Raw Material Price Fluctuations and Industry Background
The first wave of raw material price hikes at the beginning of 2021 has hit PVC running tracks particularly hard, with the main materials used for such tracks seeing a more than 50% increase compared to last year. This has put significant pressure on production and construction companies in the sports flooring industry. In light of the challenges faced by these enterprises, it is crucial to understand the reasons behind the price fluctuations and adjust strategies accordingly.
Current Price Situation and Trends
The price of MDI, a main raw material for synthetic running tracks, rose sharply year on year, while other auxiliary-material prices were reported to have increased by multiples.
To provide some context, a PVC running track is part of the sports flooring series. We often refer to sports flooring as
The primary reason for the increase in PVC running track raw material prices: Recent extreme cold weather in North America has significantly impacted MDI production overseas. A total of 1.06 million tons of MDI capacity (accounting for 11% of global capacity) is currently under force majeure, with Covestro extending delivery periods for all products until the end of March. Additionally, Covestro remains under force majeure since October last year and is expected to continue until mid-2021. Currently, the Japan Takeda 400,000-ton/year MDI plant is operating at reduced capacity, while the Chongqing BASF (400,000 tons) is undergoing maintenance. The European Huntsman (470,000 tons) will also be conducting a one-month maintenance period. This has led to tight supply of MDI. On the demand side, the resumption of production and operations in downstream sectors is driving increased demand, supporting a significant increase in MDI prices and price spreads after the holiday season. As the demand peak approaches, MDI prices are expected to remain high for some time.
In 2020, the sports flooring industry faced a severe downturn, primarily due to the suspension of large-scale events such as sports competitions and concerts, leading to unprecedented operational challenges for numerous sports venues across the country.
The Sports Flooring Industry Chain Faces Pressure
Most school sports field renovation projects have been delayed until 2021. Typically, there are few construction projects for sports fields after the Spring Festival, but this year's demand has come earlier, and the recent rise in raw material prices has left manufacturers and contractors feeling helpless.
The Pressure on the Rubberized Track Industry is Evident
Currently, the surge in raw material prices has affected the rubberized track industry, putting significant pressure on the entire supply chain. DBC Group's market department has been tracking upstream and downstream data for a long time. They have learned from many industry insiders that there is considerable concern about the situation in 2021. Despite effective control of the pandemic and normal market operations, companies faced raw material price increases right after they started their operations, making it difficult for them!
Naturally, when material prices rise, product prices should follow. However, for sports flooring manufacturers, this is not so straightforward.
On one hand, the main customer base for these companies—schools—are funded by the government and usually have a budget set a year in advance. These budgets are typically implemented through bidding processes, where winning bids are often lower than the budgeted amounts. School sports field projects are still generally bound by the rule of low-cost bidding.
The Concerns of Testing and Inspection Institutions: Price and Quality Polarization in Rubberized Tracks in 2021
While raw material prices can rise, rubberized track prices are hard to increase due to the bidding rules, where clients still hope for lower prices! The competition in the rubberized track industry is intense, and professionals from multiple testing institutions are concerned that 2021 might see extreme price polarization. Some small enterprises may cut corners to survive, leading to substandard or toxic tracks, which could severely impact the industry's overall healthy development.
However, leading companies in the rubberized track industry, due to their large volume of use, have a certain time frame for locking in raw material prices. Raw material suppliers also have specific conditions or time windows for price increases. Additionally, these leading companies have advantages in scale and cost control, making them more resilient to fluctuations in raw material prices.
How Long Will This Wave of Raw Material Price Increases Last?
Historical Responses and Market Insights from the DPU Team
This is the most frequently asked question by industry consultants regarding DBC's DPU track team. As a DPU track team recognized for its numerous leading advantages within the industry, we are willing to share our insights on the market and our thoughts on future development at this critical juncture.
Before answering this question, let us briefly review some of DBC's initiatives and actions in 2020. In the entire industry, the DPU track team was the first to speak up and provided a systematic, comprehensive, and continuous voice. 2020 was also the most challenging year for judging market trends, akin to a math problem with no clear answer. Leading companies and industry experts organized video seminars with DBC's team. At that time, the industry was still in the learning and adaptation phase for video conferencing. Despite this, everyone overcame numerous challenges. Multiple companies began frequent video conferences with DBC's DPU track team in March 2020 to discuss market trends and raw material price analysis. The DPU track team accurately predicted the raw material price trends in 2020, urging multiple production and construction enterprises to stock up on materials at critical points and innovate distribution channels. We shared our information without reservation with scale and responsible peers, making precise calculations and executing decisions in early 2020 during the pandemic. The DPU track team achieved its full-year material sales targets in the second quarter of 2020, while prices began to soar rapidly in the third quarter.
DBC's DPU track team has always been meticulous in collecting market dynamics data, which has given us confidence for our next analysis. To put it simply, MDI supply will remain tight, and demand for sports flooring MDI will continue to increase from March to June. Upstream companies' expansion and production are expected to bring price relief in the third quarter (for reference).
How Should Companies Respond?
The 'price surge' has arrived, and no amount of worry can change the reality of raw material price increases. Therefore, instead of complaining about the price hikes, companies should proactively seek solutions to mitigate the crisis.
In a highly competitive market with rising operating costs, finding new growth points remains a viable strategy for sports flooring companies to escape crises.
Companies must understand the basic characteristics of their industry. Most construction projects for sports venues will be concentrated in summer and early autumn. Each company should have a clear and strategic positioning, including regional customer maintenance and brand management of their products. DBC's DPU track team welcomes all industry professionals to discuss market trends and precise development strategies. We will strive to ensure that agents and contractors receive fair pricing.
The Chinese Sports Flooring Market Never Lacks Positive News
In October last year, the General Office of the State Council issued the 'Opinions on Strengthening the Construction of Fitness Facilities and Developing Mass Sports,' which provided specific and actionable suggestions for building a higher-level public fitness service system. This timely rain has supported the thriving fitness industry. Subsequently, various local governments have introduced related implementation policies.
Recently, Shanghai issued the 'Opinions on Promoting Fitness Facilities Engineering and Strengthening Sports Venue Construction,' proposing to continue the construction of people-oriented fitness facilities such as smart fitness parks and fitness trails. It encourages technological innovation, promoting the application of new technologies, processes, materials, and equipment in fitness facility construction and management. Some netizens suggested, 'Fitness trails must use high-quality plastic surfaces that are environmentally friendly and do not harm knees. They should not just be marked on concrete as fitness trails.'
As the fitness and wellness sector continues to deepen, and more people begin to prioritize sports and health after the pandemic, the demand for sports venues will gradually increase. This will drive technological advancements in artificial tracks and turf, opening up new growth opportunities for the sports flooring industry. Companies should seize this opportunity to strengthen their core competencies and solidify their competitive position.
Additionally, due to factors such as rising raw material prices, technological progress, and the development of environmentally friendly products, there is a trend of increased pricing in sports flooring products. Owners of school sports fields, sports venues, urban fitness paths, and park leisure paths should adopt an objective and rational perspective on the price trends in the sports industry to avoid falling into the traps of substandard or hazardous tracks.
