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Glass & Ceramics

Glass Industry

Background 

All glass items ranging from flat glass (including sheet, float, figured, wired, safety, mirror glass), hollow-ware containers, vacuum flasks, refills, laboratory glassware to other items such as bangles, beads, pearls etc. are covered under glass industry.  

The glass industry in India manufactures almost a complete range of glass items and its annual turnover is estimated at around Rs. 30 billion. Glass products are manufactured both in the organised and small-scale sector and the major segment of tiny and small-scale sector is concentrated in Ferozabad, Uttar Pradesh. However, the large units are spread over throughout the country.  

The pattern of growth in the glass industry is moderately cyclical as it is a derived demand. In particular, two segments—automotive and housing—account for a majority of the glass demand in India. Thus, the returns in the sector are dependent on the growth in these segments.

Size 

  • The production of glass & glassware during 2005-06 was 7,57,987 million tonne and during 2006-07(up to December) was 6,08,273 million tonne. The export and import of glass & glassware during 2005- 06 was of the magnitude of Rs.1043.68 crore and Rs.1306.97 crore, respectively.
  • Around 70% of India’s glass production in the small scale sector is concentrated in Firozabad, Uttar Pradesh. The town has a natural cluster of labour-intensive small-scale glass manufacturers and secondary producers of decorated ware, bangles, beads, handmade tumblers and tableware.

Glass Containers & Hollow-ware: At present, there are around 44 units in India producing glass containers and hollowware. Flat and float glass find major use in the construction, architectural, automotive, mirror and solar energy industries.

Flat Glass: Flat glass comprises float glass, sheet glass, figured glass and wired glass. The share of float glass is 75% of flat glass. At present there are 13 units in India with an estimated production of 0.79 million tonnes (128 million square metre) in FY2005.  

The production of flat glass during 2005-06 was around 8,05,800 million tonne and during 2006-07 (April- Dec., 2006) 6,67,000 million tones. There has been growing acceptability of Indian flat glass products in the global market. The export & import of float glass/sheets during 2005-06 was Rs. 37.13 crore and Rs. 203.64 crore, respectively.The exports during 2005-06 was around 94,000 metric tonne of different varieties of sheet and float glass. The exports during the year 2006-07 were 1.20 lakhs MT (April-December, 2006).  

Vacuum Flask & Refills: There are at present 8 manufacturing units in India for the manufacture of vacuum flasks and refills with a total installed capacity of around 36 million numbers per annum. Production of vacuum flasks and refills declined from 18 million in FY2003 to around 17.5 million in FY2004. 

Laboratory/Scientific Glassware: This sector comprises items like neutral glass tubing, laboratory glassware and chemical process equipment. There are six units in this sector in India. The installed capacity of laboratory glassware is 46,600 tonnes per annum. The production of laboratory/scientific glassware remained stagnant at 20,500 tonnes in FY2003-05

Fibre Glass: Production of fibre glass is highly capital and technology intensive. The production of fibre glass in India has increased from 20,000 MT in FY2000 to 65,000 MT in FY2004, and is expected to have increased to 73,000 MT in FY2005. 

The major exports are of vacuum flask and refills, flat glass, glass bottles, glass beads, fibre glass and ophthalmic lenses etc. The major export markets are US, Canada, countries in East and West Asia, Africa, and Europe.

Structural Characteristics 

  • Glass is a transparent product made chiefly from sand (silicon dioxide), limestone (calcium carbonate), and sodium carbonate. It differs in colour and density depending on the addition of several other elements and oxides.
  • Raw material costs account for around 33% of cost of production, and have remained stable at around 32-34% over the past few years. Power and fuel is the second major component of operating costs, and accounts for around 24% of costs of production.
  • Glass containers are an attractive packaging medium, but are being replaced by alternative packaging material, like plastic, aluminium and tetra-pack. However, glass is more eco-friendly than the substitutes. Further, demand is also impacted by the introduction of returnable bottles. 

