Stricter Emission Standards and Growing Automobile Sales To Drive Corning’s Environmental Technologies Business

The two major driving forces for Corning’s (NYSE:GLW) Environmental Technologies business are emission regulations and vehicle sales. Corning’s Environmental Technologies business segment deals with manufacturing substrates and filters, for light and heavy duty vehicles, and stationary applications such as power plants, refineries and chemical processing plants. These substrates and filters help curb harmful emissions.

Corning sells its substrates and filters under the brand names, Celcor and Duratrap respectively. The segment represents 12% of Corning’s sales for 2013.

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Stricter Emission Standards Will Help Revenues Grow

In order to curb harmful emissions from vehicles, power plants and refineries, government authorities issue emission standards. Industries such as automobile manufacturers, power generation and chemicals, are compelled to apply emission control systems to their vehicles and manufacturing plants in accordance with emission standards. As these standards get stricter, businesses have to constantly upgrade to new emission control systems. This has a positive impact on the emission control systems industry and its supply chain.

Corning manufactures substrates and filters for catalytic converters that help in controlling emissions from vehicles and industrial plants. It sells these substrates and filters to emission control systems manufacturers, who then sell to automobile manufacturers, power generation companies, chemicals manufacturers and other industries. Corning occupies close to 3% of the automotive exhaust systems market which deals with curbing emissions from vehicles.

The global automotive exhaust systems market size is expected to grow 4% this year from around $32 billion in 2013, driven by stringent emission standards. ^[1] Countries like U.S., China and India are introducing new, stricter emission standards to control air pollution. The U.S. will be implementing its Tier 3 emission standards starting 2017. ^[2] China is also set to launch its Phase 5 standards nationwide by January 2018. ^[3] India is currently in the process of implementing its Bharat Stage 4 standards which will be in effect across the country by 2015. ^[4] As vehicles and businesses adapt to these new standards, sales for emission control systems and its parts would increase. This presents a global growth opportunity for Corning’s Environmental Technologies which primarily generates its revenues from automotive and diesel filters.

Automobile Sales Growth Will Boost Revenues

Global auto sales are expected to rise in the near future. In 2014, global auto sales are expected to be around 85 million and will cross the 100 million mark by 2018. Sales in the U.S. automotive sector have been growing for the past three years and is expected to continue to grow till 2018, but with a gradual decline in pace. ^[5] With growing automobile sales, requirement for filters and substrates to curb vehicular emissions would increase. This would positively impact Corning’s Environmental Technologies business.

Increasing Demand For Diesel Vehicles Will Bolster sales

Initially, there was a time when diesel engines were considered dirty and loud. But with advancement in technology, diesel engines have become cleaner and less noisy. Also, diesel engines offer far more fuel efficiency than gasoline engines, a factor that compels customers to purchase diesel vehicles. Due to the cost and mileage benefits that diesel engines offer, it is expected that sales of diesel vehicles will grow 5% per year till 2018. ^[6] This will drive demand for Corning’s diesel particulate filters which help curb emissions from diesel engines.

Cheaper Liquefied Natural Gas (LNG) May Deter Sales Of Diesel Vehicles

Though diesel vehicles are expected to grow in the future due to its higher efficiency compared to gasoline, it faces tough competition from LNG. LNG prices have been lower than diesel and gasoline due to its abundant availability driven by the shale gas boom. Also, LNG is a cleaner fuel compared to diesel or gasoline and meets stringent emission standards as well. Many companies and individuals have already started shifting towards LNG fuel to power their vehicles. ^[7] The growing demand for LNG vehicles may deter growth in diesel and gasoline driven vehicles, and have a negative impact on emission filters that are required for these non-gas fuels. However, the lack of refueling stations to support LNG vehicles may temper growth. Additionally, storing LNG requires a special tank which not only occupies space in the vehicle but also adds to its weight. These factors might be less temper growth in sales of LNG vehicles in the future once the infrastructure is in place and technology is developed to enables safe and compact storage of LNG, but at present these are deterrents.

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1. Global and Chinese Automotive Exhaust System Industry Report 2013, October 08 2013, www.prweb.com [↩]
2. US: Emissions, www.transportpolicy.net [↩]
3. China: Emissions, www.transportpolicy.net [↩]
4. India: Emissions, www.transportpolicy.net [↩]
5. Global auto sales head for 100 million by 2018, December 1 2013, www.usatoday.com [↩]
6. Global Automotive Filter Industry 2013-2018, June 2013, www.researchandmarkets.com [↩]
7. Will Truckers Ditch Diesel?, May 2012, online.wsj.com [↩]