The Sino-British venture Shanghai Yaohua Pilkington Glass (SYP), in which Pilkington of the UK now holds an 8.35% stake, is to announce its worst annual results since flotation. In China, production c…
The Sino-British venture Shanghai Yaohua Pilkington Glass (SYP), in which Pilkington of the UK now holds an 8.35% stake, is to announce its worst annual results since flotation. In China, production capacity has more than doubled in less than two years, and prices have fallen by more than 50%. SYP, which started operations in 1983, is expected to announce pre-tax profits for 1996 of about Rmb 85 million (US$ 10.2 million) – compared with Rmb 219 million in 1995 – on sales of approximately Rmb 500 million, down from Rmb 609 million the previous year. Mr. Terry Ginty, vice-chairman of SYP, said: “We are suffering in China because of the excess of plants that have sprung up encouraged by the profits we were previously making.” Gross margins of 59% on high-quality glass in 1995 prompted the construction of three rival lines to SYP, doubling China“s capacity to 750,000 tonnes a year, including SYP“s 300,000. Another two rivals are due to come on stream in 1997, adding a further 300,000 tonnes a year to capacity. Officials at SYP“s Shanghai plant are hoping that prices will fall no further. A 40% slump in prices in the first half of last year was followed by a decline of less than 10% in the second half. Analysts, however, are less optimistic. Foreign brokerages expect the new capacity this year and the continuing erosion of margins to push pre-tax profits down again in 1997. The glass industry“s oversupply problem has also led the State Bureau of Building Materials Industry to effect the closure of a number of small glass plants and place restrictions on new projects. Excess capacity at SYP“s plant – the company has two lines, the second of which became fully operational last year – has prompted the company to suspend plans to build a third, 140,000 tonnes/year line. Instead, it is looking at expanding its small glass processing business, which serves the higher-margin laminated glass and double-glazing business, but this represents a fraction of the investment originally planned for the third float-glass line. Pilkington will maintain its commitment to the Shanghai business – the original 12.5% share was reduced to 8.35% in 1993, when SYP was listed on the Shanghai Stock Exchange. Mr. Ginty said winding down the SYP stake would not suit Pilkington“s “long-term requirements in China”, where it is seeking further investments.