Policy 

  • The glass industry is delicensed, with only the requirement to file an industrial enterprise memorandum (IEM). 
  • Float glass and glass fibres are classified as high priority items. Items like block glass, glass beads except industrial beads, simple glass mirrors, glass bangles, glass hollow wares produced by mouth blown and/or semi-automatic process, glass marbles of all types and ophthalmic lenses manufactured from glass blanks are reserved for the small scale sector.
  • While excise duties on most glass products are at 16%, the peak rate of customs duty has been reduced from 15% to 12.5% in the Union Budget for 2006-07 and further down to 10% in 2007-08. The imposition of a special additional duty of 4%, thus increasing the effective duty from 34.44% to 36.74% could provide relief to the domestic industry, which is witnessing a sharp rise in imports.
  • The customs duty on cullet (broken glass) has also been reduced from 10% to 5%. There is an uniform rate of 10% on glass frit and other glass in the form of powder, granules or flakes. In case of these two products, the effective duty would be lower at 33.65%.

Outlook 

  • The demand for glass largely depends on the performance of the automotive sectors, the extent of construction activity in both residential and commercial sectors and the increasing emphasis on aesthetics in offices and residential buildings.
  • The demand for glass is expected to increase at a steady rate in the future. The primary growth drivers for increased glass consumption in India are increase in the usage area of glass in buildings; replacement of wood by glass in furniture; higher usage of mirrors; increase in the use of thick glass for store fronts; increase in demand of insulated glass; need for architectural laminated glass; and more curtain walling using reflective and high performance glass.
  • Glass bottle consumption is driven by usage in the liquor and soft drinks sectors.
  • However, the glass container segment faces a threat from the increasing preference for PET bottles for packaging. 

Ceramic Industry

Background 

Ceramic Industry in India is about 100 years old. It comprises Ceramic Tiles, Sanitaryware and Crockery items. Ceramic products are manufactured both in the large and small scale sector with wide variance in type, size, quality and standard. State-of-the-art ceramic goods are being manufactured in India and the technology adopted by the Indian ceramic industry is of international standards. 

Ceramics Industry forms a sizeable industrial base and comprises of ceramic tiles for walls and flooring, sanitary wares and kitchenwares. Ceramic tiles have the largest share followed by sanitary wares and potteryware. Ceramic tiles are available in three variations i.e. floor tiles, wall tiles and vitrified tiles and account for most (around 90%) of the total ceramic industry production. However within tiles, ceramic tiles account for only a small share of 20% of the overall tile market, with mosaic tiles occupying a major 80% share and providing it the main competition. Indian tiles are competitive in the international market and are exported to East and West Asian countries. The exports during  2005- 06 was worth Rs. 146.19 crore.  

Kitchen wares and allied items namely, dinner sets, tea sets, cups and saucers, jars, etc. in stoneware, semi-vitreous ware and earthen ware are reserved for the SSI sector. The scope of modern ceramics is much wider today. Units are spread all over India. 

Size 

  • India ranks 7th in the world in terms of production of ceramic tiles and produced 200 million sq. meters of ceramic tiles, out of global production of 6,400 million sq. meters during 2005-06.
  • There are at present 16 units in the organized sector with an installed capacity of 21,00,000 MT. This accounts for 2.5 per cent of world ceramic tile production and has been growing at about 12% per annum.
  • In the sanitaryware segment, India accounts for 3.3 per cent of the total world production. While the organised players account for 43 per cent of the total production, the unorganised sector accounts for the balance 57 per cent.
  • At present the production capacity in organised sector is 1,36,500 MT per annum and in small scale sector, there are over 200 Units with capacity of 50,000 MT per annum. The industry has turnover of Rs.400-500 crore.
  • The sanitaryware industry has been growing by about 5 per cent per annum during the last two years. There is significant export potential for sanitaryware. These are presently being exported to East and West Asia, Africa, Europe and Canada.
  • Potteryware signifying crockery and tableware are produced both in the large scale and the small scale sector. There are 16 units in the organised sector with a total installed capacity of 43,000 MT per annum. In the small scale sector, there are over 1,200 plants with a capacity of 3,00,000 MT per annum.The export of potteryware during 2005-06 was of the order of Rs.49.39 crore. 

