Surging prices, disrupted supply of clay from Ukraine worry ceramic makers

The recent price hikes and supply chain disruptions of clay and gas in the wake of the Russian invasion of Ukraine does not bode well for ceramic manufacturers in Bangladesh, said stakeholders, adding the industry will fall into a crisis if the prices and supply of these two key raw materials remain unstable.

According to industry insiders, soil material and natural gas account for 40% to 42% of the total production cost in the ceramics industry. The industry mainly produces tableware, sanitary ware, and tiles, which are some major items used in the construction sector.

As a soil material, Ukrainian clay is at the top of global demand, while Russia is the main supplier of gas to the world market, they said, adding that clay imports from Ukraine have stopped because of the ongoing war and gas prices are also expected to rise on the domestic market owing to a record hike on the international market.

In this situation, ceramics entrepreneurs will not be able to stay afloat unless the government comes up with effective measures to control the prices of the raw materials, they warned.

Ceramics manufacturers are scheduled to hold a press conference today in this regard.

Md Sirajul Islam Mollah, president of the Bangladesh Ceramic Wear Manufacturers' Association, said 78 companies have presently invested some Tk13,000 crore in this industry in Bangladesh, and the industry's annual turnover is more than Tk7,000 crore. The industry also exports around Tk1,000 crore worth of products every year, he added.

"We are lagging behind our competing markets because of the surging prices and supply shortage of the raw materials. We, therefore, urge the government to take steps to make sure the prices of raw materials for ceramics do not go up any further," he said.

Five big companies, including Akij and Abul Khair, import clay from Ukraine but the companies are no longer getting the raw material from that country because of the war. Even if they import the raw material from other sources, they have to compromise on price and quality.

Khourshed Alam, director (sales and marketing, particle board and ceramics) at Akij Group, told The Business Standard that the quality of Ukrainian clay is relatively better while its prices are also at least 10% lower when compared to that of other European countries. Now they are importing the raw material from Malaysia, he mentioned, adding they are also trying to import it from other sources at higher prices.

He said the prices of raw materials had already surged by 35% to 40% over the past two years before the Ukraine-Russia war. "The freight charge that was $1,000 before has gone up to $4,000. This has had a huge impact on our expenditures but the prices of the products could not be increased proportionately. As a result, profit-making companies have seen their profit to slum while ones that were in a break-even situation are now running at losses."

About 95% of the raw materials used in the production of ceramics items in Bangladesh are imported from abroad. Therefore, the recent hikes in prices of gas and clay on top of an already 35% to 40% hike in prices of all other raw materials including chemicals have pushed the industry owners into a state of discomfort.

Even so, Sirajul Islam Mollah sees gas price hikes as the biggest area of concern as a large portion of clay used in the ceramics industry is imported from Malaysia, Thailand, Indonesia, and Italy.

"Ceramics is a gas dependent process industry. Due to firing in the kiln, the gas supply has to be on round the clock. The flow of gas also has to be kept high. But, many factories are not able to continue production properly and are losing money because of the gas crisis," he explained.

Sheltech Group, a big name in the real estate sector, is still expanding its business after entering the ceramics industry in 2016 with a big investment. The group fears hard times ahead in the wake of the rising raw material prices and gas crisis.

Tanvir Ahmed, managing director of Sheltech, told TBS that their production cost has surged by about 15% following a 38% hike in gas price in 2019. Now it has been proposed to increase the price of gas by 116%, he mentioned, adding if the proposal is materialised, it will not be possible for the companies in this industry to survive.

He also mentioned that moisture process loss of raw materials in the manufacturing process of ceramics goods ranges from 35% to 40%. "The National Board of Revenue (NBR) does not take this huge loss into account while levying tariffs. On the other hand, supplementary duty (SD) on production of ceramic tiles and sanitary products is 15% and 10%, respectively. Ceramic goods should now be exempted from these taxes as they have become essential products in present days."

Rise of ceramics industry

The Bangladesh Ceramic Manufacturers and Exporters Association said ceramics is now one of Bangladesh's biggest industries, and the business traces its inception back to the 1960s.

Apart from 66 brands, more than 100 manufacturing companies, both small and medium, have evolved in the country. At present, the sector employs around 5,00,000 people, including 55,000 direct employees and those from the backward linkage industry.

Annually, the sector manufactures 25 crore pieces of tableware, 15 crore square feet of tiles, and 50 lakh pieces of sanitary ware. A major part of the tableware is exported to Europe and the Middle East.

Md Shirajul Islam Mollah, president of the association, said 90% of the local demand for ceramic products used to be met through imports in the 1980s, but local companies now cater for nearly 85% of the total demand.

According to market research by USADA at the end of 2019, the market size of the ceramics industry in Bangladesh was Tk7,550 crore, to which the tiles industry contributed the most with around Tk5,500 crore. The size of the tableware and the sanitary ware segments were Tk800 crore and Tk1,200 crore, respectively.