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The Russian market for ceramic tiles: survey, analysis, forecast

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The Russian market for ceramic tiles: survey, analysis, forecast

Uneasy times are coming for ceramic tile market players.

In spite of the high market share for home ceramic tiles, importers and distributors have strengthened their positions in key segments and are playing an important role in meeting the various requirements of buyers.
On one hand, they are ready to offer cheaper Chinese ceramic tile – to be used when quality and design are not of great importance. On the other hand, they can offer the best designers’ Italian and Spanish production, which have always been the world leaders in this sphere.

 


The Russian producers of ceramic tile have made significant progress lately, but they are still outdone by the Spanish and Italians in quality and design. Of course, the customers’ trust in imported products associated with high quality adds much to their success. And the Russians are ready to pay more.


New reality
According to our forecast, the growth rate decrease in the ceramic tile market will continue, but it is not wholly negative. It is connected, first of all, with the consumption volume reduction in the corporate sector. If in 2013 the construction volume reduction was 1.5%, in 2014 there was a slight growth. According to a number of experts, its main driver was the implementation of large-scale state-guaranteed orders connected with the construction of sports objects for the Football World Cup of 2018, transport infrastructure (including the Vostochny Space Centre), the Baikal-Amur Mainline reconstruction, the Northern Latitudinal Railway and Transsib construction, and the expansion of Moscow.
However, from our point of view, it is too early to make any optimistic conclusions: a business activity decrease at the end of 2014 has influenced industrial development in 2015. Certain changes will influence ceramic tile demand reduction both directly, through the customers’ buying capability, and indirectly, through the real estate market. It is important to take into account the medium-term prospect of demand decrease after feverish demand caused by expectations of further price rises for real estate and the desire to save money by investing it in property. Mortgage loan raises will also add to real estate demand decrease, as banks will include increased default risks from borrowers.
All the aforementioned factors will result in a decrease in the sphere of maintenance and construction, which in its turn will lead to a ceramic tile demand decrease in the market. If we don’t do something to turn the tide, the market for real estate and mortgage loans and, following them, that of construction and construction materials, will stagnate.

The crisis is the time to act
The situation with local producers’ ceramic tile is quite ambiguous. On one hand, it is evident that with the current market conditions the tendency of import replacement will grow. The population purchasing capacity decrease will result in market restructuring and customer demand will focus on more readily available home-produced ceramic tile. National producers will strengthen their position in the market. Many plants have already felt the growing demand for their product and are ready to to enhance their production capacity. At the same time, the growing cost of gas will influence the prime cost of Ukranian ceramic tile, which might take the place of Russian imports. The fact that Ukranian tile costs less than others is advantageous for Russian producers, and even a slight increase in its price will quickly lead customers to home-produced tile. So, ins pite of economic stagnation and the ceramic tile market decrease, the situation is quite advantageous for Russian producers of this material. The weakening of the rouble is contributing to the customers’(including the premium segment) “switching over” to Russian product, and the Ukranian producers’ hardships will allow our producers to struggle for economy-class product consumers.
However, there are no grounds for excessive optimism: in spite of some positive aspects, Russian producers will come across a number of difficulties. They may have problems with expanding their capacities, innovations development and implementation. The process of expanding capacities demands large-scale investments in current economic conditions because of the growing cost of debt. Besides, much production use foreign equipment, the cost of which grows as the currency goes up. Many producers simply cannot exhance their economic capacity in the short term. As far as innovations are concerned, most of them come from abroad, and in these new economic conditions many producers cannot afford them.
The country’s economic downturn will not only fundamentally influence ceramic tile market dynamics, but will also change its structure in respect of the balance of imported and local production. In 2015, ceramic tile imports will probably decrease, based on the import volume reduction, by more than 30%, as forecast by experts.


Thus, the imported production trade business will fall into a trap due to several negative factors: simultaneously, a consumer demand decrease and growing expenditures for imported ceramic tile purchase. To retain levels of profitability, businesses will have to raise prices for imported goods, but the customers won’t be able to afford expensive imported production in the same volumes as before. Of course, this situation will make traders look for ways around the problem; one of the most probable way is choosing providers who are ready to lower prices for deliveries.
Changes are expected in the import structure. Some foreign producers won’t be able to cut their prices and will be replaced by more flexible providers with their own production in China. Even now we can see the growth in imports of Chinese ceramic tile at a time when the import of ceramic tile from Spain and Italy is decreasing.
In 2015, the Russian economic recession will make life difficult for the market players. The current conditions will become a challenge for them: reliable producers and providers of good quality ceramic tile are likely to retain their positions, but non-competitive players will leave the market.

Konstantin Timikhin, President of Construction and Ornamental Ceramics Importers and Distributors’ Association;
Dmitry Kuznetsov, Assistant to the President of Construction and Ornamental Ceramics Importers and Distributors’ Association

 

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