Glass Fiber Industry Signals Bottom as Inventory Declines and Prices Rebound
2024-06-04 News

Glass Fiber Industry Signals Bottom as Inventory Declines and Prices Rebound

Since March, the glass fiber industry has undergone four rounds of price adjustments, with product prices rising across the board. Analysis from multiple securities firms points out that the collective price increase by glass fiber companies signals a cyclical inflection point; with declining inventory and export support, the signal of the industry's cyclical bottom is expected to be further strengthened.

After three rounds of price revisions, mid-to-high-end glass fiber products are once again facing a repricing.

On June 2nd, China Jushi issued a price increase letter, implementing a 10% repricing on the representative high-end glass fiber products such as wind power yarn and chopped strand products. This marks the fourth round of price adjustments for glass fiber products by China Jushi since March.

In 2023, influenced by factors such as the decline in real estate demand, the prosperity of the glass fiber industry declined, with the average product price reduction approaching 30%. In the first quarter, the glass fiber industry continued its downward trend from before, with the prices of coarse yarn and fine yarn dropping by 21.82% and 18.48% year-on-year, respectively.

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Analysis from multiple securities firms indicates that in 2023, the worsening supply-demand imbalance led to a continuous decline in glass fiber product prices, with the industry's profitability entering a bottom-seeking phase. Since the end of the first quarter, the collective price increase by glass fiber companies has signaled a cyclical inflection point.

With the inventory of glass fiber products declining at the end of March and April, and the export support formed by overseas downstream glass fiber companies restocking in advance due to shipping tensions, the signal of the industry's cyclical bottom is gradually strengthening.

Price recovery signals the bottom

Affected by the decline in real estate demand and the slowdown in economic growth, the prosperity of the glass fiber industry continued to decline in 2023. Data from Zhuochuang Information shows that in 2023, the average price of 2400tex alkali-free direct winding yarn nationwide was 3,762 yuan/ton, a year-on-year decline of 29.1%; during the same period, the average prices of SMC combined yarn and spray combined yarn were 4,332 yuan/ton and 6,821 yuan/ton, respectively, with year-on-year declines of 48.9% and 23.9%.

In terms of fine yarn, driven by the upcoming peak season for consumer electronics, which led to a recovery in the开工 rate of copper-clad laminates, the overall performance of electronic yarn was better than that of coarse yarn. However, the price increase amplitude and speed were still not as high as in 2021 and 2022. Data shows that in 2023, the national average price of G75 electronic yarn was 8,094 yuan/ton, a year-on-year decline of 15.4%, less than the decline of coarse yarn.

Against the backdrop of increasing volume and decreasing prices, in 2023, the glass fiber industry achieved a total operating income of 49.61 billion yuan, a year-on-year decline of 4.2%, and a total net profit attributable to the parent company of 5.68 billion yuan, a year-on-year decline of 51.5%. Among them, China Jushi achieved a total operating income of 14.876 billion yuan for the year, a year-on-year decline of 26.33%, and achieved a net profit attributable to the parent company of 3.044 billion yuan, a year-on-year decline of 53.94%; Changhai Shares and Shandong Glass Fiber's net profit attributable to the parent company declined by 63.77% and 80.34% year-on-year, respectively; affected by the downward price factor, in 2023, the average gross profit margin of the glass fiber industry was about 24.7%, a year-on-year decline of 5.3 percentage points, and the average net profit margin was 12.7%, a year-on-year decline of 10.8 percentage points.In the first quarter of 2024, the average price of glass fiber products continued the downward trend from 2023. Data from Zhuochuang Information shows that in the first quarter of 2024, the average price of domestic glass fiber roving was approximately 3,677 yuan/ton, a decrease of 4.05% quarter-on-quarter and a decline of 21.82% year-on-year; the average price of fine yarn was about 7,273 yuan/ton, a decrease of 7.36% quarter-on-quarter and a decline of 18.48% year-on-year.

Affected by this, in the first quarter of 2024, the financial statements of glass fiber companies continued to bottom out. According to data from Dongcai Choice, in the first quarter of 2024, the total revenue of the glass fiber industry was about 11.25 billion yuan, a year-on-year increase of 4.4%; however, during the same period, the total net profit attributable to the parent company was 500 million yuan, a year-on-year decrease of 67.8%. Among them, China Jushite achieved a total operating income of 3.382 billion yuan, a year-on-year decrease of 7.86%, and a net profit attributable to the parent company of 350 million yuan, a year-on-year decrease of 61.97%. Statistics show that in the first quarter, the average gross profit margin of the glass fiber industry was about 18.3%, a decrease of 9.04 percentage points year-on-year, and the net profit margin was about 5.21%, a decrease of 11.6 percentage points year-on-year.

It is worth noting that since March, several leading companies have successively issued price increase letters, and the price of glass fiber is gradually stabilizing and rebounding.

On June 2, China Jushite issued a price increase letter, raising the price of the company's full series of wind power yarn and short-cut original silk by 10% to offset the rise in costs such as energy, mineral powder, chemical raw materials, and labor.

This price increase is the fourth round of price increases in the glass fiber industry since March 25, May 1, and May 17.

On March 25, leading glass fiber companies such as China Jushite and Shandong Glass Fiber successively issued price increase letters, stating that "the price of direct yarn, ply yarn, and other products will increase by 300-600 yuan/ton from now on." According to China Jushite, "this price increase is a 'trial price increase' to cope with losses. Since 2022, the price of glass fiber products has continued to decline, and direct yarn and silk cake yarn products have already suffered losses to varying degrees."

