2006 forecast: Slow glazing growth
Before looking forward, let’s look back. In our forecast a year ago, Ducker, along with most every other forecaster, underestimated the strength of the U.S. residential construction market. It continued to drive flat-glass demand in 2005 to another strong year.
Despite projections of softening in the housing market, starts in 2005 are likely to end up at around 2.15 million, 3.5 percent ahead of 2004. The use of glass per home is still growing, boosting glass demand even further.
The commercial construction cycle returned to an upswing, although still below the peak of the previous cycle in 2000. Imports continue to affect domestic demand for specialty glass products, but the good news is a long-term decline in domestic demand for glass from mirror and furniture manufacturers seems to have been arrested. Overall, glass demand outside the automotive industry is estimated to have grown by a healthy 4 percent in 2005, while automotive demand nudged up less than 1 percent, for an overall demand of 5.6 million tons, up 2.5 percent over 2004, based on data for U.S. and Canadian glass shipments, excluding imports.
Total flat-glass demand
Looking forward, Ducker research analysts anticipate a slight decline in nonautomotive flat-glass demand for the next two years, by around 1 percent each year. Automotive glass demand is expected to be positive during this period, based on vehicle production forecasts, so the total demand for flat glass in North America is projected to be at around the same level through 2007. Let us examine some of the sectors of these markets.
Residential construction. Will the housing “bubble” finally burst? The market still appears sound, based on underlying demographics and ongoing new household formation, but mortgage rates are on the rise. Recent evidence also suggests that new construction is finally cooling—at least on a regional basis—although some markets still have excess demand over supply. We still expect a continuing positive influence from home-improvement expenditures, but, overall, we are forecasting a 3 percent decline in residential glass demand in 2006.
Commercial construction. Commercial glass demand is expected to continue growing at a decent pace, with an increase of 3 percent forecasted in 2006. Curtain-wall applications are expected to be strong, with storefront demand softening due to a fall in the store and mercantile construction category.
We see an interesting trend in façade design toward curtain-wall systems, including rain-screen wall cladding systems, crossing over from Europe into Canada and cities in Northern United States that address energy efficiency and moisture-control needs.
Value added products. Within flat-glass markets, the trend to more added-value products continues, with low-emissivity glass continuing to grow at around 15 percent each year. This rate of growth is expected to slow as penetration approaches saturation.
Laminated glass demand continues to strengthen, driven largely by impact-resistant window demand in hurricane-affected areas. Tougher codes, such as those fast-tracked currently in Louisiana, take time to become effective, but drive demand.
So, while we see a short term cooling off in the main residential construction market for glass—which will mean relatively overall flat end-use demand for the next two years—the long-term trend is for flat glass to follow the growth in real gross domestic product for the overall economy. Flat-glass shipments, however, are more cyclical than the overall economy as increases in capacity are significant individual investments that occur infrequently, imports-exports within global suppliers can be utilized to adjust local capacities in the short term, and the main market, construction, is a notoriously cyclical industry. What goes up must come down... but only in the short term.