Supply Chain Update: A 2022 Forecast for the Surfacing Industry
By Matthew Bodoff
According to the NKBA, an estimated 10.2 million kitchens and 14.2 million bathrooms are renovated every year. That means every day, tens of thousands of consumers are entering their local fabrication shops, big box stores and design centers to peruse samples and choose materials for the new kitchen or bathroom of their dreams. Very few can even comprehend the journey a countertop will have to make from creation to delivery or consider how the supply chain affects timelines and budgets. Of course, that was until the fall of 2021, when the words “supply chain challenges” were in everyone’s vocabulary, and consumers everywhere could see the effects when they went to grocery or home goods stores.
From Factory to Installation
We can’t talk about how supply chain challenges affect the surfacing industry without first looking at how engineered surfaces such as quartz and solid surface are made. These products are all called engineered surfaces because they are manufactured from a blend of chemical binding agents along with natural minerals to create unique surfaces with a specific set of features and benefits. These materials are manufactured in large global factories using a combination of chemical curing agents and heat to create durable products that can be loaded into containers and into trucks and shipped to distributors across North America. From there, the slabs are sold to fabricators across the country, which vary in size from large companies to small individually owned businesses.
The slabs can be sold direct to consumers through design centers, big box stores such as Home Depot or Lowe’s, or at the site of fabrication. Each time that slab moves from one point in the supply chain to another, there are transportation and storage costs involved as well as profit margins that need to be met to make the businesses viable. This adds up to the end consumer paying between $75-$150 per square foot for a product that originally cost much less to manufacture.
In North America, most of these products, especially quartz surfaces, are manufactured overseas in countries like India, Vietnam, Spain, Malaysia and Turkey. This creates a long and complicated supply line that relies on efficient ocean transport of these slabs form their home ports to local warehouses. But as we’ve seen repeatedly in the news recently, that system has been anything but efficient.
The cost of an ocean container shipment from Asia to the United States has increased over 500% in the past year alone. Once the container hits land, it must be picked up at port and trucked to a warehouse for further distribution. And guess what? Domestic trucking costs have increased almost 30% year over year. These costs have to either be absorbed by the distributor or fabricator, or they’re passed along to the consumer. Costs aside, consumers and professionals are feeling a time crunch as well. Delays at the ports have led to longer lead times for all kinds of materials and products.
Costs of Making a Slab
Before the slab can be loaded into a container for its long ocean journey, it needs to be manufactured. This is just another step in the manufacturing process that has seen major cost increases and material shortages throughout 2021. Engineered quartz is manufactured using an unsaturated polyester resin (UPR) along with chemical binding and curing agents. The balance of these chemicals, along with the vibration pressing and heated curing, is what gives quartz surfaces a unique blend of price and performance properties.
These UPR resins are manufactured by reacting an alcohol, such as ethylene global or propylene glycol, with an organic acid such as maleic anhydride. Then the reaction is diluted in a solvent, usually styrene, to create a low viscosity liquid that can be blended with quartz fillers to create the slabs. These alcohols and acids are created as major chemical feedstocks supplying a host of end-product industries or they’re byproducts of feedstock materials such as benzene and butane.
Because of a relatively strong global economy, high consumer demand for manufactured goods, and a limited number of feedstock chemical suppliers, these chemicals have been in short supply through most of 2021. We’ve seen major increases in prices for UPR resins. On top of strong demand, chemical manufacturers in the United States were hit with a wallop of storms like Winter Storm Uri and Hurricane Ida, which brought the Gulf Coast chemical sector to a grinding halt — twice! And let’s not forget a little thing called COVID which has plagued manufacturers in every industry with unprecedented labor challenges that continue to persist.
This adds up to a combination of rising costs and limited supply for quartz slab manufacturers around the world, but especially in North America where there is a very limited number of UPR resin manufacturers. In a quartz slab, UPR resin may account for only 10%-15% of the weight of the slab, but it accounts for 40%-60% of the cost to manufacture that slab, depending on the country of manufacturer.
The Outlook for 2022
The question on the minds of everyone in the surfacing industry is, “What does 2022 look like?” Well, 2022 looks to be another challenging year for the quartz surfacing industry.
Manufacturer demand for the feedstock materials that go into making UPR resin and for the resins themselves are projected to remain high through most of 2022. And unfortunately, there is a limited number of manufacturers of these resins. With investment costs in new capacity in the tens of millions of dollars or more, we cannot expect to see additional capacity coming online in 2022, and that is sure to limit the output of quartz manufacturers. And as with most commodity products, supply and demand economics will continue to hold true; prices will continue to rise as long as demand remains strong, and supply is tight.
