The price of fuel lies heavy on the returns of India“s flat glass makers, among the worst hit in the country“s manufacturing sector as energy comprises 30% of their manufacturing costs. With crude o…
The price of fuel lies heavy on the returns of India“s flat glass makers, among the worst hit in the country“s manufacturing sector as energy comprises 30% of their manufacturing costs. With crude oil prices at record highs, the news is only likely to get worse. Five listed glass making companies, whose data is available from Bloomberg, have all reported either falling profits or losses in the quarter up to March 2008 compared with the same period 2007. Asahi India Glass Ltd, the largest listed glass making company, posted a loss of INR 122.8 million on sales of INR 2.642 billion for the quarter that ended on 31 March 2008. Its profit for the fiscal year fell 80% to INR 844 million. Asahi“s rival Saint-Gobain Sekurit India Ltd posted losses for eight successive quarters, before registering a profit of INR 4.6 million in the quarter up to December 2007, the last time the company filed results. Unlike transport and cooking fuels, which the government subsidizes, prices of furnace oil are linked to those of international crude. In the past two years, prices of furnace oil have increased by 81% to INR 31,276 per tonne, according to the National Commodity and Derivatives Exchange Ltd. During the same period, the price of Brent Crude rose 133% to USD 132.85 (INR 5,699.27) per barrel. “Energy costs have gone up from 10% of total costs a couple of years ago to 40% now,” said Sanjay Labroo, managing director of Asahi India. “You can do all you like to cut costs. It“s a continuous process, but has a marginal impact. And you can“t fully pass on the cost increases to consumers”. Mr. Labroo did not elaborate on the ways he is cutting costs, terming the information “competitive”. He said the price of flat glass has increased by only 10% over the past two years and that glass makers were negotiating with customers for further increases. With analysts estimating overcapacity of 18% in flat glass production, asking customers to pay higher prices has become even more difficult. Apart from furnace oil, flat glass makers have seen raw materials such as soda ash pushing up the overall cost of glass making in the past few years. “The cost of everything is going up and people are reluctant to give price increases,” said S.C. Vishwakarma, senior vice-president of the All-India Glass Manufacturers Federation. “So, margins will go down”. The Indian basic glass industry is driven by growth in sales of vehicles and houses. Builders account for 83% of flat glass demand and auto makers for about 15%.
