New Year's Peeve

2020 starts ugly.
It's not an omen.

By Emerson Schwartzkopf

No job. No paycheck. No insurance. Yes, happy new year to 1,000+ in the hard-surfaces industry, as Clio Holdings locked the doors across the U.S. Midwest and South on Jan. 3.

That’s bad-enough news, but the message worsened less than two weeks later, when the stone-fabrication consolidator filed a Chapter 7 liquidation bankruptcy and told creditors – including those ex-employees – that there weren’t any real assets to satisfy debts.

The thought can run through anyone, from sawyer to salesperson to shop owner: Is this gonna happen to me?

In almost all cases: No. Hard-surface company failures may not be as rare as a lighting strike in the middle of the Holland Tunnel, but Clio Holdings isn’t the beginning of 2020’s big industry trend.

Unless the dissolution of the company involves hard-nosed litigation and juicy depositions, we’re unlikely to hear exactly how Clio Holdings unraveled during a two-and-a-half-year period. However, there’s one factor that worked into the lead of a Jan. 17 Wall Street Journal article on the bankruptcy – the trade war with China and those big tariffs on Chinese quartz-surface products. (The Journal article is behind a paywall.)

The Journal covers a lot of ground and – let’s be honest – countertops and dimensional surfaces don’t have their own coverage desk at the publication’s New York HQ. Trade problems with China, for a general outlet like the Journal, are a good news peg that most readers will understand.

I’ve also talked to Jonathan Stoel, one of the attorneys representing clients fighting the large unfair-trade tariffs on Chinese quartz. (In fact, he appeared in the November-December 2019 issue of Stone Update Magazine.) In the Journal article, he made some good points about the tariffs causing a problem with the supply of low-cost products.

I respect both the Journal and Mr. Stoel. And, I also respectfully and strongly disagree with them on this topic when it comes to the Clio Holdings situation. It’s not cause-and-effect, because U.S. quartz-slab import numbers don't show a cause.

I’ve been a business journalist for decades, and one of my real passions is reporting on data. I’ve taking a close look at hard-surface import numbers for years. Stone Update Magazine runs regular summaries of U.S. hard-surface imports, and we’re launching Hard-Surface Report, a monthly e-publication devoted entirely to the subject, in March.

Do those numbers show that the quartz-surface-tariff situation with China, or with any other country, created a problem with supply or price of lower-cost goods?

Here’s a chart that looks terribly complicated (and, for mobile users, a bit wee, so turn your phone sideways). However, it’s relatively simple; it’s the per-square-foot value of quartz-slab imports from January 2018, before the tariff brouhaha began, to October 2019.

The declared customs value isn’t equal to wholesale prices of quartz slabs, but it does reflect the cost of goods arriving at U.S ports-of-entry. Roll your cursor (or, for touchscreens, finger) over any of the bars on the chart, and you’ll see the month-to-month changes.

In mid-2018, Chinese exporters flooded the U.S. market before announcements on preliminary tariffs. Near the end of 2018, Chinese quartz-slab imports come off the chart, as those tariffs of up to 300%-plus took hold. The material returns during a two-month window in early summer 2019 due to a 60-day loophole in enforcing the new unfair-trade tariffs (although the blanket 25% Section 301 duties imposed by the Trump administration were in effect).

What you don’t see in the chart is a huge change in square-foot values from India or Turkey, the two largest producers of lower-cost slabs. If anything, their square-foot values drop as China exits the market and the two ramp up U.S. shipments. The overall square-foot values from all U.S. imports show some increase, but it’s not dramatic.

Prices didn’t go wild when Chinese quartz surfaces exited the U.S. market. Supply didn’t drop, either. For example, in January 2018, total U.S. imports stood at 11.4 million ft². In October 2018, after China left and India and Turkey came under U.S. investigation for below-market quartz-surface sales, total U.S. imports came to 12.4 million ft². Imported quartz is no scarcer now that before the big Tariff Tiff.

January 2018’s square-foot value was $7.89. October 2019 overall import value came to $8.56. That’s a basic hike in materials of 8.5% in 22 months, which outpaces inflation … but it's not a killing blow.

There are plenty of other reasons for failure of any fabrication company: mediocre management, misdirected efforts, unrealistic targets, bad pricing strategies. Clio Holdings also dealt with something the average shop doesn't face: tens of millions of dollars in debt service to acquire all those fabrication companies, which compounded any other faults.

Clio Holdings didn’t fail victim to the U.S.-China trade war, or restrictive tariffs blowing its materials cost sky-high. It failed for reasons all its own, and it’s not the kind of thing that’s going to go viral in the hard-surfaces trade. Staying sharp is the key that keeps the doors open.