The Ceramic Marketplace Now
 
January 1st, 2006

 

January-February 2006

In case there was ever any doubt, ceramic tile has established its place in the American marketplace. No matter what statistics you look at, tile usage continues to grow.

Average growth in tile consumption over the last four quarters has been 12.85-percent greater than the preceding four quarters. Eric Astrachan, executive director of the Tile Council of North America, points out that “assuming this trend continues, total consumption [domestic and imported] for 2005 would be 3,553,347,000 square feet.”

The most recent figures (from September 2005) from the U.S. International Trade Commission indicate that ceramic tile imports climbed 10.9 percent to 1,802.73 million square feet compared to the same period in 2004. In dollars, this represents a 14.6-percent increase to $1,263 million. During the first half of 2005, sales of domestic production were 2.6-percent lower than 2004. Assuming that this trend continues, Astrachan estimates that total sales of domestically produced tile in 2005 would be 677,500 square feet, a slight drop from 2004. However, looking at domestic shipments only, the first two quarters of 2005 totaled 347,553 square feet. Annualizing that number would bring the total domestic shipments to 695,106 square feet. This is comparable to 2004.

What’s driving the imports? The decrease in the Euro compared to last year and the increase in low cost foreign imports both contribute to these numbers. Astrachan is quick to point out that the tile market remains strong.

Jim Dougherty, Vice President of Marketing and Business Development for Crossville, Inc., also believes that the marketplace is assuming more diverse representation geographically. He points out that the influence of imports is shifting away from Italy and Spain and to Brazil , Mexico and Turkey . Recent trade figures illustrate this trend. Although Italian imports are up 6.1-percent in terms of actual dollars, the number of units in the same time period is down slightly, -4.6-percent. The handsome increases posted by Brazil , up 33.3-percent in dollars, Mexico , up 30.2-percent, and Turkey , up 20.0-percent point to their growing influence in the marketplace.

Perhaps one of the most startling statistics, however, is that the value of Chinese imports has bounced up a whopping 114.6-percent and the number of square feet has climbed comparably, up 122.6-percent. Although many distributors will point out that those huge increases represent a comparison to far fewer units than other imports, the increases reflect a trend that’s impossible to ignore.

Where the installations are

Residential installation—including both new construction at 42-percent and remodeling at 28-percent—represent the largest segment of ceramic tile use. The National Association of Homebuilders estimated that new home construction in 2005 was valued at $250 billion and remodeling added another $235 billion. At this rate, remodeling growth is expected to outpace construction in the next ten years.

Although many experts expect residential real estate—which has been very hot virtually everywhere in the country—to cool in 2006, even a cooling market could be robust. Crossville’s Dougherty points out that although some analysts now look at housing as flat, it is flat “at an historically high rate.”

Right now new commercial construction and commercial remodeling only account for 17-percent and 12-percent, respectively, of the 2005 ceramic tile installations. Many industry leaders believe this represents a remarkable growth opportunity for the ceramic marketplace to penetrate commercial construction. The Associated General Contractors of America ’s (AGC) chief economist Ken Simonson has noted that he expects private, nonresidential, health care and lodging construction to improve in 2006. Crossville’s Dougherty says he sees signs of an improvement in the commercial marketplace.

The trend goes beyond the growth in housing numbers to a less tangible but equally strong design trend. Ceramic tile has established itself not only as a staple of the new home industry, but of the remodeling industry as well. Builders and remodelers know that tile is increasingly affordable. What was once deemed appropriate for high end construction is now also very popular in mid-range housing. Some of the previous objections to tile—for example, that it is cold underfoot—have been overcome by recent developments like affordable, dependable undertile heating systems. The increasing popularity and availability of porcelain, which is harder than other types of ceramic tile and therefore offers a more durable product for certain installations, also plays into this.

So, the marketplace is there. What’s it going to cost you to stock and sell ceramic tile? What’s driving prices?

It’s no secret that the cost of doing business—of being in business—is climbing dramatically with the rise in oil and natural gas prices. It begins with the manufacturing processes and works throughout the supply chain.

Energy costs play a significant role in tile manufacturing, and, according to Crossville’s Dougherty, “they are impacting us immediately and significantly.” As Tom Graham of Florida Tile Industries, Inc., points out, a Decatherm—a measure of natural gas equal to 1,000 cubic feet—rose from $7 in June to $15 in October. And that’s just one example. They have done everything, says Graham, to lower energy consumption. The bottom line for both companies and many others has been an across-the-board price increase.

These resource costs impact manufacturing beyond tile. Many of the mastics and related products are manufactured using petrochemical components. Those costs are climbing just as much as gas.

Ralph Marra of Classic Ceramic Tiles, Inc. says increasing costs eventually find their way into his costs. “We establish a list price with each product,” he says. When costs fluctuate the company can apply an appropriate factor and its software will automatically adjust prices.

Gail Schovan of Turner Distributing says she has been advised of flat increases of as much as 10% on various building materials she stocks and sells. Turner is implementing a 3-percent increase across the board. It is, Schovan says, “a happy medium that should cover for awhile but may have to go up again later.” Turner’s dilemma is how to differentiate between materials that came in before the prices went up and those that came later. Gas prices have already dropped somewhat, but she points out, the price increases she’s getting from her suppliers are applied to materials that may or may not coincide with the fuel costs. “There is no consistency.”

If you are a dealer or distributor making deliveries, it’s costing you more to do that. If you are accepting deliveries—locally, domestically, or internationally—that leg of the distribution chain is also getting increasingly expensive.

Marra says he typically has four trucks on the street every day making deliveries. “Years ago, everyone offered free delivery,” he said. What eventually started as a flat $5 delivery charge is now up to $25 and he expects it will go to $30 or $35 per delivery on or about January first. Everyone handles the rising energy costs differently. Some of his competitors are up to a $45 delivery charge for any size order, others are imposing a fuel surcharge based on weight.

But will prices dent the marketplace? Not if you follow the sales trends noted earlier.

In fact, the manufacturers TileDealer talked to expect consumption to grow 6-10-percent in 2006. Dougherty is looking for 8-10-percent growth. He points out that the country is still building and selling record numbers of homes each month, the commercial marketplace seems poised for growth, and energy price increases are not unique to ceramic tile—they are impacting all industries.

Graham is equally enthusiastic, predicting a 6-8-percent increase in demand. “The market is pretty strong,” he said. “I’m pretty bullish on the future…I’m not too worried about that.”

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