Capacity Expansion Will Likely Help Corning Cater To Growing Demand For Emission Filters

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Corning recently announced capacity expansion at its manufacturing facility in Kaiserslautern, Germany, where it manufactures emission filters for light-duty vehicles. [1] The enhanced capacity at the plant in Germany will be used to scale up production of Corning® DuraTrap® AT HP filter and Corning® DuraTrap® GC Filters. We believe that this expansion will help Corning cater to the increasing demand for emission filters across the globe.

Sales of Corning’s emission filters and substrates are generally driven by increase in automotive production. Of late, stringent emission standards have forced automobile manufacturers to increasingly adopt the use of efficient emission filters and substrates to curb emissions. Over the past few quarters, these trends have been driving growth at Corning’s Environmental Technologies business, which deals with manufacturing substrates and filters for light and heavy duty vehicles and accounts for around 12% of Corning’s overall revenues. Corning sells its substrates and filters, Celcor and Duratrap respectively, to automotive exhaust systems manufacturers, who then sell to automobile manufacturers.

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Stringent emission standards drive sales of emission filters and substrates

To ensure compliance with emission standards, automobile manufacturers resort to the use of emission control systems. As these standards get even stricter, automobile manufacturers have to upgrade to newer and effective emission control systems in order to remain compliant. This has a positive impact on the automotive exhaust systems market, which includes manufacturers of automotive substrates and filters.

  • In September 2014, the European Union implemented Euro 6 emission standards for both gasoline and diesel engine vehicles. Though there isn’t much change for gasoline vehicle emission norms from the Euro 5, the Euro 6 standards for diesel engines have become very stringent. [2] This is one of the primary reasons why Corning is scaling up the production of its diesel engine emission filter, Corning® DuraTrap® AT HP.
  • The U.S. will be implementing its Tier 3 emission standards for light-weight vehicles starting 2017, which requires a 75% reduction in emissions. For heavy-duty vehicles such as trucks and buses, it presently follows the 2007 Heavy Duty Highway Rule [3]
  • For light-duty vehicles, China implemented its China IV emission standards in July 2013 and is working towards implementing China 5 standards nationwide by January 2018. For heavy-duty vehicles, China is currently following the China IV emission standards and plans to roll out the China 5 standards soon. [4]

As vehicles manufacturers adapt to these new standards, sales of automotive exhaust systems and its components will increase, driving a 4% growth in the market in 2014, from around $32 billion in 2013. [5] This presents a global growth opportunity for Corning’s Environmental Technologies, which primarily generates its revenues from automotive and diesel filters. At present, Corning occupies close to 3% of the automotive exhaust systems market.

Growing automotive production will bolster sales of emission filters

Global automobile production grew by around 25 million units from 2009 to 2013, stimulated by a recovery in the global economy and growing consumer spending, which drove the demand for automobiles. [6] Moving forward, automobile production is expected to increase by 21 million units by 2021 driven by the reviving European economy and continued growth in the North American automobile industry. [7]

  • Recovery of domestic demand in Europe and their exports to U.S. and China will help stimulate the European automotive industry, which has been suffering due to weak economic conditions. European automobile output is expected to increase by 4% per year between 2015 and 2017, compared to 1% in 2014.
  • The North American automobile production will remain strong driven by continued investments in the automobile industry by major automobile manufacturers. Additionally, the availability of cheap labor and land in Mexico is attracting the attention of automotive Original Equipment Manufacturers (OEMs) across the globe. [8]

With growing automobile sales, requirement for filters and substrates to curb vehicular emissions will increase. This will likely have a positive impact on Corning’s Environmental Technologies business.

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Notes:
  1. Corning Expands Light-Duty Filter Capacity in Germany, October 30, 2014, www.corning.com []
  2. EU: Light-duty: Emissions, www.transportpolicy.net []
  3. US: Emissions, www.transportpolicy.net []
  4. China: Emissions, www.transportpolicy.net []
  5. Global and Chinese Automotive Exhaust System Industry Report 2013, October 08 2013, www.prweb.com []
  6. Worldwide automobile production from 2000 to 2013, www.statista.com []
  7. Global Vehicle Production to Increase by 21 Million Units by 2021, May 8, 2014, www.ihs.com []
  8. Research and Markets: North American Automotive Production Outlook to 2018, September 2, 2014, www.businesswire.com []