What’s irking tile manufacturers in Morbi?
Tile manufacturers in Morbi are crying foul over a hike in natural gas prices by Gujarat Gas, their main fuel supplier. The Rs 4.37 per SCM hike (excluding taxes, for a three-month minimum guaranteed offtake) in prices will cost the industry about Rs 100 crore extra a month, given that the 950-odd units in the area consume 70 lakh cu m of gas daily.
“The 10-12 per cent increase in gas prices comes at a time when we are already struggling to cope with higher coal and freight charges, both of which have almost doubled,” says Mukesh Kundariya, President, Morbi Tile Association, and Managing Director, Segam Tiles.
Tile manufacturers in Morbi are crying foul over a hike in natural gas prices by Gujarat Gas, their main fuel supplier. The Rs 4.37 per SCM hike (excluding taxes, for a three-month minimum guaranteed offtake) in prices will cost the industry about Rs 100 crore extra a month, given that the 950-odd units in the area consume 70 lakh cu m of gas daily. “The 10-12 per cent increase in gas prices comes at a time when we are already struggling to cope with higher coal and freight charges, both of which have almost doubled,” says Mukesh Kundariya, President, Morbi Tile Association, and Managing Director, Segam Tiles. “Our production cost has increased by 12 per cent.” Disadvantage Morbi Ostensibly, the gas price hike was an outcome of the significant increase and volatility in international natural gas prices. However, tile manufacturers point out that other gas suppliers haven’t jacked up prices likewise. Hiren Kanani, Managing Director, Toro Global and Famous Ceramic, echoes the fact that other gas suppliers have not increased prices on the same lines as Gujarat State Petroleum Corporation. “Gas prices fluctuate based on the international price as well as the suppliers’ objectives,” observes Hiren Varmora, Managing Director, Varmora Group. “Suppliers who are focused on promoting consumption tend to offer more competitive pricing.” Consequently, manufacturers in other parts of the country aren’t suffering like their counterparts in Morbi. “Manufacturers outside Morbi don’t operate at the same scale as we do and, in any case, they have alternative fuel options,” notes Kanani. “Even manufacturers in other parts of Gujarat depend on coal and/or liquid natural gas, which have seen more or less constant prices vis-à-vis gas.” “Other manufacturers [out of Morbi] don’t play in the mass market like us; they play in minority markets, they consume less, they produce less and they serve multiple customers,” agrees Harshil Patel, Director, Ibiza Luxury Surfaces. Manufacturers’ demands Morbi’s tile manufacturers want a rollback of the recent price hike. We would like the government to cut the price of gas to lower our production costs and make our domestic and international pricing more competitive, says Hardik Patel, Director, Flais Granito. “Our production cost has risen 15-20 per cent after the pandemic while the price of ceramic tiles has stayed stagnant all this while as our end-consumers, the real estate industry, is very price sensitive.” “If we don’t put pressure on the government, the price hike in gas will become permanent,” says Harshil Patel. “Gujarat Gas should reduce prices, else the government should allow coal gas plants again.” He also believes Gujarat Gas’s gas price is high according to its caloric content, more than what tile manufacturing companies pay in competing countries, such as China, Italy and Spain. Having made India the third largest ceramic tile manufacturing country in the competitive global ceramic market, practically without government support, Morbi’s tile manufacturers now want government backing for their next phase of growth, he emphasises. Exports from India are likely to grow 25-30 per cent in FY22 on the back of several countries levying anti-dumping duties on Chinese tiles and the cost-competitiveness of Indian tiles. Tile exports rose 40 per cent year on year during July-December 2020. Some 65-70 large greenfield plants are expected to become operational soon to cater to overseas demand. “Tile manufacturers in competitor countries like China have the full support of their government,” says Sandip Patel, Director, Oasis Tiles. “We would do better if we had a package deal from the Government covering our key input costs.” “About 30 per cent of our production is for export, says Kundariya. “To improve our export prospects, the Centre should increase the incentive to 10 per cent from 1.5 per cent. Only then would we be able to make inroads into challenging markets like the GCC, where Chinese tiles attract 23 per cent duty and Indian tiles attract 42 per cent duty.” “In interactions with the Government, we have asked for sufficient notice to adjust our manufacturing, which we typically plan two months in advance, and for the price rise to be optimised so the Government makes money and we have some leeway to negotiate with our channels,” shares Varmora. “We are too large an industry to be thrown a significant price rise almost overnight. We don’t want to disappoint our channels; it’s bad for business. All we are asking for is decent numbers and decent time.” “India is home to the world’s second largest tile manufacturing cluster, competing with China in the global market,” he adds. “Government backing would help the industry reach its potential.” Poor government response Where the industry is looking for more support, the Government is doling out less. With the conversion of the Merchandise Export from India (MEIS) scheme to Remission of Duties and Taxes on Export Products (RoDTEP), export incentives have effectively reduced from 2.5 per cent to 1 per cent, says Kanani. As gas (fuel) accounts for anywhere between 35 and 50 per cent of the cost of production, the industry is looking at a desperate measure to curtail supply and push prices up—a shutdown. “About 100 of 275 vitrified tile manufacturers have already closed while 250 of 350 ceramic wall tile manufacturers will close,” reveals Kundariya. Morbi has about 950 units spread across ceramic and vitrified tiles. “About 80 per cent plants are going to shut down, possibly for a month, to improve pricing,” according to Kanani. A price rise is another coping mechanism but bad news for real-estate developers. “Currently, demand is fairly low and, therefore, any price increase would not be easily acceptable,” says Kanani. “But we will need to increase basic prices by 10-15 per cent. Increases in other expenses necessitated a 5 per cent increase in prices, which we absorbed. But now with the gas price hike, the cumulative impact is considerable and we will have to pass it on to customers.” “We’ve increased prices by about 10 per cent,” says Sandip Patel. It’s only a matter of time before others follow suit. - CHARU BAHRI