We always like to communicate openly and honestly with our customer base and fenestration counterparts, and it has become clear to us recently that it would perhaps be beneficial to open a discussion regarding the ongoing and future economic situation.
In this piece, we thought it would be useful to clearly outline some of the various pressures that we as an industry may be set to face over the coming months. We hope this will go some way to explaining the reasoning behind some of the necessary actions we and others in our industry have taken and will have to take.
From our point of view, in regards to our customers, you can be sure that we will be doing our utmost to make sure any measures are clearly communicated well in advance of implementation, and cause as little impact as possible.
ENERGY PRICE RISES
Like the rest of the UK, we are exposed to varying degrees of price rises with regards to our power consumption. We have six sites, each with its own energy arrangement and contract. These contracts are all gradually set to expire at various times over the next few months, which is at least positive in the sense that the increases will be spread over a longer period.
Regardless of this, energy prices are set to rise, and as of right now, when our contracts expire, it does not look likely that we will be able to negotiate fixed unit costs for any of our sites. We estimate that the cost of our combined energy usage could potentially rise up to eight-fold.
I am aware a number (if not all) of our competitors, and indeed customers, are facing this same challenge, some on a shorter timescale to us. Either way, this is a cost we are all going to have to face if current conditions are prolonged.
EUROPEAN GAS SUPPLIES AFFECTING GLASS PRICES
Two Russian glass plants have now been sold by Guardian as a result of the Ukraine conflict. This has reduced the supply previously going into eastern Europe.
20% of the cost to manufacture glass is gas. Gas availability in Europe (particularly Poland, Hungary and Germany) is potentially expected to be restricted to high industry users to protect consumers, as Russia cuts off gas supply to the west. This will ultimately drive the price of glass higher, and in turn will divert UK glass to be shipped to Europe where prices are likely to be even higher.
ENERGY SURCHARGE ON RAW GLASS
This was introduced in late 2021, initially at a modest level, but now reflects a premium on raw glass of around 25-30% additional cost, this is due to the levies now being very widely applied by the float manufacturers.
For a number of months, we’ve have kept our own energy surcharge at a minimum, but rates are now set at 24p/kg for the coming period with some in our industry being forced to raise these even higher.
UK WAGE INFLATION
Widely documented in the press, but with some forecasts predicting 18% inflation by this time next year, we are anticipating and budgeting to incur a potentially significant increase in wage costs in the first half of next year. We have very good relations with our staff, and largely not unionised so strikes are not on the cards, but to attract and retain staff in the coming year will undoubtedly be at an additional cost above what we have historically seen.
SHIPPING COSTS REMAINING HIGH
To maintain competition against UK glass manufacturers, we typically look to source alternative quotes from the far east and middle east. However, the cost of container shipping continues to prohibit this from being a viable alternative, and the UK manufacturers continue to take advantage of this.
PVB LAYER SHORTAGE FOR LAMINATED UNITS
There is a worldwide shortage on PVB interlayer used in laminate, which has already significantly increased the cost of this glass. Coupled with the changes in legislation in June (Document Q), increasing the need for laminate, and with no additional supply coming on line, the cost of this product will rise significantly, with further increases expected in 2023 above the general level.
Whilst we recognise that the situation is a difficult one, one thing to keep in mind is that we’re all in this together.
As we’ve always done, we’ll speak openly and honestly about any pricing-related decisions we make, and communicate them clearly and well in advance. We offer our ongoing support to work with our customers to come up with potential solutions to manage these additional cost pressures.
We’ve joined together as an industry before and successfully come through difficult periods; as recently as the Covid-19 pandemic. This is simply a new set of challenges that we’ll all face, together.
If you would like to have a discussion about anything you have read in this piece, our communication lines are open, you can contact myself via email at email@example.com and Ryan at firstname.lastname@example.org.
Jason McCabe, Commercial Director