MDF, (Medium Density Fibreboard) once the ultimate segment to be in for the plywood manufacturers, is passing through a rough patch as the prices had fallen drastically during 2017-18. However, according to some MDF manufacturers price is bottoming out and feel that the industry turnaround is around the corner.
Though falling trend of MDF prices continued in 2018-19 financial year too, the pace and the extent of fall is much milder in the current financial year, say the market men. In fact, in last few months (starting December 2018) prices have not fallen and discounts offered have stabilized giving much needed relief to the manufacturers who are battered in recent times by the falling price in the domestic market and also flooding of imported MDF, especially in South India.
However, the days of super-profits are gone and from here onwards one may expect only normal profit which may happen once the current capacity is fully absorbed by the market. Between 2010-14, there were only few MDF manufacturers, Action, Greenply and Rushil and they were able to reap huge profits then. But attractive profit margins (of 30%+) attracted many players to the industry and suddenly there was rush of new plants in the country. Added to that was imports from other countries, especially China went unabated for years.
Until 2010 India had only 200 cubic meter/day MDF manufacturing capacity. However, between 2010 & 2013, a fresh capacity of 1200 cubic meter/day was added which was fully absorbed by the market. At the same time, imports were also happening and nearly half the requirement was met through imports. This encouraged the new and existing players to set up and expand the capacity which eventually led to overcapacity and price crash.
However, recent price crash has shaken the confidence of many prospective players who were planning to set up MDF plants in various parts of the country. Even, CenturyPly which was planning a brownfield expansion last year kept its plans on hold seeing the overcapacity scenario in the industry. Only Rushil Décor’s plant in Southern part of the country is the capacity that will be added and that too in financial year 2021. All other plans are either shelved or kept on hold.
Presently, industry’s capacity is estimated at 13.5 lakh cubic meter while another 2.5 lakhcubic meter is imported annually. Rushil Décor is setting up a plant with a capacity of 1.8 lakh cubic meters in Andhra Pradesh.
As the normalcy is slowly returning to the industry and price is stabilizing, confidence about the future prospects of the industry is gaining credence among the players. Many of them are either reviving their shelved plans or are chalking out new expansion plans. For example, CenturyPly has already gone on record saying that its now planning to implement its brownfield expansion plan according to which capacity will be increased from 600 cubic meter /day to 1,000 cubic meter at an estimated cost of Rs 150 crore. “We should be ready with more capacity so that we do not give chance to others to come into the industry and we want to be ready with the capacity whenever the prices improve or the demand improved. Otherwise, somebody else will come in..,” said recently a veteran of the industry.
Basically, there are two technologies to manufacture – continuous press or multi-daylight press. Most of the plants in India have multi-daylight press as the initial cost to set up plant under this technology is less than the other option. According one expert, capital cost can be reduced by 20-25% by adopting this technology. However, continuous press is more efficient resulting in less wastage and better quality product. In India, only, CenturyPly, Greenply and Balaji Action have opted for this technology and rest have gone for multi-daylight press technology.
On raw material front too there is some good news for the industry as the price of the glue required in the manufacturing of the MDF has been moving downwards. Glue accounts for nearly 25% of the material cost required in the manufacturing. In recent months, the price of the glue has come down by 25%.
One of the factors, that keeps the industry prospects brighter is the low per capita consumption of the material in India vis-a-vis other developed and emerging markets. While the per capita consumption of the material in countries like Japan and Europe is around 50 square meters, in India its just 2 cubic meters. Also, Indian market is too much skewed in favour of plywood while the cost of plywood is much higher than MDF. Further, MDF is considered as a green product as the product is manufactured using wood waste. Experts also point towards the facts that China has MDF manufacturing capacity of 40 million cubic meters, India’s capacity is hardly one million cubic meters. So, there is scope for substantial addition to the manufacturing capacity.