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18 Nov 2022 - Get ready for a glass shortage - unexpected effects of the energy crisis
By: abrdn

Get ready for a glass shortage -

unexpected effects of the energy crisis

abrdn

October 2022


Plastic wine bottles, jam jars and long waiting lists for luxury glass items may all become part of daily life as a result of the energy crisis.

Glass manufacturers are heavy energy users, so have been hard pressed by the rapidly escalating costs of oil and gas. They are currently having to put up the prices of their products by around 35%, although this may rise further. The concern is that passing this cost on to the consumer means prices will increase in a way that makes glass packaging, especially for food and drink, too expensive. Consumers will demand cheaper alternative packaging.

Glass half empty

Already, the luxury end of the glass market is bracing itself for much higher energy costs. Many of the Venetian glass workshops on the Italian island of Murano have already closed their doors because the cost of energy has made their decorative items too expensive. Customers looking to buy Venetian vases and fine crystal glasses could face extensive waiting lists this winter. The world-famous manufacturer of Riedel glass in Austria and Germany is also contemplating a shutdown. That's because furnaces can break if they cool, so pausing during periods when gas is rationed is not an option.

Glass half full

Nonetheless, glass is completely recyclable, so remains one of the greenest choices for storing food and drink. Given the challenges, we are seeing some surprising effects of the energy crisis as companies strive to develop innovative solutions and better opportunities.

Virdrala is one of the leading glass container manufacturers in Western Europe, operating in Spain, Portugal, Italy, the UK and Ireland. It produces a full range of glass containers, selling eight billion per year. Of its products, 35% are for wine, 26% are for beer, and the balance is split between food, spirits and soft drinks.

Adapting to the challenges, Vidrala is increasing its focus on glass recycling - in 2021, 48% of the glass it produced was recycled. It's also raised the collection rate of used glass to improve both manufacturing efficiency and earnings. Currently, the company is cooperating with a non-governmental organisation, which encourages people to recycle, collects the glass and delivers it to Vidrala for melting and recycling.

Looking to the longer term, Vidrala is working together with other companies from the glass industry to investigate hybrid hydrogen furnaces that could power the industry in the future.

Glass manufacturers are also exploring innovations such as reducing the melting temperature of glass by adding ash, allowing a more 'imperfect'-looking glass with less clarity and more bubbles, plus increasing the use of wind and solar energy at factories.

What about the future?

There's no doubt that the energy crisis will bring all kinds of innovative new solutions. Could we see milkman-style deliveries of wine in reusable bottles? Or more food and drink in aluminium cans? Will much more food move to recyclable plastic packaging or paper-based packaging?

Dutch company Corbion is at the forefront of innovative packaging solutions. It produces PLA, a bio-based and biodegradable plastic packaging, made from renewable resources. PLA is strong enough to replace conventional plastics. And, once used, it can be composted, breaking down into CO2, water and biomass.

To tackle the many challenges ahead, innovative thinking is needed alongside a more sustainable and, where possible, more traditional way of doing things. Inspired by the humble soap bar, shampoo is now available in solid bars, packaging free. Could the future see us taking our bottles to local shops and supermarkets for wine and oil refills, as is the norm in many parts of Southern Europe?

What does all this mean for investors?

As a society, we need to reduce our dependence on fossil-fuel energy. The current shortage could be the pressure we need to make dramatic changes. Meanwhile, many of the glass companies affected by the energy crisis are small caps. Due to their size, they are nimbler than their larger peers, putting them in pole position to both adapt quickly and create alternative solutions. So, challenging times can create opportunities for well-managed, innovative companies. Such businesses also create potential opportunities for diligent investors. Maybe it's time to raise a glass after all?

Author: Tzoulianna Leventi, Investment and ESG Analyst


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