Glass cycle characteristics: rigid supply and inventory cycles increase volatility

Flat glass is a cyclical industry. From the historical data, it goes through a cycle every 3 years. The industry has a typical "ketchup effect". When the ketchup bottle is continuously tapped, the sauce often fails to pour out, and then a large lump suddenly pours out. This is related to the triple cycle characteristics of the glass industry at the same time: real estate cycle, capital expenditure cycle, inventory cycle. Compared with cement, the characteristics of glass real estate cycle are more significant, and the rigid supply and inventory cycles of glass further increase its cyclical volatility.

Demand and supply determine the height and timing of this rally

This round of glass rising cycle started in the second half of 2015, and it has declined under the influence of the off-season Q1 sales in 2016. After entering April, it basically showed a unilateral upward trend. As of the end of July, the production capacity increased by 1% year-on-year, the price increased by 15% year-on-year, and the inventory decreased by 7% year-on-year. The increase in prices combined with the improvement in costs resulted in a significant increase in industry profitability.

Through the analysis of historical fluctuations of glass prices, we found that: (1) the inflection point of glass prices is determined by the growth rate of real estate sales area; (2) the price increase and duration are not only affected by the rebound in demand, but also restricted by new production capacity.

Compared with the current situation, we believe that: (1) the growth rate of real estate sales in 2016 rose and fell, and the year-on-year growth rate in June fell to 15%. At present, the production capacity that can be put into production at any time accounts for 14% of the total production capacity, and the resumption of production is accelerating under the improvement of industry profitability. However, due to the pressure of environmental protection, cold repair production and new production capacity will not be released so quickly in the short term.

The rebound in demand and the slow resumption of production have brought prices to continue to rise

Based on this, we make the following judgments on this round of price rebound: 1. The price increase is due to the recovery of demand and the reduction of production capacity in the early stage. In addition, the peak season is coming, and the price is in the upward channel of the new cycle, which is related to the degree and time of demand recovery in 2013. Consistent; 2. The production capacity is put into production at a slow pace under the pressure of environmental protection, and the pressure released by the supply side is smaller than that in 2013, so the price increase will continue for a longer time; 3. The growth rate of real estate sales demand has dropped, according to the 6-month period It is expected that the price will reach a high point before the end of the year. In the medium term, the growth rate of demand is expected to be low, the new production capacity will be gradually released, and the further upward momentum of the price is weakening.