Time to move into Spanish & Italian Ceramic markets

The quantity and quality of Indian bathroom ceramics has also undergone major improvements in recent years. The present European situation offers and unprecedented opportunity to Indian ceramic producers to take a larger share of the US$ 72 billion world market and improve on its 2021 rank of no.5 after China, Germany, Italy & Spain. 

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“Gas price surge pushes Europe’s ceramics industry to breaking point”, was Reuters headlines on 29th October 2022. Energy is almost 30% of the cost of manufacturing ceramic products. Factories in Europe’s energy-intensive US$ 35 billion ceramics industry are facing energy costs rise of over 1,000% since Russia’s invasion of Ukraine. One company has seen the monthly gas bill for € 127,000 (US$ 126,000), compared to € 18,000 last year.

One of the largest ceramic tiles companies of Spain, Grespania, has already reduced its annual ceramic tile production by 15% since last November and plans to make a similar cut in the second quarter of this year, should gas prices stay high. Many ceramic tile makers in several European countries have closed down their factories amidst the rising cost of gas, which will lead to a major crisis in the construction industry, according to a report by “Surfaces Reporter.”  European countries are already passing through record inflation and companies may not be able to pass on additional costs to customers. 

But surging gas prices have caught out companies in an energy-intensive business, leaving them to choose between passing on higher costs to customers and scaling back or halting production. And all at a time when many feel that energy transition costs are already hurting them. Recently, Iris Ceramica Group, one of Italy’s leading manufacturers has had to introduce an energy surcharge of 3% on invoices to help cushion the blow. Big bulk buyers are refusing to pay for these increases. With no short-term solution in sight, the final quarter of the year could turn into a blood bath, warns Giovanni Savorani, the head of Italy’s Confindustria Ceramica federation.

Although India is the second largest producer and fifth largest exporter of ceramic tiles, its market is largely limited to Middle East where it has a 25% market share. The next is US with a market share of 8%. The balance is distributed among a large number of smaller markets. Before the energy crisis, India was already the lowest cost producer in the world and has started reaching out to new markets such as Indonesia and Poland. Taking advantage of the energy crisis in Europe, it is time for the industry and the government to jointly seek new price sensitive markets which are dominated by Spain and Italy. 

For example, Italy and Spain combined exported ceramic products worth US$ 87 million to WAEMU (West African Economic Union) in 2021 while India’s exports were at US$ 37 million. This is a price sensitive market and India can certainly increase exports substantially. Similarly, these two European countries exported US$ 1.62 billion worth of ceramic products to Russia in 2021 while India’s exports were US$ 60 million. Looking at the current political situation, India can leverage its emerging advantages of shorter multi-modal route through Iran and the India-Eurasian Free Trade Agreement under final negotiations.

Central European countries like Poland also offer opportunities to increase exports. India’s exports have risen three times from US$ 28 million in 2017 to present US$ 89 million in 2021. Still, it has captured only 8% of the Polish import market of US$ 1.2 billion. Spain and Italy combined exported US$ 230 million and China exported US$ 347 million in 2021. China no longer offers a cost advantage as has been seen in the Indonesian market. Therefore, India should make additional efforts to capture additional market share in Central European countries. In the East, Philippines and Australian markets offer good scope for increasing exports. 

The quantity and quality of Indian bathroom ceramics has also undergone major improvements in recent years and the global US$ 9 billion market offers bigger opportunities as fewer countries offer competition in this market. Germany leads the market but its industries are also suffering from unprecedented gas prices.

In summary, today, the European political situation offers and unprecedented opportunity to Indian ceramic producers to take a larger share of the US$ 72 billion world market and improve on its 2021 rank of no. 5 after China, Germany, Italy & Spain. 

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The author is Consultant, Centre for VUCA Studies, Amity University & Research Advisor, GOG-AMA Centre for International Trade. Views expressed are personal.