Ceramic Tile Report: Ceramic was propelled by the residential market last year - March 2022
By Jennifer Bardoner
Nearly all of the recent growth within the flooring business has been in the residential market. The housing and remodeling boom has propelled every flooring category, and with ceramic tile’s many applications both inside and outside the home, it has some unique advantages. But no one has had an easy time of things. Despite ongoing supply chain and logistics issues that have led to sharp price increases, many in ceramics foresee a strong 2022, albeit with a large number of variables that could threaten that progress.
Preliminary estimates from Market Insights show a 17.5% increase in domestic tile consumption last year in dollars, with imports leading the way over domestics. That growth came in the face of inflation hitting its highest point in 39 years, but it also came on the heels of a course-correcting year, in which production slowed in anticipation of a drop in sales that never came.
Residential remodel has historically led the tile market-“The portfolio of homes in the U.S. is much bigger than the number of new homes built each year, by about 100:1,” says MSI Surfaces president Raj Shah-but the builder market has also been a boon as it attempts to close the gap between the country’s population count and the number of available homes, leading to a flurry of construction over the past few years.
“With so much housing being constructed, everybody who supplies material to the housing industry has something to sell,” says tile industry consultant Donato Grosser. “Ceramic tile has done well mainly for that reason.” The increase has helped stand in the gap left by commercial projects, which only started coming back online late last year as the country finally adapted to the new normal created by the pandemic.
According to preliminary U.S. Census figures of the number of new homes authorized last year, Texas, Florida and California, in that order, saw the greatest number of permits pulled, well ahead of the rest of the field. The trio is among the states where tile takes up the most real estate in a home, and January’s preliminary Census figures again cement them as the top construction sites, at roughly 35% of the total number of new permits issued.
Meanwhile, more existing homes were sold in the U.S. last year than since 2006, according to the National Association of Realtors. And, notes Suzanne Zurfluh, director of design and trend for Emser Tile, “There are so many applications for tile: the kitchen has tile in it, most likely the bathroom has tile in it; floors, walls,” creating a multitude of renovation opportunities for the category within the 6.12 million homes sold last year.
A lack of available inventory and increasing home values could cool the existing-housing market over the coming year, but that could push more homeowners to turn to upgrades as they make plans to stay in their home longer. The 2021 Houzz & Home report found that 53% of homeowners renovated in 2020, 2% more than those who initially planned to, and 56% planned to renovate in 2021, the highest percentage since 2017.
Lundgren illustrates one of tile’s challenges with an anecdote: “I talk to my wife and her friends, and they know a carpet brand. They don’t know a tile brand.”
In 2017, the Tile Council of North America launched the Why Tile campaign to offer information and inspiration for both consumers and those in the industry to help give the category and its benefits more visibility.
“A lot of the features that LVT touted, we sat back as tile people and said, ‘Shoot, ours does that,’” Lundgren says. “We just never told anybody, and they did. And they did a really good job at it.”
The campaign has been making strides. Speaking at the Total Solutions Plus conference for ceramics professionals last November, Kathy Meyer, director of marketing for TCNA, said Why Tile’s profile on Pinterest-the initiative’s most popular social media channel and the leading source of social traffic to whytile.com-has a quarterly audience of more than 400,000 people among its 200 boards.
Whytile.com offers over 1,000 pages of content geared at consumers and designers, everything from scientific and industry-specific case studies to trends to buying guides, with new material added every month. A complementary site for industry professionals, partners.whytile.com, offers additional resources for free to help not only hone the messaging around the category but also make it easier to share via blogs and social media posts, in addition to sales discussions.
“We may never be able to play in the cost sandbox of labor and materials against LVP and LVT,” says Bettiga. “Then we need to do a better job of selling our lifecycle and ‘how will it look five years from now, ten years from now?’”
LVT'S CONTINUED THREAT
There are several potential caveats to any assumptions of tile’s continued dominance in its leading market states, as well as traditional areas of the home, and many of them come in a single form.
