Publication Info.

State of the U.S. Ceramic Tile Industry

Presented by Robert E. Daniels, Executive Director of TCA
(Posted November 2003)

WORLD OVERVIEW
Although this talk will focus on the United States, I thought that a quick look at the world ceramic tile situation would be instructive.

Recently I attended a meeting of the World Forum of Ceramic Tile manufacturers in Istanbul, Turkey. Statistics were presented in that meeting from 12 tile-producing countries for the year 2002. Non- attending countries provided some statistics but there were a number of countries that haven't reported since the year 2000 or at all. Taking into account the known figures plus some suppositions, it appear that the world output was over 5.3 billion square meters with capacity of 7.0 billion square meters. That means that excess capacity is at least 1.7 billion square meters. There appears to be a general lack of growth in most of the world's economies and tile sales are shrinking in many areas.

There are new major sources of production being built in many countries including Poland, Russia, and China. China reports huge capacity at 2.24 billion square meters most of which is consumed internally. The current excess capacity combined with this new growth in capacity concerns existing tile-manufacturing countries. Here is a look at the top ten producers as reported.

KEY UNITED STATES ECONOMIC TRENDS
The US economy has had a period of excellent growth in the past two quarters and especially in the last quarter of 2003. The G.D.P. showed a big jump and unemployment decreased. Yet this period has been largely a so-called jobless growth period. This is because employers are reluctant to add people after a slow period, a decline in labor-intensive manufacturing, and an increase in automation.

Despite this, the recent, highly debated tax cuts are likely having a positive effect on the economy. Virtually all taxpayers have received an increase in take-home pay because of these tax cuts. And excess money is essentially either spent on consumer goods or invested. In either case there will definitely be a trickle-down effect in my opinion.

Interest rates are remaining low and this helps to stimulate sales of items that are typically financed such as automobiles and houses. The category that affects tile sales is housing. One negative for our industry is that the dollar has been declining in value thus raising the price of imports. Ceramic tile is now 78% imported in the US market. Note the top ten countries that ship tile to the United States. The US is the largest importer of tile in the world having surpassed Germany in 2001.

However, the fundamental demand for ceramic tile is still strong. This is a product that is used extensively in remodeling, the strongest segment of the market. And new forms of financing such as home equity loans make it easy for consumers to upgrade their houses. Ceramic tile is popular and is in high demand. Tile is easy to maintain for two-wage earner families and is easy to deign with.

TILE INDUSTRY TRENDS
Total tile sales in the United States in 2002 reached 240 million square meters. Sales increased by 8.5 % on an annualized basis in the first half of 2003 over 2002 and could reach 260 million square meters, following an increase of 16% in 2002 over 2001. It should be noted that 2001 was essentially flat from the previous year but this followed a period of substantial growth during the late 1990's. Suffice it to say that tile sales have doubled in the past seven years. And it appears that the third quarter of 2003 started slow but finished well therefore we expect 2003 to end on a strong note overall.

The US consumer is demanding new styles and sizes of tile. It is becoming a decorator's delight. A generation ago few people used interior designers and now the baby boomers are demanding high fashion in their homes. Tile that mimics natural stone products are very popular and porcelain tile, those with water absorption less than 0.5% are in demand (although the consumer doesn't know why).

CHALLENGES
Despite the good news there are challenges that the industry faces. Most of these problems face manufacturers all over the globe. There is clearly a lack of trained tile installers and other industry personnel especially in the distribution and sales arena. All the attendees of the World Forum face this problem in their respective countries. Young people today do not see construction trades as desirable occupations. Many that do install tile are woefully under trained.

Fast track construction combined with many new building materials adds to the challenge. Environmental concerns increase the dilemma. The lack of availability of large soft wood trees has decreased the use of high quality large-sized sawn framing lumber and "engineered" products are taking their place. In many cases these are very strong but must be properly used or tile failures can result. Large numbers of new installation products are entering the market, sometimes with insufficient testing and instruction as to use.

Environmental concerns extend to the factories and the workplace. There is a new EPA and OSHA activity to study the effect of silica dust in the factory and in the field. Air and water qualities remain as concerns for all tile producers. The Green Movement is demanding recyclable materials. While tile is long lasting and does not emit vapors, it is not easy to dispose of after a tear-out or if defective. Ways to use industrial and municipal waste in producing tile are being studied.

FUTURE TRENDS
As I always say, if I could foretell the future I wouldn't be in this job but still it is in my province to guess at what will be. I predict that tile sales will continue to increase in the United States and that consumption will double in the next 10-15 years. There will be better training institutions developed in the coming years. Already we are seeing some signs that this is improving. The Ceramic Tile Education Foundation that we founded and support is teaching more tile installers next year than ever before. The school is scheduled to run classes almost continuously in 2003.

Technology in home construction and tile installation products will continue to improve. New tools to make work easier are coming onto the market at a rapid pace. And tile production itself is improving all the time. There will be more productive capacity added in US factories while industry consolidation will continue. Old low volume factories will either be shut down or converted to specialty factories and new highly automated factories will take their place. There is definitely an advantage to having a factory close to the market, especially if energy costs continue to rise.

SUMMARY
Thank you for listening to this paper. I have tried to provide a capsule of the market, gone out on a limb with a projection, and close by saying that by working to educate the consumer, installer, salesperson, and everyone in the ceramic tile chain, we can reach the loftiest goals.