1. INFLATION AND INTEREST RATES
For almost 25 years we have lived in a low inflation macro-economy and have taken it for granted. But for the last two years inflation has been rising to levels that are considered high especially in the US and the EU, and this has affected the coming to market of new projects. Not knowing how much the project would cost, nor at what price the developers would be able to sell the homes or commercial space they had planned, they opted to stall and decided to wait. During 2024 the impact of the stalling of many new projects in 2022 and 2023 will finally be felt by the industry.
When inflation is high, interest rates also rise. The rise in mortgage rates has affected the ability of individuals to buy homes. In Spain the number of mortgages fell by 30% in 2023. In USA the 30 year mortgage rose from 3.2% in early 2022 to more than 7% by late 2023, obviously cooling the market. By the end of 2023 inflation has been falling. Hopefully, in the second half of next year, if interest rates also come down, we may start to see some revival in construction activity.
For the past two years it has become clear to block exporters that the slowdown in China's construction industry was severe and that the country was buying far fewer blocks than before. Some block exporters noted a decline in sales of between 75 and 90%. When a real estate sector is in trouble, it often takes several years for the situation to normalise and for a sustainable recovery to take place. Construction companies have liquidity problems, banks stop lending, projects come to a standstill... demand for building materials falls, many companies close down. This is what is happening in China. But the size of the stone industry in China is so large that there are still hundreds of them aggressively going after orders in international markets. Chinese companies have also become more innovative, the design component in their range of stone products has increased enormously, which means that buyers from all over the world will continue to come to the country when they need stone for projects or for their warehouses.
Currently, the most promising market for the stone industry, but not completely open to foreign companies, is India. The Indian industry can be divided into several segments. Briefly, the part oriented towards international markets, such as block exporters to China, tombstone exporters and slab exporters, are going through difficult times. On the other hand, the locally focused stone companies are doing better and better, as demand continues to grow, not only in the big cities, but now also in what are known as smaller cities, called Tier 2 and Tier 3. Not many people know this, but the city with the highest number of cranes in the world at the moment is Mumbai, in India.
4. QUARTZ: THE SILICOSIS FACTOR
There were two major developments related to quartz in 2023, and we may well see their full impact in 2024. The first of these has been the persistent negative media coverage of quartz due to the increase in cases of silicosis among workers is definitely damaging its image. The ban on its use in Australia is another blow to quartz's image. Even in the USA, the largest market for quartz, there is now a new cautious attitude among industry professionals dealing with it. Whether demand for quartz will start to decline in 2024 is something to watch out for, as it will be an important development. After all, it is estimated that 60-80% of kitchen worktops are now made from quartz in the US. The other development in 2023 has been the large number of new quartz factories coming on stream at a time when demand has peaked and may be declining. It is estimated that quartz production in India alone covers about 2/3 of total demand in the US, to this must be added the multiple factories in Southeast Asia, China and other countries and, of course, the United States. It is likely that many quartz factories will close their operations soon after they have started. Which material will occupy the space left by quartz: natural stone or porcelain is the big question for 2024.
5. PORCELAIN TILE
Large format porcelain slabs have been a major disruptive factor in the natural stone industry, and have gradually increased their market share in applications that the stone industry considered exclusive to it. But now we have reached a situation where the production of porcelain slabs has multiplied with the entry of new producers in many countries and prices are falling dramatically. Although this has severely damaged the profitability of the porcelain tile industry, the fact remains that large format porcelain tile continues to take market share away from natural stone in any application where convenience, weight and speed of installation are important criteria.
One of the most interesting developments to watch out for in 2024 is whether natural stone companies begin to exhibit in a serious way at trade fairs aimed at interior designers, or furniture, or other fairs, showcasing new applications. It has already become obvious to all that most of the traditional trade fairs of the last three decades have lost their appeal to stone processors.
7. PUBLIC WORKS
Public sector projects are important in the EU, and the proof is that the survival of many granite companies in the Iberian Peninsula depends on external paving works for installation in parks, pavements and all kinds of urbanisation projects. With pressure on European governments to reduce debt and control their spending, will there be enough money to continue to bring out paving works at the current rate? Another, perhaps even more relevant question is: with the huge existing capacity to produce pavings, a product normally with little added value, can so many companies on the Iberian Peninsula survive for long?
8. EPD, SUSTAINABILITY, ETC.
They are becoming increasingly important in Northern European projects and sometimes in the USA, but at the end of the day sustainability is still a minor issue for most of the stone industry. The sustainability superiority of natural stone is not in doubt, but it only influences projects, a small niche in the stone industry. Even in these more sustainability-sensitive markets, these criteria are often overridden by specifiers more concerned with cost, schedule and convenience. Sustainability is considered irrelevant when the choice is made for decorative purposes. Will EPDs, sustainability, etc. start to become an important criterion for specifiers in countries where a large number of new projects are being implemented? This is something to watch out for in 2024.
9. OVERSUPPLY OF SLABS
If there is one aspect that best defines the current reality, it is a huge mismatch between supply and demand in terms of slab production in natural stone. If we add to this the phenomenon of quartz slab supply, porcelain slab supply, the fact that they all have to pass through the same door, that of the fabricator, before becoming a finished product for whatever application, it is obvious why processing factories and quarries are facing tremendous pressure on their margins. This huge oversupply means that most of the world's factories are running at 1/3 or 1/2 of installed capacity. The obvious question for everyone is: what makes you think the situation in 2024 will be any different? And what are you going to do about it? There has been a tremendous reluctance among employers to face this question, in 2024 they will no longer be able to avoid it.
10. TEXTURES AND FINISHES
A significant differentiator between natural stone and man-made materials can be the development of new textures and new finishes in natural stone. For too long, most stone companies did little, if anything, in this regard. During 2023, at last, at least in the softer materials such as limestone, some experimentation has been observed. Is it too little, too late? Perhaps, but it is still essential to offer new textures and finishes.
11. NEW APPLICATIONS
The only way out of the pit.
Throughout 2023, more companies finally came to the conclusion that they would have to develop new applications if they wanted to survive. What these new applications should be is not yet clear. Will it be furniture? Or a combination of various product niches, this is still unclear. Hopefully 2024 will bring some clarity, the urgency is evident.
12. DYNAMIC MARKETS
In a generally gloomy economic environment, there are some markets that are showing great dynamism in the construction sector. The rich Gulf countries, especially Saudi Arabia, India, Indonesia... are becoming interesting markets. The Far East countries are growing reasonably well, but the slowdown in China could affect them next year. Mexico is also improving. Poland should become a dynamic market again as the billions of Euros allocated to Poland but blocked by the EU will finally be available for the country's development. Also watch out for the space left by the quartz ban in Australia - which material will take advantage of this opportunity: stone or porcelain?
13. THE TWO WARS
No one can predict today how the war in Ukraine will end or what turn the conflict in Gaza will take. But one thing is clear: such developments are not good for anyone. We are already seeing how in the second week of December many shipping lines have decided not to risk using the Red Sea route for their ships.
14. GOVERNMENT MINING POLICIES
Government policies on mining have varied widely around the world. In the EU, it is extremely difficult to open new stone quarries, or even to exploit them. In most parts of the world, environmental concerns are now a major factor in quarrying. Stone quarrying will continue to get harder, not easier.
15. THE X FACTOR
In recent times something totally unexpected happens somewhere in the world that turns everything upside down, and there is no way of predicting what it could be. We call it the X factor. Will there be one in 2024? Let's keep our fingers crossed.
18 December 2023.