It was a year of turbulence for plywood industry which also includes MDF and laminates. Demand slowdown, raw material price escalation and deteriorating pricing freedom due to increased competition – all happened at the same time. Demand slowdown forced the plywood players in the organised segment to explore new market. Many manufacturers like Century Ply focused on tier -2 tier -3 cities and introduced brands (like Sainik 710) suited to such areas, mainly in middle and lower segment. Fortunately for them price differential between organised and unorganised segment narrowed down substantially, post introduction of GST and subsequent reduction of GST rates.
On the raw material front, the industry completely switched off its traditional sources of raw materials, that is, Myanmar and Laos as both these countries had imposed restrictions on export of timber. Plywood makers turned to African countries for their raw material requirements and today almost all face veneer requirements are made up of either PQ, Okume or Gurjan. Okume is mainly used for lower end of the market as it is cheaper than other options.
On the domestic front, timber supply was normal except during Monsoon when prices went up (almost doubled) which according to plywood manufacturers was normal and happens every year. Since then normalcy has come back to the market and price has almost returned to pre-Monsoon level.
For laminates manufacturers, there was volatility on raw material front. Phenol is the main raw material for laminates whose price moves in tandem with crude oil price. As the crude oil price went up, price of phenol too went up. This forced the manufacturers to raise the price to pass on the cost escalation. However, price of crude oil has started cooling off during last few weeks and the laminates manufacturers think that phenol price too will stabilise at lower levels in the coming weeks.
Its more than year since the government introduced GST in the country and from April 2018 e-way bill system too has become mandatory. With the stringent laws around, it was believed that players in unorganised sector would find the going tough and ultimately, market share of organised players would swell. However, nothing of that sort has happened and according to the players in the organised sector poor surveillance has made new laws ineffective. As the surveillance becomes more efficient, life for players in unorganised sector may become tougher. For example, Uttarakhand has introduced a rule to install RFID (Radio-frequency identification) sensors on trucks carrying freight so as to take care of the e-way bill evasions. These sensors send signals to highway based sensors on whether the particular truck’s e-Way bill has been generated or not (if not, a flying squad will intercept the particular vehicle). This makes the evasion of tax practically impossible. However, such measures have been taken in only in Uttarakhand and may be progressively implemented in other states as well.
Medium Density Fibreboard (MDF) is struggling with excess supply and lower demand. India has a total installed MDF capacity of 1.3mn cbm, with domestic demand at 0.7mn-08mn cbm. However, with no big capacity expansion on the anvil (as some have shelved their plans and some others have already completed their plans) MDF manufacturers believe that there is not much scope for the prices to go down further.
However, MDF has gained acceptance only in certain pockets of the country. While it has been accepted by the consumers in Southern India and metro cities, in rest of the areas people view the product with suspicion. The general belief is that plywood will continue to be preferred over MDF as the consumers are convinced with durability of ply as compared to MDF. So, dealers do not envisage any significant shift from plywood to MDF in the coming months.
Also, manufacturers are lobbying with the government for anti-dumping duties on imported MDF. MDF is the only item in which there is some anti-dumping duty from few of the countries that also not available on all countries. Industry is trying to work with the government to impose duty on all the countries. If the government imposes anti-dumping duty on MDF, then threat from imported MDF will lessen giving much needed relief for the domestic manufacturers. According to MDF manufacturers, at present, most of the demand in South India is met by imported MDF and once anti-dumping duty is imposed, the scenario will change drastically.
Despite the headwinds, plywood sector is expected to post low double digit growth this Financial Year too. At the end of last Financial Year, the market size of plywood was estimated at Rs 19,000 crore and it is expected to grow at around 10% pa over next few years. According to industry leaders several government programs like Smart City Program, Housing for All and Pradhan Mantri Awas Yojna need building materials including plywood which would bring sustained growth for the industry. Also, increasing discretionary spends and quality consciousness will help the growth rate at higher rate. But all that will happen only after the second quarter of 2019.