Tile exports from Morbi during July-September period has slowed down considerably due to non-availability of containers and also high ocean freight rates. Morbi exporters also now face the problem of rising natural gas price which will have to be passed on to the customers.
Morbi, which constitute 65-70% of the country’s tile manufacturing capacity, had been witnessing strong exports momentum till few months back as various countries had imposed anti-dumping duty on Chinese tiles making its products expensive and also due to prevailing anti-China sentiment owing to Covid-19 outbreak. International traders have been increasing import share towards India to hedge purchases. Tile exports were up 20% YoY in FY21 despite the washout in April-May 2020 due to Covid-19 lockdown. Export momentum continued to remain strong in April-June 2021 registering more than 25% 2 years CAGR. However, exports slowed down in July-September period and the growth fell to high single digit.
However, recent gas price spike has added to the cup of woes of Morbi tile manufacturers who are left with no options but raise the prices of end products as the gas cost accounts for nearly 30% of the realisation. Price hike has become necessary as the exporters are working on thin margins. However, the impending hike could have modest negative impact on margins (if buyers don’t agree to this increase on existing order) and could also potentially hamper new exports momentum apart from margin contraction in the interim.
Meanwhile, Morbi exporters derive consolation from the fact that gas price hike is a global phenomenon and not restricted just to India. In other words, exporters from other countries too may have to hike price to cover the increased cost of the natural gas. In other words, it may not have much impact on the competitiveness of the tiles manufactured in India.