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Concentration Ratio is Expected to Increase - Competitive Status of China’s Building Ceramics

Enterprise Quantity Firstly Increases and then Decreases
The production capacity of China's building ceramics has expanded rapidly in recent years due to a relatively low threshold of entrance and a great demand for the industry, as well as a sustained and rapid economic growth of the national economy.
According to China Building and Sanitary Ceramics Association, from 2007 to 2011, growth in output of China’s building ceramics exceeded 10% per year. However, with the adjustment of China's real estate market regulation policy and changes in international trade situation, the growth after 2012 tended to slow down. In 2017, the production of China’s building ceramics was 10.15 billion square meters, down 1.15% from 2016.

Similar to the change in the output of building ceramics, the development of China's building ceramics enterprises has accelerated. Coupled with numerous small-scale production enterprises and upstream and downstream supporting enterprises, the number of related enterprises in the industry is huge and widely distributed. However, with the strengthening of national environmental supervision and the poor export situation, the competition in the building ceramics industry has become increasingly fierce. According to the National Bureau of Statistics, as of the end of 2017, there were 1,551 enterprises above designated size in China's building ceramics industry, a decrease of 61 from the previous year.

High-end Enterprises come to the fore
As the market demand growth rate is less than the capacity expansion rate, coupled with the increase in the cost of water, electricity and oil transportation, the profit margin of enterprises is compressed, and the competition between enterprises becomes more intense. On the whole, the low concentration and highly decentralized structure of China's building ceramics industry is not conducive to the sustainable development of the industry. With the domestic economy entering a new normal, the structural adjustment of the building ceramics industry has become a clear trend. In recent years, some enterprises in the industry that are lack of independent brands, have backward channel construction, and weak technological innovation capabilities have gradually been eliminated in the fierce market competition.
With the deep competition in the industry, comprehensively evaluating from product research and development capabilities, brand awareness, sales model and scale of production and sales, there are high quality building ceramics brand enterprises that are particularly outstanding with WONDERFUL, NABEL, OCEANO, MONA LISA, DONGPENG as representatives. These enterprises mainly focus on middle and high-end market.
The outstanding characteristics of the high-quality building ceramics market are the pursuit of product quality, the emphasis on individualized demand along with rapid trend change and high product price. Therefore, the requirements for enterprises, such as their research, development and promotion capabilities of new product, productivity advancement and brand awareness are relatively high.
Chart 3 Differences Between High-quality building ceramics Enterprises and Regular building ceramics Enterprises
In recent years, high-quality building ceramics manufacturers have expanded their sales share through unique brand marketing strategies, continuous introduction of new products, and channel upgrades, thus increasing the overall concentration of the building ceramics industry. In the future, with the further improvement of domestic consumption capacity, consumers will prefer high-quality building ceramic products, and the concentration of the building ceramics industry will be further enhanced.
Concentration Ratio is expected to Increase
Reason One: Multiple-brand Strategy and Merger & Acquisition Become Future Trends
Due to the non-standard ceramics, numerous categories and homogenization, for leading enterprises, brand power is the core of shaping. However, single brand covering all categories is prone to location ambiguity. In recent years, Jinni, a brand focus on high-end decoration and marble tile, has achieved great success. The sales volume of Jinni is over one billion Yuan and the cost of investing in precision advertising amount to hundreds of millions of money. It is believed that for ceramic leading enterprises, brand segmentation may become an inevitable trend to build a strong brand. The boundaries among the brands should also be clearly defined to avoid the situation where different brands that have appeared in history eventually tend to homogenize or even compete with each other.
Reason Two: Hardbound Room Bring Industry Changes, Building Ceramics Regain Scale Advantage
For the second echelon, hardbound room is a shortcut to quickly expand the volume in the next two or three years. For enterprises like DONGPENG and MARCO POLO, the sales pattern of ceramic tiles is mainly through channel distribution. In project channel, procurement from real estate clients is centralized with limited varieties, and the purchase volume is large, therefore the scale advantage of ceramic tile production is brought into play.
According to the calculation of commercial housing sales area of 1.694 billion square meters in 2017, the current demand for hardbound room ceramic tiles is 610 million square meters, corresponding to an output value of 27.5 billion yuan. At present, the concentration of real estate developers has increased rapidly. In addition to the top three real estate developers, other tops such as Poly, Zhonghai, etc. have also rapidly increased the proportion of hardbound, and the tiled hardbound rooms direct-supplying is faced with opportunities.
According to the forecast, due to the dual pressures and influences of environmental protection and market, building ceramics industry market grew slowly in 2017, and the market capacity remained at around 500 billion yuan. Judging from the operating performance of major building ceramic enterprises, the market size of leading enterprises in the industry is still small. For example, Everjoyhealth Group's ceramic tile business revenue in 2017 was 798 million yuan, MONA LISA's 2017 ceramic tile business revenue was 2.830 billion yuan, and HUIDA  Sanitary Ware's 2017 revenue including ceramic tile revenue was 313 million yuan. SITONG Group’s operating income including sanitary ceramics revenue was $73 million.
As the consumption structure in the domestic market continues to escalate and the country continues to promote the green transformation of the building ceramics industry, leading enterprises in the industry will further play their advantages in design, research and development, production and sales to achieve rapid development. With the branding and high-end of the building ceramics industry, as well as the omni-channel era, the era of hardbound rooms, and the arrival of the Internet era, the rapid development of leading enterprises in the industry will be further promoted, and the market share of leading enterprises in the industry will be further increased.
It’s proved that exchanges lead to progress, organizing and conducting enterprises to join international exhibitions, business investigations and communication activities between domestic and overseas industries will greatly enhance enterprise competitive ability especially in the aspect of technology, only by upgrading technology shall enterprises adapt society's development. CERAMICS CHINA, a mature international ceramics exhibition organized by a group of industrial professionals, will mark her 33th birthday in 2019. At CERAMICS CHINA, the most cutting-edge technologies and products from home and abroad are launched and displayed, while business networking and cooperation are completely performed for all insiders. Enterprises have to seize the opportunity as a perfect platform to exchange views with their international counterparts in order to exploit market. From June 18th to 21st, 2019 at Area A, China Import and Export Fair Complex, countless leading enterprises in building ceramics industry will make their debuts in CERAMICS CHINA. We look forward to greeting you there!