Dumping may spawn 30% drop in vitrified tile prices

The ceramic tile industry is likely to see a price meltdown in the vitrified segment in the current fiscal following the government's move to cut duty on imported ceramic tiles.

India had signed an agreement, which entailed rationalisation of duties, at the ASEAN summit held in Bangkok in December 2003.

According to Vijay Aggarwal, managing director, H&R Johnson (India) and also chairman, Indian Council of Ceramic Tiles & Sanitaryware (ICCTS), Indian companies will be forced to cut prices by further 30 per cent.

In effect, prices of vitrified tiles are expected to further decline during the new fiscal from Rs 60 per sq ft to Rs 40 per sq ft.

The overall price erosion recorded over the last two years in this segment has been 50 per cent from Rs 120 sq ft to Rs 60 sq ft.

The domestic industry has been fighting stiff competition from China as well as the problem of eroding margins over the last two years.

Although vitrified segment has been growing faster than wall and floor, net margins in the vitrified segment have dropped from 15 per cent in 2002-03 to 3 per cent towards the close of last fiscal as cheap vitrified imports are being dumped in the market by countries such as Indonesia and Malaysia under the pretext of wall and floor products.

According to ICCTS, the apex body of the Indian tile industry, the cause of eroding margins has been the high basic import duty on raw materials coupled with a demand-supply mismatch a result of huge overcapacities and dumping of sub-standard quality imports from unscrupulous importers and traders.

While the government has been rationalising imports duties, there has been no move to address the anomaly prevalent in the duty structure.

Currently, the basic custom duty applicable on import of raw material is 20 per cent, while the basic custom duty on imported tiles has been reduced to 10 per cent from select countries, including China.

This puts the local manufacturer at a disadvantage vis-à-vis importers as they have to sell locally manufactured tiles at a higher price compared with imported varieties in the same segment. Further, the current market scenario is not conducive to any price hikes.

It is estimated that goods worth Rs 100 crore are being dumped in the Indian ceramic tiles market. Following the rationalisation of duties, dumping of cheap imports is expected to rise by 100 per cent during the coming year.

It should also be noted that policy anomalies have happened at a time when a number of small and medium sized units in the wall/floor tile industry have shutdown as a result of poor performance and eroding margins.

The reasons for these companies' poor performance are - skewed capital structure, poor economies of scale, high duties paid on raw materials and squeezing margins as a result of the influx of cheap imports and new industry players.

Poor financial flexibility does not allow small companies to build a strong distribution network. Thus, they find themselves crushed between unscrupulous traders and unorganised sector who are not operating on a level playing field.