Largest ceramic manufacturing cluster bears brunt of gas price hike

The Russia-Ukraine conflict has had an impact on Asia’s largest ceramics manufacturing cluster in Morbi (Gujarat) as the industry is facing natural gas supply and price hike issues.
 

Housing more than 1,000 units that manufacture ceramics and vitrified tiles for both domestic and international markets, the cluster in Morbi largely consumes natural gas supplied by state-run Gujarat Gas.
 

In fact, Morbi accounts for roughly 70 per cent of Gujarat Gas’ industrial gas sales.
 

However, the conflict has led to not only a spike in natural gas price but also challenges in sourcing liquified natural gas (LNG). The ceramics cluster has seen Gujarat Gas supply only 80 per cent of the contracted volume at agreed prices.
 

“Gujarat Gas has asked us to purchase the remaining 20 per cent, if needed, at prevailing market rates. The current agreed price of Rs 62 per standard cubic metre (scm), including taxes, has been unviable for the industry. With the prevailing rates being as high as Rs 150-160 per scm, several units will have to forego production and orders,” said K G Kundariya, chairman of Win-tel Group, one of the leading exporters of ceramic tiles from Morbi.
 

An emailed query to Gujarat Gas did not elicit any response.
 

As fuel, gas prices account for more than 30 per cent of the ceramic units’ input costs. Already, the cluster had witnessed over 80 per cent hike in gas price six months ago. It went up from Rs 32 per scm to Rs 58 per scm.
 

According to Kundariya, the price hike had come amid a fall in the domestic construction market as well as international demand, due to the pandemic.
 

“The Morbi cluster is a leading exporter of ceramics to regions like the Middle East and Europe, apart from other western markets. But with container shortage and high freight rates coupled with a lull in economic activity due to the pandemic, there was a fall in orders,” he said. As a result, the ceramic cluster’s turnover of Rs 40,000 crore, including exports worth Rs 14,000 crore, has fallen in recent times to Rs 25,000 crore. This includes exports of Rs 6,000 crore.
 

This led to a fall in capacity utilisation across units, with 10 per cent of units seeing a drop to only 40 per cent of normal, said Nilesh Jetpariya, former president of Morbi Ceramic Association and managing director of Kera Vitrified LLP. “With gas prices already being unviable and supply being constrained, the industry is unsure of taking orders for the next month,” Jetpariya added.