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Stagnant demand has led to a situation of excess capacity for wall tile manufacturers in Gujarat's Morbi district. Adding to their woes is higher production costs, leading to tougher competition for small and medium enterprises (SMEs) from Chinese products, which are becoming viable in the global market.
In the past year, wall tile manufacturers' production capacity has increased by about 30 per cent, while actual demand has declined by nearly 40 per cent.
"Apparently, it is the wall tile makers who are to be blamed for this situation. Without understanding the market demand, many players increased their production, resulting in over-capacity," said M P Shorya, managing director, Orbit Cera Tiles Private Limited.
Shorya, who is also the secretary of the Morbi Dhuva Glaze Tiles Association, added that the ceramic industry in Morbi is not expected to emerge from the over-capacity situation for the next two years. Overall business, he said, will be down by at least 20 per cent over the next two years.
The ceramic tiles industry in Morbi had shut down operations for almost two months in November-December 2013 as a sign of protest, and had been demanding cheaper gas and reduction in excise duty and value added tax.
By the time the strike was over, pending orders had mounted, and the tile makers felt that their order book position was an indication of a rise in demand. As a result, many players increased their production capacity.
"We realised that it was not actual demand and we had made a wrong move. Because of it, currently we are utilising around 65 per cent of our total production capacity," said Nilesh Jetpariya, president of the Morbi Wall Tiles Manufacturers Association.
There are about 425 wall tile manufacturing units in Morbi, of which nearly 125 were started in the past one year.
As business in the domestic market is stagnant, the industry has turned to the global market. But fluctuating fuel prices have made competition against China harder on the international front.
"Production costs in China are cheaper than India. If the price of natural gas reduces or the government allows coal gas, then we will able to fight China," Jetpariya said.
The Morbi tile industry's cost of production of wall tiles per square metre is Rs 135-140, compared to Rs 110-115 per square metre in China, according to Jetpariya. Its international business has declined by about 20 per cent in the last three months.
