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| The domestic glass industry is expected to have a good year with the ongoing boom in the building sector as well as robust sales of vehicles.
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| Despite some degree of over capacity in the sector, particularly the float glass sector, the industry should do well on the back of strong domestic sales and comfortable export levels, analysts tracking the sector said.
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| Glass is an energy intensive product and the high cost of energy in the domestic market has made glass one of the highest cost articles used by industry.
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| However, being an essential item, demand was relatively inelastic. Within the glass segment, the float glass industry was at the top end of the value chain.
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| According to the credit rating agency ICRA Ltd, the domestic float glass industry has a capacity of 505,000 tonnes per annum today against a demand of 440,000tpa. The domestic market has only four players, including three global players.
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| ICRA said the limited number of players had ensured that there was little undercutting in the market and pricing discipline was maintained. Excess capacity was normally exported markets but overseas markets meant lower realisations as well.
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| ICRA pointed out that profitability for players improved in the first half of 2003 as float glass prices rose following the levy of a provisional six-month anti-dumping duty of around $82 per tonne and $62 per tonne on low-priced Chinese and Indonesian float glass respectively.
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| No capacity additions were on the cards in the industry. This indicated that at the current rate of demand growth of around 8-9 per cent per annum, the demand-supply mismatch would vanish within three years.
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| Within that time frame, prices would firm up gradually, thereby improving profitability of existing units.
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| ICRA made the observations when rating Saint Gobain Glass India Ltd (SGGIL), a subsidiary of the France-based Compagnie de Saint Gobain SA.
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| The French group held around 96 per cent stake in SGGIL while the rest is held by group affiliate, Grindwell Norton Limited.
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| SGGIL had improved its operating efficiencies and successfully marketed its product range in the domestic and export markets, ICRA added.
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| One problem faced by the industry was low returns on capital employed, as the industry was capital intensive and adherence to top end quality norms meant high working capital requirements, analysts said. The other major players in the industry were Asahi of Japan, Guardian of USA and Pilkington of UK.
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| Analysts tracking the sector said fresh demand could be expected from China as massive construction in that country entered its final phase.
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| At several coastal locations, supplies from India would be cost competitive but the support of the foreign technology partner would be the crucial factor.
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| In other words, exports would take off if the multinational companies permitted their Indian ventures to export to China. |
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