Glass fiber belongs to the asset-heavy industry, the middle stream to see the cost, the downstream to see new products
Kiln drawing is the main production technology of glass fiber. The front process determines the cost and the back process determines the performance. From the perspective of cost, the control of upstream raw materials and energy can reduce raw material cost, the automation degree of production line can improve efficiency and reduce labor cost, and the capacity scale can reduce unit depreciation expense. The middle and downstream products and composites industry is an asset-light industry with a wide range of products and new uses that are constantly emerging, and companies need to invest more in research and development to maintain high margins by constantly introducing new products.
There are barriers to entry in the industry and the growth of new capacity is slowing down
The glass fiber industry has a high entry threshold and high industry concentration. The global top five enterprises account for 64% of the production capacity, while the Chinese top six enterprises account for 80% of the production capacity. The year 2018 was the year of concentrated production of glass fiber. From 2018 to 2019, the domestic glass fiber output increased by 15/13%, resulting in oversupply. In the future, the growth rate of glass fiber capacity will decline, and it is estimated that the annual growth rate of 2020-2021 will be 7.5% / 3.3%.
Export accounts for a high proportion, waiting for the recovery of demand after the overseas epidemic situation improves
Glass fiber has a wide range of applications, mainly in the construction and transportation fields. Affected by the macro-economy, the growth rate of global glass fiber demand is about 1.6 times that of GDP. Due to the impact of overseas epidemic in 2020, the export of domestic glass fiber will be hindered. It is estimated that the growth rate of global glass fiber demand in 2020-2021 will be -8.3% / 6.7%, and that of Chinese glass fiber demand will be 1.6% / 11%. The glass fiber demand is expected to turn around in 2021.
Supply elasticity is weak and prices fall close to cost
After kiln opening, the glass fiber production line needs continuous production for 8-10 years. It is difficult to reduce the load and adjust the output midway, so the supply elasticity of glass fiber is weak. When the demand is better, the price is more flexible upward because of the supply rigidity. When the demand declines, the kiln cannot be discontinued, resulting in an increase in inventory, and when the inventory increases to a certain extent, there will be a reduction in the price of inventory. At present, the price of coarse sand has fallen to near the cost line of some enterprises, and the further decline in price will lead to the closure of production capacity of some enterprises and the contraction of supply.
Prices at the bottom of the cycle, layout demand after the elastic release
As the overseas epidemic has not yet ended, some new production lines will be put into operation in the third and fourth quarters of 2020, and the industry supply and demand situation is difficult to significantly improve, and the roving price will still hover at the bottom. We estimate that in 2021, the supply of domestic glass fiber industry will grow by 3.3%, and the demand will grow by 11%. The industry fundamentals are expected to improve, and the glass fiber price is likely to rise. Due to the high entry threshold of the industry and the high concentration of the industry, the cooperation of leading enterprises in the rising demand is expected to be strong, and the price elasticity of glass fiber is enhanced. We are optimistic about the price trend of glass fiber after the outbreak improves.
Post time: Feb-06-2023