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Soaring crude prices shatter returns for sheet glass makers

Soaring crude prices shatter returns for sheet glass makers
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First Published: Fri, Jun 13 2008. 12 55 AM IST
Updated: Fri, Jun 13 2008. 12 55 AM IST
The price of fuel is telling heavily on the returns of India’s sheet glass makers, among the worst hit in the manufacturing sector since energy comprises 30% of their manufacturing costs. With crude oil prices at record highs, the news is only likely to get worse.
The country’s sheet glass industry—which, analysts say, earns about Rs2,200 crore a year—uses mostly furnace oil to fire kilns that melt raw materials such as silica and borax to produce glass.
Five listed glass making companies, whose data is available with Bloomberg, have all reported either falling profits or losses in the quarter up to March compared with the same period last year.
For instance, Asahi India Glass Ltd, the largest listed glass making company, posted a loss of Rs12.28 crore on sales of Rs264.20 crore for the quarter that ended on 31 March. Its profit for the fiscal year fell 80% to Rs84.40 crore.
Asahi’s rival Saint-Gobain Sekurit India Ltd posted losses for eight straight quarters, before registering a profit of Rs46 lakh in the quarter up to December, the last time the company filed its results.
Unlike transport and cooking fuels, which the government subsidizes, prices of furnace oil are linked to those of international crude oil. In the past two years, prices of furnace oil have increased by 81% to Rs31,276 per tonne, according to the National Commodity and Derivatives Exchange Ltd. During the same period, the price of the Brent Crude rose 133% to $132.85 (Rs5,699.27) 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.”
Labroo did not elaborate on the ways he is cutting costs, terming the information competitive. He said the price of sheet 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 an overcapacity of 18% in sheet glass production, it makes it even more difficult for companies to wrangle price hikes.
Apart from furnace oil, sheet glass makers use raw materials such as soda ash, which is again derived from crude oil, pushing up the overall cost of glass making by 50% 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 automobiles and houses. While builders use 83% of the sheet glass produced, auto makers consume about 15% of the output.
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First Published: Fri, Jun 13 2008. 12 55 AM IST