Home Industry Trends Wood panel industry sees current FY a washout

Wood panel industry sees current FY a washout

It has been two months since the lockdown was lifted/relaxed in many parts of the country (in Green and Orange zones) and by now one would have expected normalcy to return and a lockdown free India. But in reality, reverse is the case with many Green zones turning into Red which has only added to the uncertainty. Prolonged phase of uncertainty has added to the concerns of the businessmen who are unable to see the future with any clarity. With blurred vision around us, the wood panel industry too believes that FY2021 will be a washout year.

Increased uncertainty

Wood panel industry is facing a strange situation which is the condition of many other industries too. Manufacturers with all India reach are unable to scale up their operations because of logistics restrictions on interstate movements while local manufacturers finding it difficult to carry on operations due to financial stress. Manufacturers like Greenply and Century Plyboard are finding it difficult to operate at optimum scale due to interstate (in some cases intra state) restrictions on movement. Further, uncertainty has increased due to some states declaring localised lockdown due to increased number of cases in COVID. Also, many cities like Mumbai, Delhi, Chennai and Ahmedabad are still under COVID threat and demand has not reached even halfway mark in these cities which are the main centres of demand. Even Bangalore and Hyderabad have, of late, become vulnerable as the number of cases of COVID have increased which has only added to uncertainty. For the leading manufacturers of wood panels about 40-45% of their revenue comes from top 10 cities in the country and with most of them are still under lockdown they don’t expect much recovery in the current financial year.

Gabon is stable

Fortunately, Gabon from where most of the face veneer is being sourced was in lockdown only for 7-10 days. However, the industry could not make most of it as the ships were not available. Enquiries have started coming for face veneer from Europe and Southeast Asia but from India it’s yet to pick up pace. Meanwhile, Century Ply has kept its Gabon face veneer project on hold for the time being.

Softer raw material price

The only silver lining for the wood panel industry in an otherwise forgettable phase is the softer raw material prices which have helped the manufacturers to maintain their margins healthy even when sales have seen decline. Prices of phenol, adhesives and power/fuel have remained softer and going by the current trend it may remain softer in the coming months too thus giving a minor relief to the wood panel industry.

Expansion of distribution network

Meanwhile, most of the players in industry have decided to expand/enhance their reach by expanding their network. As the demand shift is taking place, players have started expanding their distribution network to semi-urban and rural areas.

MDF is doing well

Only exception to general pessimism in the industry is the Medium Density Fibreboard (MDF) and particle board manufacturers who are seeing relatively better demand conditions in tier 3 & 4 cities and villages. However, demand has come at the expense of the entry level plywood segment.  Further, in the post-COVID environment there will be an increased tendency to buy modular furniture as the people may not like to call carpenters home to make furniture of their choice due to social distancing reasons. This trend may increase the demand for MDF as it is fast becoming the preferred material for modular furniture making. There is also likelihood of anti-dumping duty (ADD) being imposed on thin MDF in the near term with the recent initiation of ADD investigation concerning imports of plain (thin) MDF boards having thickness of less than 6mm originating in or exported from Vietnam, Malaysia, Thailand and Indonesia.

New projects

Nothing much is happening on the new projects front either. In these times of uncertainty most of the players are holding back their capex plans. However, Century Ply is planning to go ahead with its MDF expansion project once the NGT gives its clearance. The company seems to be in a hurry to execute the project as its present capacity utilisation is nearing optimum level.

There is near unanimity among the wood panel industry players that FY21 is a washout year and the industry may recover only in the next financial year. According to the industry players, this is the worst period the industry had ever faced. Despite that industry is hopeful of better days in the medium to long term period.

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