On April 13 and May 17, companies such as China Jushite and Changhai Shares again issued price adjustment notices, successively restoring the price of glass fiber fine yarn and short-cut felt products. Among them, on May 17, China Jushite restored the price of the company's various specifications of short-cut felt products, and the full series of specifications were priced at 300-600 yuan/ton according to different varieties. Changhai Shares increased the price of short-cut felt for Changhai and Tianma under the group company by 300-400 yuan/ton for different series.

Data from Zhuochuang Information shows that as of May 24, the mainstream quotation of the national 2400tex alkali-free winding direct yarn was 3,800-4,000 yuan/ton, with a national average price of about 3,862.75 yuan/ton, a 22.04% increase month-on-month from April; the average price of G75 electronic yarn was about 8,800 yuan/ton, a 19.7% increase compared to the same period in April, and exceeded the same period last year.

Supply reduction and demand increase, the inflection point is to be established

Shenwan Hongyuan Securities pointed out that the glass fiber industry has experienced two years at the bottom of the cycle, and prices have remained low. In the short term, the cost of glass fiber is relatively stable, and it is expected that the industry's ton profit level will be greatly improved after this round of price increases for glass fiber roving, fine yarn, and thin cloth. In the medium and long term, the sustainability of price increases in the glass fiber industry depends on the marginal changes in the supply and demand relationship.Benefiting from the growth in demand from downstream industries such as wind power generation, automotive lightweighting, and electronic communications, the glass fiber industry entered a capacity release cycle in 2021 and 2022. Statistical data shows that in 2021, the domestic glass fiber capacity increased by 820,000 tons, a 16.08% increase compared to the total output in 2020; in 2022, the domestic glass fiber capacity continued to increase by 1.19 million tons, a 45.12% increase compared to 2021.

However, with the end of the wind power rush to install and the weakening of downstream demand in the electronic communication industry, the glass fiber industry entered a phase where supply exceeded demand, and the price of glass fiber products continued to decline. In response, since 2023, enterprises in the glass fiber industry have proactively slowed down the pace of new capacity deployment.

According to statistics from Shenwan Hongyuan Securities, in 2023, there was a significant reduction in domestic glass fiber capacity deployment. Throughout the year, only China Jushile and International Composites each ignited a new 200,000-ton and 150,000-ton coarse yarn production line, respectively, and Taishan Fiberglass and Chongqing International each resumed production of a 120,000-ton and 60,000-ton coarse yarn production line, respectively. Apart from these, there were no additional capacities added to the industry.

At the same time, since the third quarter of 2022, more than 12 production lines have been suspended or entered cold maintenance, especially since the second half of 2023, the pace of cold maintenance has significantly accelerated. Among them, in January 2024 alone, Taishan Fiberglass and Sichuan Fiberglass each carried out water cooling maintenance for the company's 50,000 tons and 30,000 tons of electronic yarn capacity, reducing by 8% compared to the beginning of the year.

Shenwan Hongyuan stated that behind the slowdown in capacity is the deceleration of capital expenditure across the entire industry after the downturn. According to statistics, from the first quarter of 2023 to the first quarter of 2024, the growth rate of capital expenditure in the glass fiber industry was 32%, -14%, -11%, -5%, and 10%, respectively.

According to calculations by Zhuochuang Information, in 2024, the new effective capacity of the glass fiber industry is about 420,000 tons, expected to grow by about 6% compared to 2023, showing a more rational and orderly supply trend.

From the demand side, with the repair of production and sales in the electronic communication industry, PCB market orders continue to be released, and the demand for electronic yarn is expected to recover.

Dongwu Securities pointed out that the demand for computing power for AI large language models and cloud computing is growing exponentially. As an important hardware for high-speed communication infrastructure, PCB is facing significant development opportunities. At the same time, thanks to the launch of new models and the rise of emerging market demand, global smartphone shipments ended a continuous decline of nine quarters in the fourth quarter of 2023. In the first quarter of 2024, global smartphone shipments reached 290 million units, a year-on-year increase of 7.8%.

Dongwu Securities stated that in the cost composition of CCL, the core substrate of PCB, raw materials account for more than 30%, among which electronic glass fiber cloth accounts for nearly 20%. The high prosperity of the electronics industry is expected to promote the recovery growth of PCB throughout the year and further support the demand for electronic cloth.

At the same time, overseas glass fiber downstream was affected by shipping tension and started to replenish in advance, supporting a significant recovery in glass fiber export demand in the first quarter, and the bottom signal of the industry cycle is gradually strengthening.According to the China Fiberglass Industry Association and the customs statistical data platform, in the first quarter of 2024, the average monthly export volume of China's glass fiber and products (excluding glass wool and its products) was 175,200 tons, a year-on-year increase of 17.99%.

Shenwan Hongyuan Securities pointed out that rising prices, decreasing factory inventory, and smooth price transmission are important short-term indicators of the industry chain cycle inflection point. The previous two rounds of price increases for glass fiber raw silk, and the rapid decline in glass fiber industry inventory in March and April have already met two of the three major signs before. Since May, the continuous price increase of glass fiber products has met the third major sign of the cycle view, further strengthening the upward signal of the cycle.

Shenwan Hongyuan Securities stated that if social inventory is reduced smoothly and downstream demand signals are enhanced, the industry's profit repair may be sustainable.

According to Zhuochuang Information data, as of the end of April 2024, the domestic glass fiber yarn inventory was 600,000 tons, with a sequential decrease of more than 20%, and a significant reduction in inventory for two consecutive months, with the inventory/capacity level already falling below 10%.

Huatai Securities stated that under the background of centralized stockpiling in the middle and downstream, export and other terminal demands are still being released one after another. Driven by the improvement of supply and demand and price increases, the glass fiber inventory in May is expected to continue to decrease. Looking at historical patterns, the inventory inflection point is about 3-4 months ahead of the price inflection point. If the supply and demand continue to improve and inventory continues to decrease, the price increase of glass fiber products is expected to continue.

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