no longer be profitable," explains étienne Gruyez.


"We need the support of our customers to sustain the whole industry. This crisis has shown how strategic suppliers can be in the value chain. It’s a whole ecosystem, if there’s a component missing, the product is not complete," insists éric Lafargue, for Pochet.


"This extraordinary situation requires an extraordinary response," says Simone Baratta. The Head of Bormioli Luigi fears that this situation will "slow down manufacturers in their innovations and investments."


Manufacturers insist that the increases they consider necessary would represent around ten cents, at most, if they were passed on to the price of the final product. But this increase could be largely absorbed by the margins of brands, some of which have announced record profits in a row. A positive situation, which shows the good health of the industry, but which must benefit all its actors, some glassmakers argue.

Source: https://www.premiumbeautynews.com/Author: shangyi

Hot News

返回顶部