Gujarat's ceramic tiles hub to take month-long break after production glut

'Leave' in August could be annual feature and will follow Chinese industry taking a break every February

India's largest ceramic tiles manufacturing cluster in Morbi, Gujarat, will shut for a month in August as it predicts demand falling after enhanced capacity created a glut.

Except for the lockdowns two years ago to contain Covid-19, the industry rarely shuts down production completely. It now plans to make the month-long "leave" an annual feature, similar to China's ceramic industry taking a break every February.

"On one hand, the domestic construction activity has slowed down since the last 4-6 months due to rising input costs led by cement and steel prices. On the other hand, newer units with enhanced capacity have come up in Morbi, leading to an increase in inventory across units. Hence, in order to avoid any glut in the industry, all units have decided to go on a month-long vacation in August 2022 to ease the demand-supply gap," said Mukesh Kundariya, president of Morbi Tiles Association and president of the vitrified tiles division of Morbi Ceramic Manufacturers' Association.

After Russia invaded Ukraine and started a war late February, the industry has been witnessing delay in shipments of export orders and freight rates have increased. Alongside, construction activity has slowed down as inflation prompts customers to defer property purchases. As a result, the Morbi ceramic industry’s inventory has grown by 30-40 per cent and stock stays unsold for around 30 days.

In six months, 70 new units have come up in Morbi. The month-long shutdown is also expected to reduce operating costs and overheads.

Order slowdown

• Inventory at Morbi ceramic cluster up by 30-40%
• With 30 days of stock unsold, cluster has planned month-long shutdown
• Around 70 new units have added capacity amid slowdown in orders
• Morbi has roughly 820 units with annual turnover of Rs 55,000 cr
• The ceramic cluster’s annual exports stand at Rs 16,000 cr

"As such, a lot of workers go on extended leaves during August due to multiple festivals. Given that inventory has been rising and supplies are not getting picked up so swiftly, a month-long shutdown is expected to ease the overheads and other cost pressures for the industry as it tries to match demand and supply," said Nilesh Jetpariya, managing director of Sonex Tiles, one of the leading tile manufacturers.

The Morbi industry has already staggered production and reduced capacity utilization. It has come down to having 1000 units to roughly 820, including those added this. Small ceramic units have a daily capacity of 7000-8000 square metres per day and large ones have a capacity of over 30000 sq mtrs a day.

K G Kundariya, an industry veteran and chairman of Win-tel Group, said Morbi ceramic cluster's annual exports tend to be to the tune of Rs 16,000 crore and total turnover stands at roughly Rs 55,000 crore.

Fuel cost is a factor in the shutdown. The Morbi industry uses natural gas supplied by state-run Gujarat Gas Ltd., accounting for roughly 70 per cent of the city gas distribution (CGD) player's industrial gas sales.

"Gas prices account for more than 30 per cent of ceramic units' input costs. Already, the cluster had witnessed over 80 per cent price hike in gas prices six months ago from Rs 32 per standard cubic metre (scm) to Rs 62 per scm plus taxes," said Kundariya.