Structural Characteristics 

  • The ceramic industry is fragmented in structure and therefore, suffers from an oversupply position. Currently, the industry is undergoing a consolidation phase – while most of small players are closing down in recent years, most export oriented large players are going in for capacity expansion.
  • Majority of the production of ceramics tableware is of bone china and stoneware. This industry in India is highly-labour intensive while in USA, UK, Japan and other countries there is full automation. Quality of finished design and shapes are still below international standards. The equipments are obsolete and need to be upgraded to meet international standard.
  • Sanitaryware is manufactured both in the large and small sector with variations in type, range, quality and standard.
  • The ceramic tiles industry is classified into wall tiles and floor tiles (they are distinct and cannot be substituted for one another). The market for ceramic tiles can be further classified into two segments — institutional (accounting for 60 per cent) and retail. The institutional segment is characterised by low operating margins, long credit periods and a high inventory turnover. The retail segment is characterised by high selling and distribution costs, and good margins and credit recovery.
  • The ratio of the floor tile to wall tile consumption is 3:2. However, realisations on floor tiles are lower than those on wall tiles. Wall tiles cater to a very niche market, which is expected to grow at a higher rate due to its smaller base.
  • Due to consolidation, the share of organised sector in ceramic tiles has increased steadily from 69 per cent in 1996-97 to 77 per cent in 2003-04 and most large players have undertaken capacity expansion plans. Thus, in the medium term, despite the steady demand growth, oversupply situation is likely to continue.
  • Raw material cost accounts for over 40% of the total costs of ceramic tiles. While freight costs account for around 7 to 10% of total costs for ceramic tiles, fuel costs are approximately 15% of the cost of sales of ceramic tiles. Thus plants located close to the source of raw materials have a cost advantage. Due to low margins, growth in the ceramic tiles industry, therefore, happens to be volume-driven.
  • Erratic supply of fuel (mainly gas) in particular is a sensitive risk factor for the industry. The companies in this industry, therefore, do not have much control over raw material costs, which affects their operating profits.
  • The leading tile players account for around 60 per cent of the total industry capacity, and 72 per cent of the organised sector capacity. However, organised players face competition from players in the unorganised sector. 

Policy 

  • In the past, while the excise duty on ceramic tiles was 16%, the SSI units manufacturing mosaic tiles were enjoying excise duty exemption. However, with the rationalized excise duty structure, the price disparity between mosaic tiles and ceramic tiles has reduced considerably.
  • There is an import threat to the industry as foreign players are more cost competitive. This threat for vitrified tiles from China & UAE is under check with anti dumping duty.
  • The key drivers for the ceramic tiles in India are the boom in housing sector coupled by government policies fuelling strong growth in housing sector

Outlook 

  • Ceramic tile industry has been growing at about 12 per cent per annum. The demand growth for ceramic tiles is driven by the growth in the housing and commercial sector, increased use of ceramic tiles as flooring material and increasing share of organised sector (following greater customer preference for designer tiles and larger tile sizes).
  • In the medium term, the demand for ceramic tiles is expected to increase in line with the expected increase in investments in real estate (housing and commercial).
  • The ceramic industry is undergoing a consolidation phase, with most small players closing down in recent years. Also, most of the companies are increasing their capacities. Though demand is expected to continue, the oversupply situation is likely to suppress its impact.
  • The share of the organized players is increasing as the industry is moving towards consolidation to combat pressures on the costs front.
  • During 2003-04, GAIL reduced supply of natural gas to ceramic tile manufacturers, which affected their production/ sales. As a result, the players have shifted to costlier fuels pushing up costs.
  • Imposition of anti-dumping duty has benefited the domestic industry in comparison to international players as imports have declined. However in the medium to long run, if the current anti-dumping duty is withdrawn on account of adherence to WTO policies, there can be pressure on the players’ margins given the cost advantage of international players.
  • With reduction in price disparity between mosaic & ceramic tiles due to recent government initiatives, the outlook for ceramic tile industry is likely to improve. 

References: Economic Survey, Annual Report Ministry of Commerce & Industry, ICRA & CRISIL Reports
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