China: almost 300% growth in price of auto glass

Since 2009, and due to the increase in costs of raw materials and labour, prices of numerous products have risen in many industries. This can also be seen in the Chinese auto glass industry, which has…

Since 2009, and due to the increase in costs of raw materials and labour, prices of numerous products have risen in many industries. This can also be seen in the Chinese auto glass industry, which has to deal with great cost and market pressure. With regards to manufacturing costs for auto glass, heavy fuel oil takes the largest part (about 40%), followed by soda ash cost (25%). The prices of these two raw materials have undergone significant growth since the beginning of 2010, and the forecast is for prices to remain high. This price growth, therefore, greatly influences the gross profit of glass manufacturers. Due to the financial crisis in 2008, the Chinese float glass industry underwent unprecedented depression at the beginning of 2009. The lowest price of float glass broke the record low of 1,000 CNY/ton. The price of float glass in China began to rise as of the second quarter of 2009 and has now reached the historical high of 2,500 CNY/ton. The price of high-tech float glass for auto glass has also acquired larger growth. In the first quarter of 2010, the average price of heavy oil (coal tar) was 2,668 CNY/ton, an increase of 256 CNY/ton (over 10%) compared to the fourth quarter of 2009; while YOY growth was 498 CNY/ton. The average price of soda ash was 1,319 CNY/ton, up 126 CNY/ton compared with that in the last quarter of 2009 and 186 CNY/ton YOY. The average price of coal was 792 CNY/ton, an increase of 38 CNY/ton compared to the fourth quarter of 2009 and 28 CNY/ton YOY. In the first quarter of 2010, the ex-factory price of Chinese industrial products rose by 5.2% YO, while on a month-on-month basis, the price rose by 0.5% in March 2010. In the same quarter, the purchasing price for raw materials, fuel and power increased by 9.9% YOY. In the last three months, the international futures price of crude oil exceeded USD 70 and USD 80 sequentially, and is foreseen to remain about 80 USD/barrel. Chinese auto glass enterprises will therefore face internal and external pressures over quite a long period. Also in the first quarter of 2010, Chinese auto production totalled 4.55 million, an increase of 76.99% YOY, with production conservatively estimated to be 15 million in the whole 2010. This suggests that the auto glass OEM market will attain the scale of 15 million sets. Providing that the replacement rate in the auto after-sales maintenance market is 10%, at least 7 million sets of auto glass are demanded for the over 70 million vehicles accounted for at the end of 2009. On the whole, costs will promote the continual growth in the prices of finished products. Influenced prominently by the price growth of upstream raw materials (crude oil, natural gas, float glass, etc.), the Chinese auto glass industry is pressured to raise prices. Moreover, the upward trend of the auto market directly pushes the expansion of demand for auto glass. The auto glass industry is therefore forecast to maintain the prosperous growth trend generally, but there will also be great cost pressure.