Hope rises for plywood manufacturers -min
Due to delayed introduction of E-Way Bill from 1st April, much expected shift in markets share from unorganised sector to organised sector did not happen during the last financial year. However, major players in the industry hope that the impact of GST and E-Way Bill system will be felt during the current financial year
During the just concluded financial year, the plywood manufacturers were adversely affected by lower realization, which was partly due to shift in product mix. According to leading players in the industry, the year just concluded saw shift in demand from premium segment to lower segment, thus reducing the overall price realization of the industry. Destocking by the distributors took place before the introduction of GST in July and also in October 2017. The industry was expecting a GST rate reduction (which eventually happened from November onwards) and had started destocking in October which also affected sales.
Due to delayed introduction of E-Way Bill from 1st April, much expected shift in markets share from unorganised sector to organised sector did not happen during the last financial year. However, major players in the industry hope that the impact of GST and E-Way Bill system will be felt during the current financial year. According to the major players, unorganised sector deals mainly in lower end plywood and manufacturers in organised sector hope to see an uptrend in demand for their products in this segment in the coming days.
Uncertainty over raw material
Plywood manufacturers are facing uncertainties on raw material supply front also. According to the experts in the industry, prices of face veneer for premium products are going up due to policy changes in Laos and Myanmar. Laos has not only banned export of timber but also has not allowed export of veneer from the country. Myanmar which had banned cutting of timber last year has now nationalised it. This has made the entire process of cutting trees and their exports slow. It is found that material from Myanmar is now coming into India but at a slower pace. Indian plywood industry is confident that the situation will improve in next few months. Due to uncertainty surrounding the availability of veneer in the market has pushed up its price thus affecting the profitability of leading manufacturers.
In the meantime, Indian plywood industry has started looking at other countries to source its face veneer requirements. Veneer imports from Soloman Islands is one of the options presently being looked at. Sourcing of timber from other African countries is also being explored by leading plywood manufacturers in the country. Greenply is already sourcing its veneer requirements from Gabon. Century Ply Boards is putting up a unit in Gabon for commercial veneer and expects the raw material situation to stabilise in the next one year.
Plywood makers in Assam too faced uncertainty over raw material during the just concluded financial year. For Assam plywood manufacturers major raw material comes from Meghalaya forests. Meghalaya usually announces the working plan in advance to enable the plywood makers schedule their production plans accordingly. However, last year Meghalaya did not release the working plan on time and there was scarcity of veneer which pushed up the prices by as much as 60%. Though the situation was brought back to normalcy later on, it took more time for prices to come down to normal level than one expected.
Price war looming over MDF market
Current domestic capacity of MDF is 4,000cbm/day (1.5m cbm annually). Some players have announced their plans to increase their capacity. For example, Century Plyboards is planning to increase the capacity from 600cbm/day to 1,000cbm/day by investing additional Rs 120 crore. The company had entered the MDF manufacturing last year in October and the current capacity utilisation of the company is around 70% which it hopes to increase to 80% by the year end.
Due to intense competition in MDF, price hike to absorb increased cost of manufacturing is not happening. Last month one of the MDF manufacturers reduced the price by 4% which the players in the industry fear may trigger price war in the coming days. However, reduction in price and also Rupee depreciation have made imported material less attractive. According to some leading MDF manufacturers, imports are likely to halt in the next 6-12 months because of increased domestic production and unattractive prices. Further, Rupee depreciation has thrown the export market open for the domestic manufacturers, especially those located near ports in South India. Many MDF manufacturers have imported machinery under the export obligation scheme and for them the time is ripe to fulfill their export obligation.
E-Way Bill may be game changer
Situation in plywood industry may change for better in the coming months, thanks to the introduction of e-way bill system. Earlier, plywood manufacturers in organized sector felt that in the absence of e-way bill system, unorganized sector would be operating unhampered in the old style and with the checks at inter-state borders gone their operation would become much easier in post-GST era. However, with the introduction of e-way bill system, inter-state illegal movement of goods (without paying tax) will come down substantially which will help the market to grow more systematically. It is also expected that under e-way bill system, manufacturers in unorganized sector would find the going tougher as the price advantage which they enjoyed (due to non-payment of tax) would come down substantially. This would eventually result in organized sector eating into the market share of unorganized sector.
According to one estimate there are around 3,300 units in the country manufacturing plywood. Out of this, around 2,500 units are every small in size with turnover less than Rs 1.5 crore who never paid any taxes in earlier regime. There are another 700 units in the range of Rs 1.5-5 crore turnover enjoying concessions. All these units will be treated equally with the manufacturers in organised sector after the introduction of GST. And their activities can be monitored easily post introduction of e-way bill system. With playing field becoming even, players in the organised market have a better chance of grabbing their share. So one can expect consolidation and shift happening in the plywood industry in the coming months.