Anil Taneja,
When 2024 began, there was widespread expectation that this year would be somewhat better for the stone industry. Part of this positive feeling came simply from the natural optimism with which people greet the new year. But other reasons bandied about were:
A) The slowdown in purchases by stone importers in the second half of 2023 was attributed basically due to overstocking, something that would have ended by now.
B) This being a Presidential election year in USA it was assumed that, magically, the inflation would drop and also the interest rates, thus bringing down the mortgage rates, and, therefore, kicking back to life the renovation work and construction activity.
However, with the half way mark of the year 2024 now almost reached, things have not worked out as many expected. Yes, the US economy is very strong, unemployment is at lowest levels in decades. But other relevant factors are also at play, and, in today's uncertain world it is difficult to predict what else lies ahead.
30 year mortgage rates (typical in USA) continue to hover at around 7%. This means anyone who is locked into a mortgage rate of 3% in the existing home, has no incentive to sell and upgrade to another house, since the new mortgage rate would be around 7%, and this would lead to a huge increase in monthly payments. This simple reality has become a major brake on sales of existing homes. Year to year existing home sales are down by approximately 4% in 2024. Renovation is usually done when someone changes homes, which leads to increased demand for building materials- and this reduced number of transactions of existing homes has meant less demand for natural stone.
High inflation has also become a drag on new homes construction not just selling of existing homes, since costs of all inputs are increasing significantly. This has meant less supply of new homes in the market. The figures for these too show some decline in new homes construction in 2024. Less supply has led to rising home prices, making affordability now a major issue now. (The problem of affordability has also become a serious issue in many other countries).
By 2024 all the extra money that households had accumulated during the pandemic, had been spent during the years 2021 to 2023. It was this money that had created the boom in renovation work and it was this money that kept the industry going strong even when shipping costs of materials from Asia, Europe and South América had skyrocketed, often by a factor of 10. Remember the days when there was a shortage of containers and shipping costs had crossed even US$ 12000 on some routes?
Then there is the phenomenon of home working which has consolidated post-pandemic, and this has led to a lot of empty office space in many parts of USA- so there is less construction in this segment too.
So it is a unique situation in USA- the economy is strong, unemployment is very low, but construction activity related to natural stone and other building materials, which normally would have been very strong as a consequence, remains weak in comparison.
It is important to note there is a genuine shortage of homes in the country, by some estimates anywhere between 4 and 7 million. In other words, a bubble bursting related to speculative purchasing and oversupply is not going to be a risk. At some point in the future the interest rates could go down again to around 3 % (that is the hope), and that should lead to a big jump in activity in housing construction and existing home sales transactions, which, in turn, should lead to a huge increase in demand for slabs of all kinds, natural stone and artificial stone. But no one can predict when this will happen. Another unknown is what would be the macro-economic situation once interest rates are low again, no one wants it to be a recession.
Of course, not everyone is looking to change their home, and people do renovation work in their existing home every now and then. This segment of the market is relatively unaffected by inflation since there is no need to negotiate a new mortgage. With the American economy strong, the renovation in existing homes remains dynamic, and is keeping everyone more or less busy. This segment is not as price sensitive either, which would explain growing imports of quartzite from Brazil. The Brazilian exporters have noted a sharp increase in exports mostly of quartzite) to USA in the first 5 months of 2024, to US $ 290 million, compared to US $ 236 million in 2023. Quartz slabs imports for the first 4 months of 2024 showed a 20%+ increase over the previous year in volume, measured in square metres, but only around 10%+ in value, suggesting declining prices, as per data compiled by StoneUpdate. The data provided by StoneUpdate also shows an overall decline in granite by around 5% for the four months of 2024 and a more modest decline of 2% for marble, when compared to 2023.
As of June the world of finance expects only a small decline in interest rates during 2024. This means there is little chance of new housing construction picking up and renovations related to changing homes, to grow in volume.
With all the prevailing uncertainty in the world (two wars and the Red Sea conflict affecting shipping), the stone importers have become cautious in their purchases. Stone factories all over the world have noted how there is less planning of orders for delivery several months ahead, it is as if wholesalers are juggling their need for supplies, month to month. The volatility in shipping rates does not help either. While shipping rates are around US$ 3000 to 4000 per container, much less than the US$ 10000+ during 2022, they are still higher than the average US $ 1000 or less that they had become accustomed to. Shipping rates from countries such as VIetnam, Thailand and Malaysia to USA, for example, currently stand at around US$ 6000 per container in mid-June.
Customer preferences also show steady demand for travertine which is keeping the quarries in Turkey and Italy busy. Demand for green shades of quartzite has also increased, in fact, in general, green is coming back in fashion everywhere. The grey/white patterns continue to sell.
2024 is, therefore, being another year where stone processing units in the world geared to the US market are finding it difficult to make up in sales what they are losing in other markets, the world economy generally speaking, remaining weak. The reason for optimism, then? Another new year is just 6 months away.
NOTE: Thanks to Mr Cid Chiodi Filho and Mr Emerson Schwartzkopf for the information provided.
