High natural gas prices, now at ₹90 per SCM, have forced nearly half of the 900+ ceramic units in Morbi to shut down or scale back. With export volumes dropping 70% in early FY2027, the region faces a major operational slowdown. While larger manufacturers are using diversified plants to protect profit margins, smaller players face severe financial strain.
The Morbi ceramic manufacturing cluster in Gujarat is facing a significant operational crisis as energy costs remain volatile. The industry, which relies heavily on natural gas for kiln operations, has been hit by a sharp increase in fuel prices. With natural gas costs now reaching approximately ₹90 per standard cubic metre (SCM), manufacturers are struggling to manage production expenses, which typically account for 35% to 40% of their total costs.
The impact on the ground is stark. Industry data indicates that approximately 50% of the 900+ ceramic manufacturing units in the region are currently operating at reduced capacity or have completely paused production. This widespread shutdown has severely impacted output and export competitiveness, with ceramic tile exports from the region declining by roughly 70% during the first quarter of fiscal year 2027 compared to the same period in the previous year.
To manage these rising costs, manufacturers have implemented price hikes on tiles ranging from 30% to 40%. However, this strategy has been difficult to sustain in a competitive global market, as buyers look toward alternative sources like China, Turkey, and South Africa due to the supply uncertainty in the Morbi region.
The ongoing crisis highlights a sharp divergence between large, organized players and smaller manufacturers. Larger industry entities have been able to mitigate these risks by diversifying their manufacturing footprints. By operating facilities across various parts of India, rather than relying solely on the Western corridor, these companies have maintained more stable profitability. For instance, major players have managed to keep their operating margins in the 18% to 19% range, whereas smaller, unorganized units in the Morbi cluster are reportedly seeing their margins drop to as low as 4% to 6%.
This gap in operational flexibility places significant pressure on the smaller, independent units that make up the bulk of the Morbi hub. Beyond fuel prices, the industry is also grappling with logistical challenges, including sharp increases in container freight rates, which further erode export margins. While propane supplies have seen some stabilization, the persistent geopolitical instability in West Asia continues to cast doubt on the future of energy pricing and availability.
The most important monitorable for investors and stakeholders in the coming months will be the trend in industrial gas prices and the speed at which the shutdown units can return to full operational capacity. Market participants will also be watching to see if the ongoing stress leads to a period of industry consolidation, where larger, financially stable players increase their market share at the expense of smaller, struggling units.