Analysis: container glass

Simeon Goldstein, Packaging News, 01 March 2007

 

High costs and the entry of Quinn Glass have disturbed the container glass sector and future prosperity may depend on a willingness to offer complementary services such as filling.

 

Rockware’s plan to close a furnace at its Barnsley glass-making plant (Packaging News, February 2007), following a closure by Beatson Clark last year, highlights the difficulties facing a container glass industry suffering from high energy costs and overcapacity.

 

While further closures do not seem to be imminent, the shift to using lower-cost production centres, such as in Eastern Europe, might mean more are possible.

 

 

Peta Conn, global packaging manager at market research firm Euromonitor International, says competition from other packaging materials – such as pouches and thin-wall containers for fresh pasta sauces – might also make glass, alongside metals, particularly vulnerable.

 

 

“This means there is a high risk of further closures,” she adds.

 

 

Labour MP Eric Illsley, who has seen some 600 jobs go in the glass-making industry in his Barnsley Central constituency over the past year, says some of the blame also lies with the government, which has given grants to the new Quinn Glass factory in Cheshire (see below) even though the firm does not have planning permission for its enlarged site.

 

 

“There’s little help for existing players, who can’t match this,” he says.

 

Wider benefits

However, although it has refused planning permission, the Department for Communities and Local Government has said that the Quinn factory could benefit the whole of the UK glass industry – its inclusion of a bottling facility perhaps showing the way forward for glass manufacturers.

 

 

Indeed, increased competition, stimulating innovation, and adaptation to a new business climate might point to a healthy future for container glass.

 

Container glass is the largest single component of the UK glass industry – to the tune of some two million tonnes in 2005 – and accounts for around two-thirds of total production.

 

 

Profit margins may have been eroded by the climate change levy and minimum wage legislation, as well as high energy prices, but glass production has increased at a steady rate in recent years and, perhaps significantly, at a higher level than in much of Western Europe.

 

Customers’ perceptions of glass as a good packaging material also seem to be on the increase.

 

Rockware marketing manager Sharon Crayton says: “We have recently seen examples of glass packaging being selected over alternative materials on the basis of both its premium and environmental credentials, which is very encouraging for us.

 

“Going forward, a major challenge is obviously the effective management of our business in the face of large rises in our cost base, as well as trying to meet environmental targets. But we have technical and training programmes in place to meet the challenge.”

 

Euromonitor’s Conn says there are some concerns that the glass industry is unfairly discriminated against, compared with other packaging materials, because recycling targets are so high.

 

But, if targets are high, this perhaps reflects the fact that glass is easily recyclable. The failure to use more recycled cullet is more likely a result of inadequate waste collection methods.

 

 

Poor recycling systems, as well as environmental taxes, could put UK manufacturers at a competitive disadvantage compared to their European counterparts. But the climate change agenda is also the impetus to source locally to reduce the carbon footprint.

 

For British Glass chairman David Workman, this could be good news for the container glass industry. “Transporting glass containers is tantamount to shipping a lot of fresh air around,” he says. “It’s not normally economically viable shifting glass bottles over long distances.”

 

Consequently, although there could be a risk of production shifting to low-cost regions such as the Middle East, losing out to Western Europe or the Far East is less likely.

 

Diversification could also play an important role.

 

 

The UK is a net importer of glass containers because of the shortfall in domestic production of green glass. If the industry can redress the colour imbalance, it could soften the effect of Quinn’s arrival.

 

Balancing supply and demand

“I could foresee a situation where growth in the marketplace could offset the rise in capacity [from Quinn] and bring demand and supply into equilibrium,” says Workman.

 

There is also the issue of container glass manufacturers taking on more of the filling processes.

 

If more bottling is done here it could deter companies from looking overseas. Falling gas prices could also put UK companies in a much more competitive position, which could be a further incentive to work here.

 

 

“A lot hinges on the customer base staying in the UK,” adds Workman. “But if that were to happen, the future looks rosy.”

 

 

The Quinn effect

- Quinn moved into the container glass market in 1998 with a factory in Northern Ireland. Construction of its £250m plant in Cheshire started in 2003, on the basis of existing planning permission for a smaller factory, while the company applied to increase the size by 25%. This has been refused, but the company has been invited to make a fresh application.