Asia Securities upbeat on tile sector

Friday, 29 October 2010 04:02 - - {{hitsCtrl.values.hits}}

Asia Securities is upbeat on the performance of and prospects for the tile sector in the country given the post-war upturn in housing and construction industry. Here are excerpts from a brief overview on the tile sector by Asia Securities:

Even though Sri Lanka’s ceramic industry boasts a history dating back couple of centuries the modern ceramic industry was originally the result of significant tax and investment incentives provided by the government in the 1970s.

Over time the ceramic industry’s competiveness was compromised due to the high cost energy charges, expensive imported inputs and inefficient production.

In addition Sri Lankan companies faced difficulty in tapping the high end international markets due to the underdevelopment in the local tile sector and ongoing labour difficulties.

Currently the local tile cluster is estimated to worth circa Rs. 20 b per annum with 6-7% averaging growth rates over the past few years.

Of the tile cluster 70% is contributed by floor tiles with an estimated production of 12.5 m sqm with a value of circa Rs. 14 b. The rest is contributed by the wall tile market with an estimated production of five m sqm per annum or Rs. 5 b an year. Yet Sri Lanka only holds a circa 0.2% share of the global market share.

The growth in demand for housing is a primary indicator of the ceramic sector growth together with the rate of construction approval. Since the initial cease fire period in 2004 the housing and commercial construction approvals saw a decline due to the artificial land and property prices together with the heightening of war and uncertainty in the island.

With the land and property sector in a turnaround period together with the economy in high gear the demand for tile related products is expected to increase in due course.

Further with the influx of Foreign Direct Investments together with circa 8.5% GDP growth prevalent in the country, the spending on construction related activities has seen a hike over the past few months.

Presently the Sri Lankan tile cluster is on a low base with the per capita tile consumption only at 0.6Sqm in comparison to developed countries like Europe which averages five to six sqm per person, Brazil (2.5 sqm per person) or the tile manufacturing giant China which has a per capita tile consumption of 2 sqm per person. With the economic growth and budding investments averages would be boosted consequence to the rising income.