SA glass packaging industry hangs by a thread risking loss of millions of dollars with prolonged alcohol ban

SOUTH AFRICA – South African glass packaging manufacturer, Consol Glass has indicated that the glass industry could lose a further R1.5 billion (US$98 million) in sales and thousands of direct jobs and hundreds of thousands of indirect jobs in the industry’s supply chain, if the recent ban on alcohol sales continues for long.

The alcoholic beverages industry in South Africa accounts for about 85% of sales in the glass packaging industry.

The escalating Covid-19 pandemic in South Africa pushed the government to renew its ban on alcohol sales for the third time in an effort to contain the worsening situation.

Other than loss of revenue, the company which supplies wine, spirits and beer bottles is burning through R8 million (US$530,000) per day to keep furnaces and production running even as orders dry up, because it cannot stop furnaces.

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According to Paul Curnow, Deputy CEO of Consol, the furnaces must be kept running, as the molten glass solidifies in a matter of a couple of hours after being switched off, which will cause permanent damage to the furnace.

The alternative is to drain the glass, but that’s a lengthy and costly process and to drain 11 of the Consol’s furnaces would cost billions, reports Business Insider South Africa.

“If you had to replace 11 of them, you would need R3 billion (US$198m) to rebuild the industry and we can’t allow that to happen,” Curnow said.

Consol glass is burning through R8 million (US$530,000) per day to keep furnaces and production running even as orders dry up

With the alcohol manufacturers culling orders for glass bottles and the packaging makers continuing with their operations, a logistical nightmare has been created.

Consol produces 3,000 tons and 7,200 pallets of glass per day with its typical warehouse, which is the size of a soccer pitch, filling to capacity in about 3 days.

The same dilemma faces Isanti Glass with the Chairman of the company, Shakes Matiwaza, saying an oversupply of glass and shortage of storage almost killed the industry during the first ban.

“We kept on running and what it meant is that we had to go out and get additional warehouses to store our glass. That means that our working capital gets tied up in storage and warehousing facilities that you’re acquiring.

“That’s unsustainable because you run out of money in no time as there’s no revenue coming in,” he said.

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Consol has not yet suspended or cancelled investments in 2021, as this will depend on the duration of the ban.

It has, however, reallocated R800 million (US$53m) meant to rebuild and maintain its current furnace capacity and footprint at home towards maintaining operations during the lockdown.

The reallocation will result in Consol not being able to fund the repair of furnaces reaching end of asset life, even if glass demand recovers, reports Reuters.

Last August, the company indefinitely suspended construction of a new R1.5 billion (US$99m) glass manufacturing plant due to reduced demand.

South African Breweries and one of Consol’s biggest customers recently cancelled an additional R2.5 billion (US$165m) of investment planned for 2021 following an initial R2.5 billion (US$165m) that the brewer cancelled in August.

“This, and likely similar moves by other customers, “are likely to have a medium-term knock-on effect on sales volumes, capital expenditure and the general financial stability of the business and our supply chain,” said Consol Chief Executive Officer Mike Arnold.

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