At a recent ISFA webinar, we discussed supply chain challenges, and many fabricators across the country are beginning to see an increase in quality issues in their quartz slabs. They’re noticing more staining, etching and cutting issues than ever before, especially with the ultra-white, fine grain products that are so popular with the North American consumer. There could be many different reasons for this increase in quality complaints, but two causes seem to rise above the others.
First, there have been a host of new factories opening around the world producing these slabs. And while they may be using the most modern and advanced equipment available in the industry, it can’t be overlooked that producing high-quality quartz slabs on a consistent basis is not easy, and many of these factories lack the technical experience and trained workforce required to produce top-quality materials. Couple this with a rush to meet demand, and you can start to see a recipe for quality issues.
Second, because the UPR resin used by quartz suppliers is so important to the physical properties of the slab, most established suppliers have had a long-standing history with supply partners. But because of shortages in the UPR industry, and long shipping lead times, slab producers have had to look to new supply sources for UPR resin and may not have the time needed to test the resins’ performance.
Assuming there will be continued pricing, supply and quality challenges throughout 2022, what can distributors and fabricators do to minimize risk to their business and manage consumer expectations? Now’s the time to have open and honest discussions with your supply partners about the availability and pricing of products. Don’t wait for a price increase letter to arrive in your inbox. Start having these discussions with your suppliers right away to understand how your margins will be affected moving forward.
Another way to insulate your business from stocking and supply issues is to minimize stock colors and increase on-hand supply. As a customer-focused industry, we all have an urge to offer as many colors as possible, but not every color is going to be readily available, and some could take months to receive. By increasing stock of your most popular colors, you can simplify your own supply chain and increase the availability of materials for your projects.
Lastly, distributors and fabricators should consider adding new materials into their offerings that could be less affected by some of these issues. As an example, sintered stone products such as Lapitec and Dekton, while being manufactured overseas and subject to shipping cost issues, are nonresin-based products and may not have some of the same feedstock supply and related cost concerns as their quartz slab counterparts. Consider domestic manufacturers who might be able to minimize shipping costs and shorten timelines.
Fabricators and distributors can also use this opportunity to upsell customers into new, more environmentally friendly materials such as Durat, Gilasi, Geos, and others that use portions of recycled materials that aren’t as affected by rising feedstock chemical costs. According to a recent survey conducted by 3M, the majority of homeowners surveyed — 74% — agree that using eco-friendly materials would make a strong impact on the environment and 70% plan to purchase such materials for their next renovation. Find a win-win by diversifying your offerings and championing those that minimize supply chain challenges and solve for a more stable, greener future.
The fact is that these challenges aren’t going away any time soon. It can take several months for the ripples in the supply chain to flatten, and that’s barring any new events. But unpredictable weather phenomena continue to happen all around us, so new ripples are possible. We watched tornadoes rip through the Midwest in December, and that was on the heels of a series of bizarre and extreme weather events in 2021, including drought and subsequent fires throughout California, Oregon and other areas, and devastating flooding in Europe and China — all of which are directly attributed to climate change.
Recently, the Russia-Ukraine conflict has exacerbated things by creating uncertainty in the global economy. Gas prices shot to new highs at the start of the war, and while they’ve since leveled out a bit while producers up capacity to compensate for sanctions, it’s a cost that impacts shipping and logistics, not to mention the chemical industry. Even if prices at the gas pumps drop, it doesn’t necessarily translate to the chemicals that support the resin industry dropping in kind. This is because the supply chain of bulk chemicals that feeds the resin industry is still capacity strained, and isn’t directly affected by movements in oil prices. European nations that are more closely affected by the Ukraine conflict face a more complicated outlook, so it’s safe to assume we’ll see some more negative consequences move through the market.
But by and large, it’s all about supply and demand, and demand will remain strong throughout most of 2022 while supply tries to keep up. It’s up to everyone — consumers and professionals — to be aware of the volatility in the marketplace and its consequences on our industry and to pivot to strategies that minimize risk.
Matthew Bodoff is a business development and marketing manager for INEOS Composites, a manufacturer of general-purpose and high-performance grades of unsaturated polyester and vinyl ester resins, gelcoats and low-profile adhesives for the plastics industry. To learn more about INEOS Composites, visit www.ineos.com/composites.