Energy shock and rising costs: the Morbi district under pressure

The shutdown in March and April, coupled with a subsequent increase in industrial costs of up to 40%, has brought to a halt in 2026 the recovery in total production, domestic sales and tile exports recorded by the Indian ceramic industry in 2025.

Out of all the major ceramic tile producer countries, India – the world’s second-largest producer and exporter – has undoubtedly been the hardest hit by the conflict that broke out in the Middle East on 28 February. Four months on, the acute phase of the crisis has passed. However, its effects could call into question some of the foundations of the Morbi district’s growth, accelerating potential structural changes to its industrial model. What is certain is that the projected 15% drop in production and sales this year (according to Acimac/MECS estimates) will wipe out the Indian ceramic industry’s 2025 recovery following a difficult 2024.

According to MECS data (available on the platform WPC Online), Indian tile production climbed back to 2,452 million sqm in 2025 (up 2.2% on 2024), returning to 2023 levels.

Exports also grew by 7.6%, recovering part of the 2024 losses to reach 565 million sqm. This generated a value of approximately €2 billion, unchanged from 2024.

The growth in exports covered almost all geographical regions: Asia (+1.3%), Africa (+17%), Central and South America (+43.7%), non-EU Europe (+21.8%) and the European Union (+11.5%). The only exception was North America (-24.4%), where a 9.8% drop in US sales was compounded by a sharp 50% slump in Mexico (down from 25 to 12.5 million sqm). A country-by-country breakdown also reveals a broadly positive trend, with sales rising in 70 of the top 100 export markets. This applies in particular to India’s largest market, the United Arab Emirates, which imported nearly 45 million sqm of Indian tiles last year, up 21.8% on 2024.

Other top 20 markets recording double-digit growth included Israel, Senegal, Sri Lanka, Vietnam, the Dominican Republic, Albania, Romania and Colombia. Conversely, Kuwait, Oman, Qatar and Saudi Arabia joined the US and Mexico in recording declines.

Clearly, the picture will look significantly different by the end of 2026.

From the Morbi shutdown to restarting the kilns

The blockade of the Strait of Hormuz disrupted not only Indian exports to the Middle East but also the propane and LNG supplies from the Persian Gulf on which the Morbi district was almost entirely dependent. This forced almost the entire cluster to halt production for over a month and a half between March and April. Out of nearly 800 active plants, more than 500 shut down their kilns. Companies like Simpolo, which chose to continue operating in order to fulfil their commitments towards customers, were obliged to purchase propane at more than double the February prices.

Operations gradually resumed as the majority of kilns were converted from propane to piped natural gas (PNG). According to Gujarat Gas Ltd, the district’s main gas supplier, 710 units were running on PNG by the end of May with consumption of 8 million cubic metres per day, confirming that most companies had resumed production.

However, current conditions are profoundly different from those prior to the energy shock.

From a production crisis to a market crisis

Most operating costs have seen exceptional increases, particularly gas and energy. While the cost of propane doubled, PNG also suffered an 80% price hike, soaring to around 75 rupees/Sm3 (approximately €0.69/Sm³).

This is compounded by rising logistics and transport costs, which impact not only tile exports from Morbi but also the price of raw materials used in production. Overall, the increase in industrial costs borne by Morbi manufacturers is estimated at between 25% and 40%, with significant variations depending on the product type and the energy setup of individual plants.

This situation is unsustainable unless these cost increases are passed on to the market. Consequently, the Morbi Ceramic Manufacturers Association announced two successive price list revisions: an initial increase of between 15% and 20% in May, followed by a further 10% to 20% hike from 1 June. As the association’s leaders confirmed, the problem is that buyers are holding back at current prices. Demand risks collapsing in both domestic and foreign markets, further complicating the recovery phase and putting margins under pressure.

Outlook

Against this backdrop, it is hard to speak of a return to normality.

Warehouses emptied during the shutdown are unlikely to be replenished quickly, as manufacturers prefer to wait for fuel prices to normalise rather than risk holding stock produced at high costs.

To tackle the consequences of the crisis, Morbi-based companies are changing their business practices (many now ask for advance payments) and revising their strategies. In terms of energy, for example, they are exploring greater diversification of supply sources, investing in energy efficiency and considering viable alternatives to fossil fuels.

Above all, the vulnerability of the region’s development model – which relied heavily on high volumes and aggressive pricing fuelled by cheap imported energy – is now under intense scrutiny.

To make up for the loss of competitiveness and move away from the commodity model, a growing number of Morbi-based manufacturers are placing greater emphasis on design and quality and shifting towards higher value-added products, large formats and premium surfaces. As a result, the crisis may have accelerated a transition that was already underway, but which had previously been confined to larger, structured groups with a recognised position in international markets.