Twenty-two Chinese glassmakers, including the Luoyang Float Glass Group Company, have formed a cartel to try and stabilise prices after interim profits plunged 85.6% in a price-cutting war. The move, …
Twenty-two Chinese glassmakers, including the Luoyang Float Glass Group Company, have formed a cartel to try and stabilise prices after interim profits plunged 85.6% in a price-cutting war. The move, effective from September this year, is expected to halt the fall in prices which has eroded the company“s profit margins. Luoyang Glass, effected by both lower product prices and rising costs, said net profit was RMB 18.92 million in the first half of 1996, while turnover fell 37.3% to RMB 307.79 million. Company chairman, Guo Xiaohuan, said excess supply, fierce competition and increased raw materials costs had slashed more than 30% off Luoyang“s float glass price in the first six months of the year. To help sustain prices, 22 domestic glassmakers – which contribute 80% of China“s float glass production – agreed to set a median price on white glass of RMB 21-23 per square metre. The scheme would guarantee an average gross margin of 5-10%. A six-member committee will monitor the prices. Mr. Xiaohuan said Luoyang Glass would raise its white glass price, now currently at RMB 18 per square metre, to the median price on 1 September. The median price will apply only to white glass, which is the cheapest product. Other categories of coloured glass will be sold above the median price. Luoyang“s two major rivals – Shanghai Yaohua Pilkington Glass and Shenzhen Southern Glass, which both suffered profit drops in the first half – are not in the cartel. Both are said to be selling their products at a similar price to Luoyang“s. Luoyang produced 187,000 tonnes of float glass in the first half, down 14% because of overhaul and renovation of two production lines. Mr. Xiaohuan added that prices had begun to pick up and he expected a slight rise in the second half. “The glass industry is experiencing a two-year consolidation period,” he said. “Factories which are less technologically advanced will be phased out gradually.” He described the difficulties as “temporary” and said that profits in 1997 would be better than in 1996. He said the firm should benefit from a cooperative technology agreement reached in the first half with Siemens AG of Germany. The two companies agreed to cooperate on the automatic control of float glass production and related services.