Rising Gas Prices Upset Input Costs For Tile Makers

The ongoing rise in crude oil price does not bode well for tile manufacturers. Brent crude is trading at $78 per barrel, with prices having jumped around 10% in just one month. The jump of 50% in spot gas prices in one month could also compound the cost inflation problems of tile companies. Analysts note that Singapore spot gas prices have more than doubled in the past three months and this has translated into higher gas procurement charges for tile companies. Not just Singapore, but also the Henry Hub (US) gas prices have also seen more than 50% jump in the past three months. In simple terms, if global crude and gas prices remain at elevated levels, domestic gas prices will increase further, necessitating more price hikes by the entire tile industry. “Somany Ceramics sources around 7% of their gas requirement from spot while the mix for Kajaria Ceramics is volatile (nearly 40% of total gas requirement is sourced from spot or Henry Hub). Our calculations indicate tile players would have to take a blended price hike of around 8-10% in FY22 to sustain margins, out of which nearly 2-3% has already been taken," JM Financial Institutional Securities analysts said in a report. Tile demand is gradually improving, giving producers some confidence to raise prices, but the impact on margins remains to be seen, analysts said.