The good news is that the record housing starts and strong remodeling market in 2003, along with the beginning of a recovery in the commercial sector, boosted the demand for sanitaryware products in the U.S. American Standard, for instance, reported that sales it its Bath and Kitchen segment rose 4% in the Americas from 2002 levels, while sales in Jacuzzi Brands, Inc.'s Bath segment increased 14.3% for its 2003 fiscal year (ending September 30, 2003), largely due to higher U.S. sales.

The bad news is that the demand for sanitaryware in the U.S. is increasingly being filled by imports. According to the U.S. Department of Commerce, U.S. imports of china plumbing fixtures and china and earthenware bath accessories rose by 9% from July 2003 to June 2004 compared to the same period a year earlier. Imports from top-ranked Mexico increased by 13% to $126 million. While China remained in second place at $47 million, total imports from China were down by 7% compared to the previous year. As with ceramic tile, Brazil showed the biggest gains, with imports increasing 45% to $23 million (see Figures 1a and 1b).

The impact of this trend continues to be felt by workers in the sanitaryware industry. In October 2003, Crane Plumbing closed its Fourth Street plant in Ontario, Ohio, leaving an estimated 230 people without jobs, and earlier this year, Jacuzzi Brands downsized Eljer's Ford City, Pa. plant, eliminating approximately 200 positions.

In June 2004, American Standard cut 212 workers from its Tiffin, Ohio, plant in an effort to make the plant more efficient. Although about 150 employees remain in Tiffin, the plant will now focus on products that require fewer manufacturing steps, which will allow it to concentrate on producing less complex, higher-volume products. The company reported that some of the products previously manufactured in Tiffin have been shifted to plants in Mexico and Asia.

A letter sent to affected workers at the Tiffin plant summarizes the struggle faced by many U.S. sanitaryware manufacturers. "The reality is that Tiffin's costs are among the highest of any of our ceramic bath and kitchen plants.... At the same time, there are other plants with available capacity today that make the same products we do at a comparable quality and significantly lower cost," the letter stated.¹

Meanwhile, exports of U.S. sanitaryware products are also strengthening. The U.S. Department of Commerce reported that total U.S. exports of china plumbing fixtures and china and earthenware bath accessories climbed 20% in the July 2003 to June 2004 period, with Turkey (+91% to $574,000), Mexico (+50% to $12 million), the UK (+49% to $2.4 million) and Taiwan (+49% to $585,000) capturing the largest gains (see Figures 2a and 2b).

Saudi Arabia (+34% to $677,000) and the United Arab Emirates (+34% to $897,000) also posted solid increases, underscoring the growing importance of the Middle East in the global economy. However, as with other U.S. products, the total value of exports remained well below that of imports-$58 million compared to $293 million, respectively.

Innovations Spur Demand

As competition on the global playing field intensifies, companies are having to become more creative in how they position their products in the market. Partnering with major home improvement centers, such as The Home Depot and Lowe's, continues to offer benefits, and a demand for total bathroom suites is also on the rise.

Product innovations are also generating increased sales. For example, American Standard noted that its new Champion toilet, which was introduced in June 2003 and features the company's patented America's Best^TM Flushing System, established a strong presence and achieved good distribution in the wholesale channel in the last half of 2003 at product margins that were better than the category average. The system uses a flapper-free, gravity-fed technology that is designed to flush quickly, quietly and completely-eliminating the possibility of clogs. (The toilet has been shown to remove up to 29 golf balls during one flush.)

In an effort to capitalize on the remodeling market (which is even larger than the new housing construction market in Japan), TOTO has developed a strategy of introducing new products that "promise a new lifestyle that exceeds customer expectations" and thereby encourage consumers to remodel. For example, the company's new PureRest tank-style toilet incorporates easy-to-clean rimless basins and the patented Tornado^TM flush action for efficient water usage. The company has also had success with its remote-controlled Neorest toilet, which uses as little as 1.2 gallons of water, has a seat warmer and air deodorizer, and automatic flushing and lid lifting/closing (and reportedly carries a price tag of around $5000).

Continued Growth Expected

The continued growth of new housing construction and remodeling in the U.S. bodes well for future sanitaryware demand. According to a recent study from The Freedonia Group, Inc., U.S. demand for plumbing fixtures and fittings is forecast to increase 3% per year through 2008 to $9.6 billion.² Also aiding the demand for plumbing products will be continuing trends toward larger bathrooms and kitchens in residential markets. However, most of the gains will be in metals, plastics and other materials used in higher-value products such as whirlpool bathtubs and hot tubs; sales of vitreous china plumbing products are expected to remain relatively flat through 2013 (see Figure 1). The market share of imported products will also continue to rise.

The Freedonia Group also notes that while residential markets for plumbing fixtures and fittings accounted for more than 65% of total demand in 2003, strong growth in the nonresidential and other markets are expected to provide better prospects through 2008.

Regions outside the U.S. will likely provide additional opportunities, as growth continues in Asia, Eastern Europe and the Middle East.

Editor's note: The foregoing information (except where noted) was compiled from publicly available information in annual reports and news releases.