“LVT has taken marketshare in areas where tile was traditionally strong, especially in tract housing and multifamily housing,” says Bart Bettiga, executive director of the National Tile Contractors Association, alluding to kitchens and bathrooms, where tile’s inherent waterproofing qualities make it a natural choice for flooring and backsplashes.
Of the new homes authorized last year, 64% were single-family homes, though even within those houses, LVT is gaining at the expense of other flooring materials. But ceramic has been harder to displace than other flooring categories due to its performance in the areas of the home it primarily inhabits-where performance is key. Ceramic has also been somewhat buffered due to LVT’s focus on wood looks. “Wood looks were only 30% of our market,” says tile industry consultant Joe Lundgren, noting marble and stone as today’s leading looks in ceramics.
However, LVT is now threatening to creep into showers-long a haven for tile in mid- to upper-end houses-through new installation systems like the one Mapei unveiled two years ago. Debuted amid the pandemic, Mapei’s Shower System 4 LVT was on display at this year’s Surfaces, and it drew a lot of attention. The system includes a waterproof membrane, a cementitious mortar, a slip-resistant topcoat and, according to Logan Reavis, Mapei’s manager for technical services, it can be either grouted or simply clicked together. “You can completely revamp the look without having to do a full pullout,” he said. “It’s less expensive on materials and less expensive on labor,” tile’s two biggest drawbacks.
With waterproof qualities becoming increasingly important in today’s market, every other category is rushing to innovate and incorporate them however they can. However, tile experts remain wary of many products’ claims. Lundgren says he outfitted his office space with a mix of carpet and ceramic but included one room with LVT so he could test its performance. An accidental flood cut that experiment short, but the only flooring material that didn’t have to come out was the ceramic tile.
“The LVT segment has quickly made a significant impact in the flooring industry,” says Florida Tile COO Clark Cornelius. “However, the tile industry has an excellent value proposition to customers, including durability, environmental superiority and easy care. Educating industry professionals and the end user is key.”
COSTS AND EFFECT
The cost of materials and of new and existing homes on the market could dampen the category’s outlook, but ceramic is not alone in that. Costs have skyrocketed across the board, not only in every other category but in every industry and on every commodity.
A disproportionate challenge for tile producers is the price of natural gas, which is used for ceramic’s firing and drying processes. According to a 2008 study by a consortium of Spanish ceramics organizations on the sector’s energy consumption and emissions, energy use accounts for approximately 20% of average direct manufacturing costs but can be higher than 25%, depending on the product. Natural gas is 92% of that total.
European manufacturers rely heavily on Russia for their natural gas-and the U.S. relies heavily on Europe for its ceramics. Imports account for roughly 70% of the domestic tile market, with Spain and Italy comprising a huge chunk in both volume and value.
Russia supplies 40% of the E.U.’s natural gas, according to the U.S. Energy Information Administration. A Markets Insider article from February 24, the day after Russia invaded Ukraine, reported that the turmoil caused a roughly 30% spike in Europe’s benchmark natural gas prices, which had already been climbing. “Any outage of Russian deliveries would be virtually impossible to offset, especially for Europe,” the article states. “Though European gas stocks should last until the end of the winter, the restocking needed for next winter would then be hardly possible.” The E.U. produced just 20% of its own natural gas supplies last year, according to the EIA.
Speaking prior to the conflict, Grosser said he’d already heard of some European manufacturers threatening to stop ceramic production due to the ongoing energy crunch and resultant price increases, though the producers with whom we spoke, several of which are based in Italy, said their operations were not slowing-quite the contrary, in fact, at least in America. “Ceramic tile manufacturers in the U.S. are using natural gas to fire the kiln, same thing as in Europe,” Grosser notes. “The difference is that here, the price of natural gas is up 40%; in Europe, it’s up 400%.”
While America is not as dependent for its energy supplies, the geopolitical situation will have a global domino effect, the extent of which could not be predicted as of this writing. Benchmark oil prices climbed roughly 6% following Russia’s attack, though “oil prices could surge by 15% to 30%, if 30% to 40% of Russian oil exports are impacted,” the article states, and “oil as high as $115-$130 (a barrel) is not unimaginable amid elevated risks of a head-on conflict between Russia and the West,” which would send further shockwaves throughout the entire supply chain.
