Float Glass from a Futures Perspective: Industry Overview and Anti-Involution Update

1. Past Drivers of Glass Price Decline

• No significant reduction in supply: The glass industry has not seen a significant reduction in supply. Current capacity is approximately 12% lower than the same period last year and about 22% lower than the historical peak. Compared to the decline in real estate, the current reduction in glass production is insufficient.

• Inventory pressure and arbitrage: The glass industry faces significant inventory pressure. Currently, due to weak demand and a lack of further tightening of supply, manufacturers' inventories are 12%-14% higher than the same period last year; the year-on-year increase in inventories in Hubei province, the main trading area for futures contracts, has reached 44%, leading to a continuous decline in futures market prices. The spot market shows regional differentiation, with prices remaining weak in Hubei province and stronger in other regions, creating an arbitrage model of "buying spot and shorting futures," further increasing the pressure on glass prices in Hubei province in the futures market. The combined effect of weak demand, insufficient supply reduction, and arbitrage has led to a continuous weakening of glass prices.

2. Core Drivers of Current Price Rebound

• Loss exceeding expectations: Glass futures prices once hit a low of approximately 950 yuan/ton, 25% below the cash flow cost of petroleum coke units in Hubei province, resulting in significant losses and a need for valuation repair.

• Adjustment of arbitrage strategies: The market has a strategy of holding spot and shorting futures, with a high ratio of spot to futures positions (e.g., 10,000 tons of spot to 100,000 tons of futures short positions). Recently, due to strategies such as anti-involution, expectations for futures prices have strengthened, putting pressure on funds using this strategy, leading to continuous deleveraging. The rebound in glass prices is largely due to deleveraging, with the main contract seeing a significant daily reduction in open interest of nearly 10%.

• Futures driving spot replenishment: The deleveraging and rebound in the futures market have impacted the arbitrage structure, changing the spot-futures ratio. After the rebound in futures prices, some market participants bought spot to offset their profitable short positions, leading to improved spot transactions and declining inventories. Previously, there was an overselling of raw materials in the spot market. Now that the market has stabilized and rebounded, those who oversold are forced to purchase, creating a model where futures drive spot replenishment.

3. Impact of Anti-Involution Policies on the Industry

• Core policy content: The anti-involution policy serves the construction of a unified national market, achieved through a "five unifications and one opening" model: unified government behavior standards, market supervision and law enforcement, resource markets, and continuous expansion of domestic and international opening. Competitive behaviors prohibited by the policy include unfair competition by market entities to maintain their own position (such as price wars, homogeneous competition, and marketing competition), as well as illegal government subsidies and blind investment. In the future, the enforcement of policies and regulations such as the Fair Competition Law and the Anti-Monopoly Law will be strengthened, the consistency of government behavior under the unified national market will be implemented, law enforcement and supervision will be strengthened, and market barriers will be reduced.

• Impact on the glass industry: The glass industry currently has limited involvement in involution, and the impact of related content may be insignificant in the future. However, the long-term goal of anti-involution is to reduce ineffective and inefficient competition and promote the exit of low-quality production capacity from the market. Although the glass industry has limited direct involvement, its own adjustments may indirectly achieve similar results.

4. Future Market Outlook and Production Reduction Expectations

• Market judgment for the third quarter: On the demand side, the glass industry is unlikely to experience sustained growth, resulting in a clear upper limit for the industry in the third quarter of 2025; on the supply side, due to severe losses in the industry, short sellers are hesitant to continue to lower prices in the context of low-level anti-deflation, resulting in clear lower limit support, and a fluctuating trend.

• Logic for production reduction in the fourth quarter: The current total supply of the glass industry is approximately 158,000 tons/day, the lowest production capacity in the past five years, 10-12% lower than the historical peak of 178,000 tons/day. In terms of equipment structure, about 22% of the equipment has been in continuous production for 8-10 years and is entering a cold repair period. Restarting after cold repair requires half a year. If demand does not improve significantly in the third quarter and inventories accumulate, the industry may reduce production in the fourth quarter. In terms of losses, 56% of natural gas units and 20% of petroleum coke units (totaling 76% of the industry's total production capacity) have cash flow losses of approximately 200 yuan/ton. Among them, 18,000 tons/day of natural gas units with an age of 8-10 years are more likely to exit the market; petroleum coke units have a cold repair cycle of 3-5 years, so the probability of a significant reduction in production is low. It is expected that a production reduction of about 10% will allow the industry to achieve supply-demand balance and a significant rebound this year; if the real estate market declines in 2026, further production reductions will be needed.

• Supply-demand balance calculation: In the past three years, when monthly demand exceeded 5 million tons, glass prices have rebounded significantly. In 2025, monthly demand fluctuated between 4.5 and 4.7 million tons, with 5 million tons being about 10% higher than this year's supply (about 500,000 tons). Therefore, when apparent demand exceeds supply by 10%, the market will rebound significantly. This rule has been effective in the past three years.

5. Discussion of Core Issues

• Motivation for production reduction and non-market factors: In terms of the timing of production reduction, the glass industry usually starts sustained production reduction from the end of the third quarter to the beginning of the fourth quarter. During this period, some equipment needs to be overhauled due to the expiration of its service life, and manufacturers do not need to endure half a year of losses. Therefore, in recent years, production reduction has often begun around the third quarter when demand is lower than expected, and the production reduction period generally lasts from the beginning of the fourth quarter to March of the following year. There are two main types of production reduction: one is normal production reduction due to the expiration of the service life of the kiln, in which case the cost has been recovered and the cost of restarting production does not need to be considered; the other is production reduction due to cash flow pressure caused by incorrect investment in photovoltaic glass and components. Currently, the demand for photovoltaics and real estate is weak and there is oversupply. These manufacturers may directly shut down production and not restart it to reduce cash flow expenditure. Whether they will restart production in the future depends on the recovery of demand. The extent of losses is not the core driver of production reduction; the expiration of the service life of the kiln and cash flow pressure are the key factors.

• Cost data calculation: Currently, the cash cost of the glass industry is divided into three categories according to fuel type: the cash cost of petroleum coke is about 1200-1220 yuan/ton; the cash cost of natural gas is about 1300-1350 yuan/ton, mainly concentrated in East China, with some in North China; the cash cost of coal gas is lower, about 950-1000 yuan/ton. The above data are all cash costs, excluding other costs. The current glass price is slightly over 1000 yuan, which is considered to be close to the bottom, and the downside space mainly depends on the demand situation.

• Regional supply disruptions: Regional supply disruptions mainly involve Shahe and Hubei. In Shahe, the promotion of coal-to-gas conversion or the use of coal gas is currently underway, but the operation of coal gasification plants is unstable, and the issue of who bears the cost of gas conversion has not been resolved. Although there are rumors of mandatory coal-to-gas conversion in the market, there is no official document clarifying the details of the implementation. In Hubei, it is planned to gradually reduce the proportion of petroleum coke units and increase the proportion of clean energy such as natural gas in the next two to three years, but because the final implementation period has not yet arrived, the current level of attention is not high. Neither policy has a specific time limit and needs to wait for official announcements to clarify the implementation details.

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