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Excess supply mirrors glass industry’s woes

Post Time:Nov 05,2009Classify:Industry NewsView:334


 

N. Ramakrishnan

Chennai, Nov. 3 The glass industry in the country is facing a problem of a slump in demand, excess supply and a fall in prices.

At the same time, fresh capacities that are coming on stream will push down prices, especially when raw material prices continue to remain high.

The economic slowdown that hit the realty sector hard has caused a slump in demand. The automotive sector, the other major consumer of glass, is only now beginning to look up; but it is nowhere near the 2008 peaks, according to industry experts.

Excess supply

 

 

They say some of the fresh capacities are coming up with a high level of debt, which makes them unviable. Sejal Architecture and Glass, which is investing Rs 600 crore in a 550-tonnes a day float glass plant in Gujarat, has a debt equity ratio of 2:1, while HNG Float Glass, a division of Hindusthan National Glass & Industries, has a debt equity ratio of 1.5:1 for its nearly Rs 525-crore, 600-tonnes per day plant (tpd), also in Gujarat.

The demand now is estimated at 2,750 tpd, while supply is about 3,600 tpd, including 400 tonnes of imports. The new capacities that will begin commercial production shortly – Sejal’s plant is scheduled to begin commercial production in a fortnight and HNG’s in the third quarter of 2009-10 – will increase supply to more than 4,500 tonnes a day.

According to industry experts, the market for architectural glass declined by three per cent in the first half of 2009, the first such decline seen in over a decade. The decline has been felt more in the high-end products, mainly because many of the large real estate projects have been delayed. Exports too have taken a hit, because of the economic slowdown in the West. Over the last few years, the industry has grown at 10-12 per cent a year.

Manufacturers are trying to export at, sometimes, even at unremunerative prices. A good part of this would have been sent to West Asia, the Mediterranean region, Australia, New Zealand and parts of Far East. However, anticipating unbridled growth, the industry invested in fresh capacities in other markets too, of which at least three float lines started commercial production in the last one year. The slowdown in the US and Europe ensured that demand in these markets slipped drastically.

According to an expert, at 10-12 per cent growth in consumption, the fresh capacity that is coming into commercial production in India would have been easily absorbed by the market. In the long-term, there will be growth, but in the short-term there will be a lot of stagnation in demand, the expert says and wonders how many of the manufacturers have the staying capacity.

Realty slump impact

 

 

Says Mr B. Santhanam, Managing Director, Saint-Gobain Glass India, a leading float glass producer, the large construction projects – malls and office complexes – have not yet seen a revival in demand. These projects account for a majority of the architectural glass consumption.

Saint-Gobain Glass, which has two float lines with a combined capacity of 1,500 tonnes per day (tpd) near Chennai, Gujarat Guardian and Asahi India Glass are the major producers of float glass in the country.

According to Mr Sanjay Labroo, Managing Director and CEO, Asahi India Glass, which has float glass plants in Taloja, Maharashtra and Roorkee, Uttarakhand, along with excess supply, input costs have gone up, while the selling price of glass has more or less remained the same, over the last nine years.

Upbeat outlook

 

 

However, Mr Amrut S. Gada, Chairman and Managing Director, Sejal Architecture Glass, is confident that demand will pick up in a year. Moreover, the new plants will operate at only about 80 per cent of their capacity for some time. They will also have to export a fifth of their production to meet their export obligations.

With the economy showing signs of revival, demand for glass will once again be back in double digits. If there is a slowdown, why is it that the multi-national companies are adding capacity, he asks. Mr Gada does not foresee any problem in servicing the debt, as the company has factored in the capacity addition while working out its project proposal.

Source: www.thehindubusinessline.comAuthor: shangyi

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