Speaking generally, Crossville president Greg Mather says domestic ceramic manufacturers have already faced double-digit cost increases over the past year or so, citing shipping and freight fees for necessary materials including production equipment, which typically comes from Europe, and both raw and finished materials, which weigh a lot. “As of January 1 , I think most ceramic manufacturers increased prices by about 10%,” says Shah, whose tile inventory is a mix of imports. “Honestly, I think domestic manufacturers are eating some of the cost because costs have probably gone up more than 10%.”
Such price increases are hampering the construction industry along with its lack of enough skilled workers. “If we were to get a 10% increase in housing starts, it really wouldn’t matter because they can’t get the labor to get it done,” Lundgren says, though he and the manufacturers with whom we spoke expect that part of the market to remain strong, comparable to what it has been. “I think it’s a good small growth that’s achievable,” Lundgren says, looking to the rest of 2022.
While many of our sources remain optimistic that residential remodeling will not lose steam, there are some concerns. At the top of the list is inflation, especially as the Federal Reserve prepares to meet in mid-March for an anticipated interest rate hike in order to counter the spending sprees that have helped push up prices. Says Grosser, “If they increase interest rates, the cost of mortgages is going to go up, and if the cost of mortgages goes up, people will be buying less housing. If people are buying less housing, less materials are going into housing. If you look a year from now, probably this great increase we have in ceramic imports and tile consumption is going to slow down. I don’t think it will be negative, but it will slow down.”
The commercial market could offer some relief from a decline in residential remodeling activity. Following its own slowdown in 2020 and 2021 as life moved largely in-home and online, the commercial sector is finally regaining its footing. “Commercial is the last one to join the party, but we expect it to grow exponentially in 2022 and 2023,” says Scott Maslowski, senior vice president of sales for Dal-Tile. Mather points to healthcare and education as footholds but says even office projects are beginning to pick up.
Crossville, which leaned heavily toward the commercial sector before the pandemic, has since worked to create a cross-market portfolio for residential applications, Mather says. Overall, he estimates the tile industry will see a 5% to 6% increase in commercial spending over the course of the year, based on industry forecasts and expert analyses “but also what we’re seeing from our pipeline and the projects we have.”
Commercial projects, a matrix of multiple products, industries and schedules, typically have a two- to three-year lead time before they are fully realized, making them slower to adapt on both ends of market changes, notes Frederico Pifferi, CEO of Atlas Concorde USA.
With the pandemic having exposed the volatility of today’s hyper-connected economies, diversification will be key moving forward, from product portfolios to markets to logistics. “It’s always a cycle, so you cannot rely only on residential,” says Portobello CEO Luiz Brito, who anticipates that the Brazilian manufacturer’s U.S. plant will come online early next year. Portobello serves the residential and commercial markets through its production facilities in Brazil, augmenting its domestic portfolio with products sourced from partners there and in the U.S. “We’re going to continue to invest to have a very good balance between commercial and residential, but for the moment, residential is much more important for us,” he says.
Maslowski estimates the overall ceramic industry will grow 3% to 4% in volume this year with residential and commercial combined, and “a little bit more” in dollars.
DOMESTICS VS. IMPORTS
The proliferation of foreign ceramics producers building factories in the U.S. predates the pandemic, but the past two years have underscored the importance of being closer to key customers. “The American market is an extremely important market for us,” Pifferi says, despite the U.S. accounting for a drop in the bucket of the ceramic sold worldwide. But with domestic tile consumption on the rebound from its dip in 2019 and 2020, following a decade of solid growth, it represents opportunity. “The cost of transporting imported goods, in particular, increased incredibly,” Pifferi says, citing container costs that soared as high as three times their baseline last year. “Nevertheless, the imported goods and imported tile kept growing more than U.S.-made goods. Limited domestic capacity is probably part of the reason.”
