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 Glass Industry Biz News 

October 6, 2000
Primary Glass Price On Rise Again

Continuing Increase in Energy costs cited as major reason for price increase.
PPG to tie 'Surcharge' to NYMEX energy futures.

    The continuing upward spiral of energy costs (primarily natural gas) have forced the major float glass manufacturers to add "surcharges" to truckloads of flat glass. AFG, PPG, Pilkington, and Guardian have sent out letters announcing their new pricing policy in an effort to recoup these costs associated with the manufacture and delivery of their primary flat glass products.

    PPG's letter to the trade (see below) cites that natural gas prices have increased over 120% this year, far above previous estimates.

    The general consensus among Glass Industry insiders is that Distributors will be forced to take a close look at these new 'surcharges', and most likely be forced to pass them along. One Midwestern fabricator has announced they will be adding a surcharge on a per invoice basis (see letter below), tied to the Manufacturers' surcharge.

The following is text from PPG's "Energy Surcharge" announcement letter:

September 26, 2000

Dear Valued Customer:

Our on-going commitment is to remain a long-term, valued supplier to your company; one that contributes to your success by offering innovative products and programs on a reliable basis. Today our ability to fulfill this goal is being seriously compromised by the emerging Energy Crisis of 2000/01. This crisis brings with it both opportunities and challenges for our industry. Our individual challenge is confronting energy cost increases with regard to our respective businesses. Our mutual opportunity is creating increased demand for higher-value, energy saving products.

First, let me talk about the mutual opportunity. Headlines and news reports speak of escalating energy costs, potential natural gas shortages, and a return to energy conservation. PPG has, and will continue to, invest aggressively in new technologies and capacity to produce energy saving products, such as Solarban 60 Low-E glass and Azurlite glass. Many of you have also invested in new materials and equipment to enhance your product's energy performance. Together, we must convince the now more informed an energy sensitive consumer that purchasing higher value, higher energy saving glass products is one effective way for them to meet this energy crisis. The cost of energy is not a glass supplier issue alone but a Glass and Fenestration Industry issue. We need to ensure that glass is the material of choice, from both an aesthetic and performance standpoint.

Now, to address our challenge. Higher costs for natural gas, transportation fuel and electricity are impacting all of us with growing severity. In our case, natural gas is the primary energy fuel for float glass production. Natural gas prices have increased over 120% this year and are trading well above $5 per MMBtu, indicating that upcoming energy purchases will be at dramatically higher prices than previously estimated. Our aggressive productivity and energy management programs have only partially offset the millions of dollars in additional costs this represents.

PPG cannot absorb these ongoing increases in energy costs and continue to meet your anticipated needs in the future. We must have additional energy-based price relief that is flexible in response to apparent continued inflation. Therefore, PPG is announcing an energy surcharge on all Flat Glass products to all customers effective on October 16, 2000. The 4th quarter surcharge (beginning October 16 and continuing through December 31, 2000) will be $300 per truckload of product shipped (including customer pickups).

Thereafter, this surcharge will be directly indexed to a quarterly average of the NYMEX 3-day average monthly contract settlement futures price for natural gas. Changes in natural gas futures and the subsequent PPG surcharge could go up or down in the coming quarters. We believe the variable surcharge a outlined in the following schedule provides a fair approach to sharing volatile and unpredictable natural gas cost inflation. The 3rd quarter NYMEX average was $4.31 per MMBtu, resulting in the $300 per truckload surcharge. In early December, the 4th quarter 2000 average will be calculated and the surcharge will be adjusted on January 1, 2001 along the following schedule:

NYMEX Average
(Per MMBtu)		   Surcharge
* *
$5.0 - 5.49
$4.5 - 4.99
$4.0 - 4.49
$3.5 - 3.99
$3.0 - 3.49
Below - $3.0		 $500
$400
$300
$200
$100
$0
* Above $5.5 - increases of $100 over truckload (as defined in PPG general terms and conditions) for every $0.50 increase in the NYMEX average futures price for natural gas

 

We will publish the upcoming quarterly surcharge by the 15th of December. NYMEX energy futures can be viewed in the Wall Street Journal or on-line at www.NYMEX.com.

This more than doubling in energy costs in 2000 calls for extraordinary and immediate action. Therefore, we must have relief from fixed-pricing agreements.

We need your cooperation and leadership to effectively manage this serious cost issue and reap the full benefits of this opportunity to enhance the value and use of energy saving glass products. At the same time, we are reviewing our support programs in order to help customers better promote energy saving products. Please contact your PPG account manager to discuss what we can do to assist your efforts here.

Thank you for your support through this very difficult inflationary period.

Barry J. McGee
Vice President, Flat Glass

Distributors Forced to Pass on Primary Glass Price Increase

The following is text from a Midwestern glass fabricator in response to the Major Glass Manufacturers Energy Surcharge Announcements:

Thursday, October 5, 2000

Dear Valued Customer

    Recently we have received notification from our glass suppliers of a surcharge that will be implemented on each delivery of raw material because of the substantial increases of natural gas. We are also paying surcharges on transportation and utility costs. This is a situation of which we have no control. Letters of surcharge have been received from PPG Industries, Guardian and AFG, initiating a $300.00 per truckload surcharge. We are disturbed over this situation, however feel the following is the best temporary solution.

    Rather than implement a fixed increase, the decision has been made to add a 1.5% surcharge to each invoice for products being billed. This add-on cost will be adjustable up or town dependent upon the actions of our suppliers.

    For example: If glass surcharges lower to $200.00 per truckload, the surcharge will be reduced to 1.0%. If glass surcharges raise to $400.00 per truckload, the surcharge will be raised to 2.0%.

    This will take affect October 23, 2000 and will remain in effect until this add-on cost has been eliminated by our suppliers.

    We appreciate your cooperation and understanding in this matter.