Last week’s natural gas price reduction by the Gujarat government may provide much needed relief to ceramic tile manufacturers in Morbi. It should be noted that Morbi accounts for more than 60% of country’s tiles production. Also, exports from Morbi amounts to more than Rs 10,000 crore annually.
Last week Gujarat government announced a reduction of Rs 2.5/scm in natural gas prices to Rs 25/scm. Last week’s decision to reduce price follows earlier decision to cut gas prices by Rs 2/scm in June 2020. As a result, cost of gas has come down by 15% from May levels. The ceramic manufacturing units located mainly in Morbi, Surendranagar and Sabarkantha will benefit from the reduction. It should be noted that the cost of natural gas accounts for about 30% of the production cost for the tile manufacturers.
Gas price reduction may provoke the tiles manufacturers to go for price cuts in the domestic market which has failed to recover post relaxation of lockdown norms. Tile demand pickup has been very weak in metro cities as it is currently at 40-60% of previous year levels as against 60-80% for non-metro cities.
All these days, pricing by the branded players has been stable (for the final consumers), though they have reduced the discounts/schemes for the dealers which has reduced their margins by 2-3%. Further, in June Morbi players had increased the prices by 3-5% which may be rolled back due to the current gas price reduction.
Gas price reduction may also help the Morbi players to be more competitive in the international market and may help to boost their exports. Of late, Morbi manufacturers of tiles are reportedly getting more enquiries from the international customers who want to spread their sourcing points beyond China.
On the whole, tiles manufacturing in Morbi is limping back to normalcy with capacity utilisation is slowly reaching to pre-Covid levels. Also, the labour issue is getting sorted out as the migrant workers are coming back to work.