On February 27th, according to the "Transaction Reality" report from the Voice of Economics, Zhao Hong, a non-metallic building materials analyst at Shanxi Securities, was interviewed to discuss investment opportunities in the glass industry. According to Zhao, the current growth rate of demand in the sector is relatively slow and not showing significant improvement.
From a supply-side perspective, is the glass industry still facing overcapacity?
Zhao Hong confirmed that overcapacity remains a major issue. He explained that developed countries often use indicators such as capacity profit margin or equipment profit margin to assess industry health. A normal range is typically between 79% and 85%. If the profit margin exceeds 90%, it suggests strong demand and insufficient supply. However, if it drops below 79%, it indicates a surplus. In China, since 2000, the glass industry has only had three years—2000, 2003, and 2011—where the profit margin exceeded 80%. In most other years, it remained below 75%, highlighting a severe overcapacity problem.
The main cause of this surplus, according to Zhao, is the rapid expansion of production capacity in recent years. Over the past decade, the industry's capacity has grown by about 15% annually. Even though last year’s overall demand was weak, the production capacity still increased by more than 8%. This imbalance between supply and demand has led to very low profit margins and an increasingly serious surplus situation.
How long would it take for the industry to absorb this overcapacity under normal conditions?
Zhao Hong said it depends on the growth rate of demand in downstream sectors. Last year, for instance, demand actually declined, but that didn’t help reduce the surplus. Looking ahead, he expects demand to grow at a low pace, which means the overcapacity issue may persist for some time unless there are significant changes in market dynamics.
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