Accounting for 71.7% of the domestic market last year, imports reached their highest level in 15 years, according to TCNA. “However,” notes executive director Eric Astrachan, “over the last decade, imports’ marketshare was down considerably versus the preceding decade. And domestically produced tiles’ share of consumption (28.3%) remained far ahead of all other individual countries exporting tile to the U.S., with the nearest being Spain (15.9% of U.S. tile consumption).”
Our sources don’t see domestic producers taking over the U.S. market, but they do think they’ll gain share, and many are already working to increase capacity. Atlas Concorde added 40% to its output last year by shifting its production schedule, Pifferi says, and Crossville is working to streamline its operations to enhance capacity, with an eye on increased production in the future, reports Mather. Portobello will be adding capacity in phases and expects to bring on a second kiln approximately a year after its domestic operations get underway, says Jed Durbin, Portobello’s North American vice president of manufacturing and outsourcing.
Meanwhile, Emser, Florida Tile and MSI are working to diversify the locations in which they source and create products, though Florida Tile, which makes most of its tile in Lawrenceburg, Kentucy, is part of Panariagroup, giving it access to sister companies in Italy, Portugal and India. Emser plans to release a U.S.-made series later this year, followed by others in the future, Zurfluh says. MSI-which relied heavily on China prior to the enactment of tariffs that removed it from the ceramics market virtually overnight-is continually evaluating and bringing on partners in various countries, from Vietnam to India to Ukraine, Shah says. Whether due to health and safety measures, supply chain issues or political skirmishes, it’s become all too apparent that any number of unforeseens could derail anyone’s inventory at any moment. “It’s very important for us to have a flexible sourcing model so we don’t get interruptions in production,” he says. “That means more and more countries and more and more factories.”
The disruptions of the past few years could hold advantages for those with domestic operations moving forward, beyond their own improved logistics and related costs. “If you are a distributor, having a local partner in the U.S. is going to be crucial from now on,” says Brito. While American-made products tend to carry higher price tags and other countries also offer different product assortments, domestic producers offer something of an insurance policy in the local market.
“The tariffs jolted many companies to get serious about having a diversified supply base, but the importance of having a domestic production source has never been more apparent than right now,” Florida Tile’s Cornelius says, noting that it’s also helped the company remain competitive amid the unexpected residential boom. “Being a domestic manufacturer has proven to be critical during the past few years. It has allowed us to capitalize on these current market conditions.”
America represents “the final frontier for tile,” Durbin says, and manufacturers are adopting an expansionist approach. Interior and exterior wall cladding, outdoor living areas, countertops and even furniture are growing applications, while technology and design have furthered the appeal of traditional uses, as well. Bettiga says he’s seeing more tiles of various formats combined in a single space thanks to the influx of available shapes and colors, while large-scale gauged porcelain and products with slip-resistant coatings have opened the door to new applications.
Forbes deemed 2021 “the year of the yard,” and our sources say tile is benefiting. “Outdoor is growing and will continue going forward,” says Zurfluh. “We’re hearing about more outdoor projects, larger budgets, pools, walls.” The American Institute of Architects’ 2021 Home Design Trends Survey showed a 21% jump in the percentage of firms reporting an increase in clients’ interest in creating outdoor living spaces (74%) last year versus 2020 and an 11% increase for blended indoor/outdoor spaces (54%), along with 18% reporting requests for pools, a category AIA decided to add to the survey last year.
Crossville recently debuted its first leathered finish, combining anti-slip properties with a soft touch that makes it ideal for both indoor and outdoor, and Zurfluh says Emser plans to release anti-slip products this year. “We see outdoor applications as a growth opportunity for the industry in general and one we’re really looking to capitalize on, and it’s what helped us residentially as well,” says Mather.
Meanwhile, wall tiles are experiencing a renaissance. “Five to seven years ago, effectively the choices were 3”x6” subway,” Shah says. “Today, because of the growth and demand for wall tiles, everything is available to you.”
