Specialist
Executive at Florida-based glass consultant
Agenda
- Implications of increased energy costs and potential availability issues in Europe on the global glass market
- Strategies for passing costs through, demand and pricing environment
- Differences in contract structure in the industry between Europe and North America, impact on how input costs are passed through
- Challenges of establishing new manufacturing bases and cost advantages of new factories
- Long-term impact of high European energy prices on the sector in Europe
Questions
1.
Could you outline the European glass manufacturing supply chain and discuss the key players and the dynamics among them? What is important to understand about this industry’s structure?
2.
How are rising energy costs affecting European glass players? Glass and metal manufacturing machines can’t just be shut down, making the energy crisis more meaningful. What other factors make this a particularly challenging issue and which aspects are under-appreciated?
3.
A partial curtailment on manufacturing alone has a significant impact, while a complete curtailment incurs huge expenses. How much does it cost to restart a machine following a complete shutdown, given they’re not meant to be turned off? What are the associated costs and challenges of doing so?
4.
What else can players do to mitigate issues stemming from high energy costs? There has been talk in parts of Europe of shifting from natural gas to diesel or of relocating operations. What is the right path for a manufacturer to take?
5.
How should we think about the varied severity of the crisis among different European regions? What is important to consider when looking at this regionally? You mentioned central Europe being harder hit.
6.
To what extent does a cold winter make curtailment more or less likely? How cold would it need to get for that threshold to be reached?
7.
What are the limits to government relief in Europe? Is capping energy prices enough for the industry or is more action necessary? Is more action even feasible?
8.
What do you feel are the core takeaways from the situation in Europe? Do the glass and metal industries need to find lower energy cost bases to operate sustainably, perhaps by shifting production to the US? Do we need to change how we produce glass?
9.
Is there a price threshold past which customers start to evaluate producing their goods in other substrates?
10.
Is it economical or feasible for a glass plant to shift to a new substrate? Would it be more practical to move to paper or specific types of resin?
11.
Where does that departure from glass begin and perhaps end? What does that journey of substrate shifting look like? Is there low-hanging fruit where the packaging represents a higher percentage of total production cost and is therefore more likely to switch to another substrate?
12.
Which substrates might be the winners if glass loses ground? Is it rigids or metal, or do rising energy costs rule those out? Might it be paper? Might things vary by market or region?
13.
How do you expect higher European energy costs will impact prices for plastic, metal, glass and paper?
14.
Is there an order in which firms may get shut down as energy costs rise? Would it be based on what is most economical to keep operating?
15.
How are contracts for glass typically structured in Europe and what are the limits to energy surcharges? Are producers able to pass on costs? If the situation continues, who will foot the bill if not governments?
16.
What do you consider when estimating how long customers can absorb price rises? When does demand destruction become likely and how do you estimate that inflection point? What are the early indicators?
17.
What level of export capacity from China would alarm European glass manufacturers? What indicators or signals do you look to from China? Is there any gauge?
18.
Can customers save money by switching from glass to metal or plastic? How large does the impact need to be to make that decision economical for a customer? You mentioned all substrates are being meaningfully impacted and that the switching process is slow.
19.
What is the typical spread of procurement cost across glass, metals and plastic for drinks containers in a normal operative environment vs today? How much would that need to move to see substrate shifts?
20.
What percentage of the cost of a bottle of beer as an end-product is attributable to its glass container, for example?
21.
Many companies are talking about shifting operations elsewhere. What are the ballpark costs associated with relocating? What risks and opportunities are there and which regions might these players relocate to?
22.
What other nuances ought we know about regarding those low-cost regions that might make things more difficult? What potentially under-appreciated aspects must a curious party consider beyond purely the cost and labour?
23.
What do you predict in terms of exports from Asia? What are the impacts of China’s COVID-19-zero policies? What should investors be monitoring out of Asia?
24.
What is the typical cost curve of a glass plant? Are newer plants cost-advantaged or is there an associated ramp-up before there are meaningful cost improvements? How should we expect costs to evolve if new plants open?
25.
What would a shift from Europe look like? Can European assets be sold? Are they still economical? Can they be relocated to different parts of the world? What happens to the European industry and infrastructure if high energy costs persist for the next 16 months?
26.
Are any companies more or less vulnerable to these pressures?
27.
Could you outline a negative, flat and a positive outlook for glass? What are the implications under such outlooks and how would that impact supply, demand and pricing into 2023?
28.
How will things look on the way back down should European energy prices decrease in the next 12-16 months? Will producers pass savings on to customers or will they seek to widen margins to recoup losses?
29.
You’ve noted that customers wouldn’t be sympathetic towards hedging mistakes, but I imagine labour inflation would be easier to pass on. What other nuances related to pass-through should we be aware of?
30.
I imagine that all players typically move together on pricing – is that the case or are some more eager or hesitant to pass costs on?
31.
What do you feel is under-appreciated about the situation the European glass market finds itself in? What might people be overlooking and what ought to be put under a microscope?
32.
Is there anything else across the space – headwinds, tailwinds or secular trends – that could exacerbate or alleviate the issue of increased costs? Is there any cyclicality that could provide relief or aggravate things for glass players in Q4 2022? Could any macro or industry trends have an effect?
33.
Who might be the winners and losers from the increased energy costs? Are there any?
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