Volume 41, Issue 4 - April 2006

What's in Store

Good News for Glass Buyers:
Fabricators Predict Growth Capacity
By Charles Cumpston

The glass fabrication market is poised for growth this year, but so is competition as expanded industry capacity is slated; this should be good news for contract glaziers and others who buy fabricated glass products.

Executives from some of the largest glass fabrication companies are expecting this to be a good year for business and growth.

Leon Silverstein, president and chief executive officer of Arch Aluminum & Glass Co. Inc. in Tamarac, Fla., and John Stilwell, vice president of fabrication for AFG Industries Inc. in Kingsport, Tenn., both described the current market as “positive.”

“We’re seeing very positive signs especially in the commercial market, where 4- to 6-percent growth is projected,” states Stilwell. He points out that vacancy rates are coming back into line and the migration of people back to the city has made for a strong condo market. “We see some softness in the residential market due to increased interest rates. The big concern is any kind of shock to the system,” he adds.

Stilwell says his company is looking for 2- to 4-percent growth overall this year.

Silverstein expects market growth of 5 to 6 percent, but also sees growth in capacity of about 20 percent. 

“There’s a lot of capacity coming on in the next two years,” he states. “It’s coming in from foreign companies, including China, but it’s also coming from domestic suppliers.”

Companies are taking action to prepare for this growth.

“We have furnaces on order and are retrofitting some of our older furnaces to add convection,” Stilwell says. “It will probably add about 10 percent to our tempering capacity, and we’re also expanding our laminated capacity by approximately 25 percent.” Yes, he admits, that is “significant growth.” The company plans to expand its laminating facility in Jacksonville, Fla., placing production close to the biggest growth area for hurricane glass.

“Construction activity in most geographical areas of North America is very robust,” states John Bush, director of laminated products and development for Oldcastle Glass, which is headquartered in Santa Monica, Calif. “Consequently, the market for fabricated glass products is very strong,” he adds.

Brad Austin, senior vice president for Viracon Inc. in Owatonna, Minn., agrees, saying he sees the industry at the beginning of a new construction cycle. Growth is spurred by condominium development, hurricane glass requirements and office construction. He also sees the industry investing in new capital equipment. 

Growth Factors

Fabricators agree that codes and energy efficiency are driving the growth.

Silverstein points out that Georgia, Texas, Florida and the Southwest, for example, are areas where more insulating glass products are being used in construction. 

Austin cites McGraw-Hill predictions that construction starts will remain strong for the next two years before slowing in 2008. 

“In our experience, the requirement for glass is an 11-month lag behind what McGraw-Hill projects,” Austin states, “and due to the requirement for high-performing glass products, we have regularly experienced greater than industry-forecasted growth rates.” 

Silverstein says a lot of companies in the fabrication market don’t do a good job in getting a good rate of return on investment, especially the independents. “As they add equipment, they have more fixed capacity and they’re trying to fill it by adding more capability. But they’re not really figuring out how much return they’re getting on these investments.” He points out that some distributors have also become fabricators. “It’s a natural evolution for them, and it’s easy to finance equipment.”

He adds, however, that companies must understand their costs and figure out how to sell product in the market. “A company’s fixed costs, such as health insurance, etc., are going up more than the price increases on the products being sold,” he says

I Challenge You

In looking at industry challenges, Stilwell says the biggest ones involved lead times and delivery. “Everyone needs it tomorrow. We’re trying to keep lead times down in an expanding market.” For example, Stilwell says there has been high growth in the soft-coat products. He points out that his company has upgraded some coaters and there is plenty of capacity to meet the soft-coat demand in the short term.

“If a company is not used to handling soft-coat products they can be a challenge. We’re shipping a lot of soft-coat glass monolithically, which means the coating is not protected.

“There are two issues. One is shelf life. You have to manage inventory and can’t let a soft-coat product age. After it is tempered, it is even more delicate. We like to get the soft-coat into an IG unit the day after it is tempered,” says Stilwell, who explains that soft-coated glass has a longer cycle time for tempering, which is taxing to capacity. Older furnaces also take longer to cycle than the new convection furnaces.

In terms of the primary glass manufacturers, Stilwell says glass is tight. “There are several rebuilds going on and there has been strong demand in the first quarter. It’s tighter than it has been for the last couple of years.” He advises that while there’s still no shortage, companies should be careful that their inventory doesn’t get out of balance.

Bush points out that “given these strong market conditions, there is an opportunity to fully recover input costs such as energy surcharges, health insurance increases and raw material inflation. Pricing, however, has not recovered from the last economic downturn.”

Aligning fabrication capacity with demand to provide and maintain reasonable and consistent schedules for glass is the challenge that Austin sees.

“There’s plenty of equipment. The biggest challenge is finding new employees,” says Austin. 

Silverstein agrees. “There’s not enough top-notch employees in our industry. Good manufacturing people are the key to how successful a fabricating company is going to be,” he says. “Producing the product in the most efficient manner determines success in fabrication.” 

Silverstein continues, “we’re not having a problem getting and keeping people because we have a good benefits program. Because we’re expanding we have upward mobility in the company.” He also believes the glass industry needs more young people. “We have to recognize young talent, and keep them and pay them.”

Will The Industry Slow Down?

Silverstein says the laminated glass shortage in the southeast peaked about six months ago and now that market is close to overcapacity. 

“There is no shortage anywhere else. A lot of equipment is being set up and installed, such as furnaces and autoclaves,” Silverstein says, adding that some of the fabricators that have gotten new equipment in the last two years will be vulnerable if the market slows down. “If it continues like it has for the last two years, they’ll be fine, but if interest rates go up and construction slows down, they’re vulnerable.”

In looking at the market and trying to figure out what’s ahead, Silverstein makes this point: “I think there’s a pretty good nine- to 12-month barometer in that we lag the other industries when there is a turn-down, but we also lag when things rebound as well.”

According to Bush, laminated glass and high-performance solar control products will grow at a faster rate than the rest of the fabricated glass market. However, “a lack of investment in technologically-advanced glass processing equipment and low selling prices may force some glass fabrication suppliers out of business,” he says. 

Charles Cumpston is a contributing editor for USGlass magazine.

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