Glass: Gulfguard rival set to reshape market

07 December 2007
US glass manufacturer Gulfguard’s dominance in the region is about to be challenged as a local competitor opens its own facilities.

The US’ Guardian Glass, which has dominated the Gulf’s glass market since the 1990s through its subsidiary Gulfguard, is facing a competitive threat in the region for the first time. From August next year, customers will be able to turn to a local rival.

To date, Gulfguard’s manufacturing facilities in Saudi Arabia and Egypt have supplied a raw glass product to companies who then coat and process it before it is used in structures throughout the region. And since September 2007, it has increased its production capacity by opening the first glass manufacturing facility to be built in the UAE.
“In the new facility in Ras al-Khaimah, we can produce 750 tonnes of glass every day,” says Don Pettus, sales and marketing director for the Middle East, Africa and Asia at Gulfguard.

Having a local plant allows the firm to cut the transportation costs of trucking glass to the Emirates from Jubail, in the Eastern Province of Saudi Arabia, or shipping it from Cairo or India. “We estimate demand in the region is about 500,000 tonnes a year,” says Pettus.

“Our plant in Jubail generates more than 200,000 tonnes. This plant will satisfy the rest of the demand.”

But from August 2008, Gulfguard will not have the UAE market all to itself. Dubai Investments, through its subsidiary Glass, will finish construction of its own glass production plant in Abu Dhabi, under the name Emirates Float Glass. It will become the first company to have a local plant to compete with Gulfguard.

“We will take market share from international competitors,” says Ziad Yasbeck, general manager of Emirates Glass, one of the four companies that make up the Glass group.

The plant will be able to produce 600 tonnes of glass a day and represents Glass’s first move into production. The group is already one of the region’s major glass processors and has built a reputation for its energy-efficient coatings and thermally insulated products.

Until now, like all other glass processors in the UAE, it has had to acquire the raw material from international suppliers such as Gulfguard before coating and processing it to meet the requirements of contractors and cladding firms.

The opening of the plant in 2008 will enable it to become self-sufficient, a move that it says will allow it to cut costs by one-third.

But Gulfguard is confident it will not lose out to the new competition. “Anyone else who makes an investment here will be very unhappy investors,” says Pettus.

“We were here first. They will have to create new growth. We are certainly in the better strategic position.”
Glass may be new to manufacturing, but there is nothing naive about its approach. It is already in negotiations to acquire, or go into partnership with, five glass processing businesses across the region, including Jordanian firm Ittihad Insulating Glass Company, part of the Petra Aluminium group of firms.

“From 2008, we will produce 600 tonnes [of glass] a day,” says Yasbeck. “We can definitely meet local demand. We have one factory under way now but we need two or three. We will build another in the same place.”

Global demand for float glass - produced by floating molten glass on a bed of molten tin to give uniform thickness and a flat surface (see diagram, page 72) - is increasing. Estimates from a range of suppliers and analysts put global growth at about 5 per cent a year, with growth in the Middle East currently at 14 per cent a year.

However, despite the strong growth, the Middle East only accounts for 1 per cent of world demand.

The move into glass production in the UAE comes at a time when customers are becoming more demanding, with building designs becoming more ambitious. But while demand for glass remains strong, there is a danger there will be a surplus of supply in the region for the first time.

Pettus says some companies are ritually overstating the region’s projected demand growth. “Some publicly traded firms like to overstate the demand threshold by two or even three times, as they need to convince shareholders,” he says. “We are a private, $5bn company, so we do not need to play that game.”

Pettus says demand in the Gulf was 410,000 tonnes in 2005 and could be 530,000 tonnes for 2007. This means that Gulfguard’s and Glass’s facilities in the Gulf will be able to supply more than the region’s annual demand. The two new plants in the UAE alone are capable of producing almost 500,000 tonnes of float glass a year, exceeding current demand levels. And that does not take into account imports from other major firms who, faced with oversupply in countries such as India, Thailand and North America, may target the region with their excess capacity.

However, Mike Dickinson, project manager for the UK’s Mott MacDonald on the construction of the float glass facility, does not see over-supply becoming a problem. “The biggest challenge will be supplying all of the capacity that is going to be required in the region over the next 10 years,” he says.

Strategic acquisitions

Glass is not just relying on UAE customers. Its strategic acquisitions of, and partnerships with, glass processing companies throughout the region and beyond the Gulf will allow it to broaden and reinforce its customer base, says Yasbeck.

One factor that is affecting all glass manufacturers in the current climate is keeping costs down. Emirates Float Glass will be a gas-fired plant, a move that Yasbeck says will give it a competitive edge. Dickinson says a lot of the older plants are oil-fired, which means they have been hit hard by the rising oil price.

Pettus agrees costs are an issue. “Our plants are both gas and electrically fired,” he says. “Even though it is on top of the most abundant supplies in the world, it is not cheap. There is no subsidy and there are gas shortages. Plants have to run 24 hours a day and the cost of gas and electricity is rising. Sand, silica, dolomite, limestone, feldspar and soda ash have all gone up. The biggest challenge for the industry is maintaining steady prices.”

erhaps the biggest driver for building facilities in the UAE is the rising cost of transport. The closer the manufacturers are to their customers, the lower the supply cost and the faster the delivery times. “Freight increases are tremendous, they have had a global impact on the cost of glass,” says Pettus.

Another challenge for the glass industry is the increasingly ambitious projects being brought to the region, where glass is a key design factor. “The main challenges are to keep up with the international architects,” says Yasbeck.

"They want clarity, and for the outside of the building to be like the inside. But the more light you let in, the more heat this creates.”

This is why the firm and its competitors are developing more energy-efficient coatings to ensure they absorb less heat. Gulfguard has built a coating facility at its new Ras al-Khaimah facility. The government is also pushing for buildings to become more energy efficient, which means that the extensive use of air-conditioning should come to an end.

“The government is introducing new regulations with certain high-performance energy efficiency requirements,” says Yasbeck. “But we now have products that can reduce the absorption of heat by 70 per cent.”

Just like the buildings themselves, the glass market in the region is maturing. In the short term, both firms’ glass will be quickly absorbed because of strong demand in the construction markets of the region. But in the longer term, competition from international markets, particularly Chinese firms, will increase.

Keeping costs down and ensuring swift delivery times will be critical, but the advantage that Gulfguard and Glass have is their client relationships. International firms could find it difficult to penetrate their supply chains.

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