Cruel summer: How Iran war shocks are silently gutting corporate profits

Indian ceramics and textiles exporters are bleeding cash after the February flare-up in West Asia sent natural-gas prices up 170 % and triggered an exodus of migrant labour, eroding operating margins by 300-500 basis points across Morbi and Tiruppur, according to livemint.com.

The shock began when hostilities around the Strait of Hormuz forced LNG spot cargoes to reroute, pushing Asian benchmark prices from $9 to $24 per mmbtu by mid-March. Morbi’s 900 ceramic units, which consume 3.5 mmscmd of gas daily, saw input costs double overnight; in Tiruppur, spinning mills that depend on Egyptian and Qatari LNG for captive power cut shifts to four days a week. Roughly 200,000 contract workers from Uttar Pradesh and Bihar have already left both clusters after employers trimmed overtime, livemint.com reports.

The timing compounds pain for an export sector already grappling with a 9 % year-on-year fall in the rupee and Red Sea freight surcharges of $1,500 per container. Ceramic tile shipments to the US and EU, worth $1.4 billion last fiscal, now face an additional 8 % cost wedge, while Tiruppur’s cotton T-shirt exporters have seen orders shift to Bangladesh and Vietnam where gas prices are subsidised. Comparable shocks in 2019 and 2022 shaved 12-15 % off quarterly EBITDA for listed players such as Somany Ceramics and KPR Mills, according to brokerage notes cited by the paper.

Industry associations have petitioned the oil ministry for priority allocation of domestic gas at $8.5 per mmbtu and a three-month GST holiday, with a response expected by 1 July. Meanwhile, Morbi’s kiln owners plan to idle 30 % of capacity through the monsoon, and Tiruppur’s mills are negotiating six-week payment deferrals with Egyptian LNG suppliers. Watch for the July export shipment data and the ministry’s gas-pricing decision as the next inflection points.