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Glass: Supply contraction exceeded expectations, V-shaped reversal initiated
Published Time:
2021-09-07
Last week, two more production lines in the Shahe area were shut down due to environmental protection measures, leading to a continued and unexpected contraction in production capacity. Currently, the industry's net reduction in production capacity is approximately 36 million heavy boxes, accounting for about 4% of current production capacity, and industry inventory is rapidly decreasing. We believe that, considering the cost of resuming production and the expiration of the lifespan of some production lines, production capacity is expected to maintain a dynamic balance in the second half of the year, and is expected to remain in a contraction trend for the whole year. From the demand side, the apparent demand for glass in April fell by 5.5% year-on-year and the month-on-month decline narrowed by 21 percentage points. Due to the rapid decline in inventory, the apparent demand growth rate is expected to turn positive strongly in May, and demand will continue to recover. For the whole year, 2020 is still expected to enter a completion cycle. Judging from the completion plans for 2020 announced by some real estate companies, steady growth is still maintained, and new real estate starts are still expected to accelerate the transmission to the completion end, boosting industry demand. Demand may be delayed, but it will not be absent. Demand may be concentrated in the second half of the year, and the price for the whole year may replicate last year's V-shaped reversal. Due to lower costs this year, the current price of soda ash has fallen to below 1300 yuan/ton, down more than 500 yuan/ton year-on-year (a 100 yuan/ton decrease in soda ash price saves 1 yuan/heavy box in glass box cost). At the same time, the prices of petroleum coke and coal have also continued to decline. The decline in raw material prices has resulted in lower enterprise costs, so the price rebound has greater profit elasticity. We believe that the industry is currently at the bottom and the upward trend is just beginning. The next stage will be a stage of certain improvement in fundamentals, and leading companies will have strong rebound momentum.
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