GLOBAL ECONOMIC ENVIRONMENT
First of all, some clarifications. In the world of today there are so many uncertainties that anything could happen in a flash nullifying all assumptions and overturning all projections. Wars, natural disasters, spread of virus, terrorism…. But the world goes on and, like it or not, businessmen need to make plans, investments, take risky decisions. So here goes:
USA - 2018 should be better than ever for construction activity. Projects of all kinds are under way, apart from new construction in housing and renovation work. One day there will be an economic slowdown, or some bubble will burst, it seems unlikely that 2018 will be that year.
EUROPEAN UNION - After a long period of crisis, practically all of Europe is growing reasonably well. Possibly a slowdown in UK if the negotiations related to Brexit do not go well, but rest of Europe should be better than in 2017 with respect to construction activity. Eastern Europe, in particular, will do very well in terms of increased construction and demand for building material. Poland will be where many granite block exporters spend a lot of time. In Spain the construction activity is practically at levels of pre-crisis in places like Madrid, the coastal areas and the Baleares. But there are much less public sector projects there. After a long time there is optimism even in France, though the ground reality has not changed so far. Germany remains a strong market, but devilishly hard to sell in.
RUSSIA - The economy has stabilised and the currency rouble is stable. Imports of low priced stone should increase slightly in this market which has now become price sensitive. There will also possibly be more exclusive luxury projects than in last 4 years.
MIDDLE EAST - Except for Dubai and Qatar where there are some projects (related to specific events) no change in demand is foreseen even if the price of oil increases moderately.
NORTH AFRICA - Stable. Some increase in demand will take place in Egypt due to construction of new capital.
SUB-SAHARA AFRICA - Stable, especially in the east of the continent. But the markets remain extremely price-sensitive.
LATIN AMERICA - Stable, with small increase in demand. Argentine should be better, as also the countries of Central America. Brazil will finally come out of its severe crisis though it is unclear whether the local market will improve in 2018. Demand in Mexico dropped sharply unexpectedly in second half of 2017 but will probably recover.
INDIA - Some improvement in demand as construction activity gradually picks up all over the country. But the booming construction activity that everyone has been impatiently waiting for, will still be nowhere in sight.
FAR EAST - Almost all countries of the region are expected to grow economically between 4 to 5%, there should be some increase in demand for building materials in all countries. China used to be the almost monopoly supplier of stone, that is no longer so.
CHINA - The local market will not be like some years ago, but neither will it collapse. For block exporters China will remain the market where they simply have to be present. Chinese stone exporters no longer dominate the low priced end of the market, but they are still present in a big way.
CONCLUSION - 2018 will probably be the best year in the last decade in construction activity, it may even be the best in history (if China is excluded). For the first time, not only the developed countries will be growth markets, but also most of the emerging markets will either show growth or remain stable.
INDUSTRY COMPETITIVE ENVIRONMENT
1. Decisive year for natural stone industry due to the entrance in the market of many new manufacturers of big format porcelain in Italy, Spain and elsewhere. There are now also dozens of manufacturers of new generation ceramics in India, China, Vietnam, Turkey, etc. competing in the space that was previously occupied almost exclusively by natural stone.
2. Due to the relatively higher price of artificial stone, the priority markets for big format porcelain, for now, are expected to be USA and Europe. In other markets, for now, artificial stone remains a niche product and not a mass product.
3. Apart from kitchen counter-tops where porcelain will compete with fiercely for market share with quartz and not just granite, artificial stone has also entered the market segment of exterior floorings, exterior facades and decoration.
4. Artificial stone companies have invested seriously in marketing in the social networks and are cleverly using them not just to create brand, to inform of its possibilities and promote the products, but also educate the installers.
5. Greater competition among manufacturers of different artificial stones can already be observed in the sense of criticism they make of each other. Probably during 2018 a decline in the prices of artificial stone will take place due to imbalance between supply and demand.
6. During the long crisis in European countries many stone installers have retired, others found opportunities in other industries. There is currently a serious shortage of qualified workers in the stone industry practically all over Europe, even in Poland.
7. A greater effort in reaching out to architects has been made by some companies of the natural stone industry. Some companies are now diversifying into cut to size and incorporating greater element of design, experimenting with new finishes and textures, offering to do projects to architects.
8. Some companies have started diversifying their business towards new products such as furniture and dining tables, and offer new products to new type of buyers. However, in general, the philosophy remains unchanged for most of the industry - natural stone companies offer products, while artificial stone manufacturers offer solutions. There is still no sense of urgency in articulating to the customer his/her question - “Why should I use natural stone?” To the stonemason the answer is so obvious it needs no explanation.
9. One of the reasons why wholesalers working in competitive markets and with greater purchasing capacity have switched to artificial stone is they make more money working with higher priced stone than with cheaper stone. They are usually reluctant to admit this, but when they buy cheap semi-finished stone like slabs they end up re-selling it also at a low price (they, too, have competition) and, therefore, their margins are lower. Their margin per sqm sold is higher when they deal with higher priced products.
10. The Chinese presence in the segment of cheap natural stone in international markets has been falling dramatically- a phenomenon not much commented within the industry. Hundreds of quarries and factories in China have been closed down by the authorities due to environmental concerns, but for the foreign buyer there is less reliability in supply. In quartz, often poor quality and very low prices from China and elsewhere have done damage to the image of quartz as a product. Currently only the major brand names in quartz seem to have reasonable margins. Generally speaking, though, no decline in demand for quartz has been observed till now.
CONCLUSION
1. 2018 is expected to be a year of a new, unknown and strange phenomenon for the natural stone industry. The demand in applications where natural stone has traditionally been the preferred material will be higher than ever, but it will probably be the new competitors, quartz and the new generation of ceramics which will satisfy most of this demand, substituting natural stone. Architects and interior designers currently like big size formats even if they are made of artificial materials. But it is also possible many of them may go back to wanting real natural stone, in the world of today the general sensitivity is towards natural things wherever possible.
2. The segments of natural stone that will be relatively protected from the new competition - applications such as funerary sector which works mostly with thickness stone, very low priced natural stone (because, for now, the artificial stone manufacturers do not find it an attractive segment) and the premium priced and exotic stones.
3. In the medium term there is likely to be some equilibrium between natural stone and artificial stone. The new products are here to stay even after the novelty value is over, and they will soon be getting immersed in the inevitable price wars. Both natural and artificial stone will have their promoters, their specialised market segments and even applications. 2018 looks like being a very interesting year of transition in this evolutionary process.
