Broken wrists for survival Fuyao glass 9 float glass production lines 4 production discontinuation

The real estate and auto industries have been experiencing a prolonged downturn, dragging down their upstream suppliers. Building float glass and automotive glass producers are now facing severe survival challenges. According to public data, 40 out of 186 float glass production lines in China are currently idle. Among the listed companies, Fuyao Glass (600660.SH), a leading player in the domestic glass industry, has been hit hard. In November 2008, the company shut down two production lines, and by December, it had closed two more in Hainan. To date, a total of nine production lines have been suspended. Analyst Yao Hongguang from Associate Securities told *The Financial Weekly* that the depressed economic conditions will persist for some time, and the recovery in real estate demand often lags behind the broader economic cycle. He warned that Fuyao might face a two- to three-year challenge. Fuyao Glass has justified the shutdowns as a "measure to protect life," but the financial impact is significant. On December 31 last year, the company announced the shutdown of two recently launched production lines in Hainan, which were operational for less than a year. The decision is expected to cost the company between RMB 100 million and RMB 120 million. The announcement cited a strategic move to reduce production capacity due to declining market demand. In contrast, just a few months earlier, Fuyao had invested in new production lines in Fuqing, Fujian, and Shuangliao, Jilin. However, these lines are now also under suspension. The cumulative book loss from these shutdowns has reached between RMB 350 million and RMB 4.2 billion, far exceeding the company’s 2007 annual profit of RMB 910 million. Changjiang Securities analyst Xu Minfeng warned that the losses from the shutdowns could significantly impact the 2008 quarterly results, potentially leading to a net loss in the fourth quarter and an annual loss of over 30%. Despite this, some analysts believe the shutdowns may help reduce operating pressure in the short term. Analyst Yao Hongguang emphasized that while the immediate losses are painful, continuing operations would be even more damaging. “One ton of building glass produced today leads to one ton of loss,” he said. Meanwhile, Cao Dewang, chairman of Fuyao Glass, described the shutdowns as a necessary step to “protect the company’s future.” Market prices reflect the crisis. The price of Hainan’s float glass has dropped to around 1,800 yuan per ton, while construction glass in South and East China is priced at 850 yuan per ton. This means Hainan’s glass is 300–400 yuan cheaper, leading to monthly losses of over 10 million yuan for Fuyao’s Hainan lines before they were shut down. Despite the bleak outlook, some analysts remain cautiously optimistic. Luo Wei from China National Gold Corporation suggested that the shutdowns and impairment provisions would hurt 2008 results, but they could ease pressure on the company this year. The decline in demand is widespread. While the real estate sector drove rapid growth in glass production in recent years, sales have not kept pace. From January to September 2008, major companies produced 256.1 million weight boxes of flat glass, up 5.71% year-on-year, but the sales rate fell to 93.44%. Xu Minfeng attributed the drop in sales to the cooling macroeconomic environment and sluggish real estate activity. Fuyao Glass itself acknowledged that the U.S. subprime mortgage crisis has worsened the situation, with expectations of continued declines in architectural glass demand. Automotive glass, which accounts for 70% of Fuyao’s revenue, is also under pressure. Domestic auto sales dropped by 14.6% in November, and the annual growth rate is expected to fall below 10%, the lowest in seven years. Export markets, once a key driver, are also struggling due to global economic weakness. However, the automotive glass segment remains relatively stable. Although overseas demand has declined, Fuyao’s OEM export business has seen strong growth since mid-2008. With lower raw material costs, the segment can still maintain modest growth. Cao Dewang noted that the company has nine float glass lines and six building glass lines, with four in the northeastern provinces producing over 2,000 tons daily. However, the real estate downturn has had a major impact, and the full effects of the financial crisis are expected to hit China in 2009. Key players in the glass industry, including CSG (000012.SZ), have also begun reducing production or shutting down lines. According to the China Construction Glass and Industrial Glass Association, 40 float glass lines were idled in the second half of 2008, affecting nearly 100 million weight boxes. Investors are anxious about whether Fuyao will resume production and when. The company has not provided a timeline, and according to Chen Yaodan, director of Fuyao Glass, all information will come through official announcements. Future earnings forecasts and production resumption plans will be disclosed in the annual report.

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