Gauged panels, also known as thin tiles, which have been steadily growing in popularity in America after being developed in Europe roughly a decade ago, only expand the possibilities, especially when combined with ceramic producers’ advanced digital printing technologies, offering sleek options for shower and pool walls, fireplace surrounds, commercial installations and building cladding. Bettiga notes changes to the International Building Code last year that allow for large porcelain panels to serve as exterior wallcoverings, calling it “very, very important for the tile industry” as they now offer a potential substitute for traditional materials like metal panels.
“I think there’s going to be a lot more that happens with large porcelain panels over time as people get more comfortable installing them,” Lundgren says.
Daltile introduced its 5’x10’ Panoramic Porcelain Surfaces in 2018 and is “seeing the line explode” in both countertop and shower applications, says Maslowski, and our sources agree that large-format tile sizes, primarily 24”x48”, have become a go-to size for all kinds of applications.
“With standards already in place for thin-gauged porcelain tiles and tile panels/slabs (3.5mm to 6.5mm) and the first edition of the TCNA Handbook for Gauged Porcelain Tiles and Gauged Porcelain Tile Panels/Slabs coming out this year, architects and designers have everything they need to design with these innovative products,” Astrachan says. “Further, a product standard for thick (2cm) porcelain pavers is being balloted now and expected to be released soon.”
But the panels touch on perhaps ceramic’s greatest hurdle: the shortage of qualified installers. With those in the industry aging out faster than they are being replaced, the issue was exacerbated over the past two years as training opportunities slowed and a surge in demand created huge backlogs for existing installers.
“We are still faced, and I feel we will be faced for a while, with a labor shortage,” Bettiga says, noting that it takes approximately four years to master all of tile’s various applications, “and that’s if you’re dedicated solely to learning tile installation,” as opposed to a broad range of floorcoverings. The emergence of new ceramic formats has compounded the problem, meaning that even existing installers have to be retrained for true efficiency.
TCNA is working to stem the tide through training programs, partnerships with industry organizations and manufacturers, and marketing to publicize the possibilities of such careers, and Bettiga says he’s heartened by the efforts, as it will take the entire industry to rectify the issue. “I’m seeing training programs offered at three times the rate I saw as little as five years ago,” he says, noting independent efforts through schools and manufacturers.
In the meantime, several companies have released products that seek to offer a way around professional installation, though it is still recommended. Emser debuted its groutless Link mosaic collection several years ago and just released a second collection, Bizou, at Surfaces. In January 2020, Daltile unveiled its RevoTile floating click system for floor tiles, and though “still relatively small, it’s growing exponentially,” Maslowski says. Florida Tile is currently making a big push under the Cotto d’Este brand for its new dry-lay installation system, which utilizes a specialized mat and grout to hold tiles in place.
“Gauged material is an exciting growth area for us, and with the official introduction to the newest installation innovation of Cotto d’Este’s dry-lay system, Kerlite Easy Mat, we expect to see this growth continue,” says Florida Tile vice president of sales Doug Hayes. Lundgren notes that gauged panels are an arena LVT is not playing in, but adds, “I’ll throw a little asterisk out there because some guy is probably going to figure it out.”
Moving forward, expect to see innovations in surface coatings and finishes, especially with TCNA’s just-released standards on anti-slip and antimicrobial properties. Pifferi notes that anti-slip typically equates to a rough surface, though end users prefer a smooth surface for ease of cleaning. Several companies also reported a focus on more realistically re-creating visuals and textures through new glazing and through-body techniques.
“The different glazing techniques, larger formats, printing technology-I think all that is going to continue to push things so that you can have basically any type of look that you want,” Zurfluh says.
China’s exit from the domestic market created a gap that had to be filled. “Until two years ago, China was number one in imports in units,” Grosser says, adding, “I don’t believe the situation is going to change, and China is out for good now.”
Known primarily for offering lower-cost ceramic products, the country’s slice of the pie was divvied up between multiple beneficiaries, primarily India, Turkey, Spain and Brazil, in that order, according to Market Insights’ Torcivia. “The main gainer here that was not in the game before was India,” Grosser says. “But it’s not really that the Indians came in, it’s that large importers in the U.S. that were importing huge quantities from China found themselves without a supplier.”
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