Indian plywood industry is in a transitionary phase and the reasons for the same are many. First, the indirect taxation regime introduced by the government which was followed by the introduction of e-way bill system is likely to result in manufacturing of plywood in the country shifting from unorganised to organised sector. Also, consumer preference is shifting slowly from low grade plywood to premium and branded ones. Though this transition is slowed down in recent months, the pace is expected to pick up in the coming years as the disposable income of the consumers goes up. And last but not the least, Indian face veneer market is shifting to other species.
And the last one has been necessitated by the changing source of raw material for Indian veneer. Traditionally, Myanmar was the main source for Indian face veneer. Till 2016, most of the face veneer and also to an extent core veneer required by the plywood industry in India was sourced from Myanmar. However, in 2016, Myanmar government banned the felling of trees which affected the raw material availability for the industry. Laos was another source for Indian veneer which also banned the cutting of trees and export of the same during the same period. Veneer from Myanmar and Laos were known not only for their quality but also for low cost. However, Myanmar ban on tree cutting didn’t impact the industry immediately as there was sufficient inventory of cut trees which helped to tide over the situation temporarily. And also it helped the Indian plywood manufacturers to search for other sources.
Different manufacturers found different sources for their veneer requirement. For example, Greenply followed a JV route to source its raw material requirements partially from Myanmar. It also sourced part of its face veneer requirements from Indonesia through third parties. On the other hand, Century Ply, another leading producer of plywood started importing timber from Solomon Islands. As a result dependence on Keruing that is the traditional timber coming from Laos or Myanmar has reduced. It should also be noted that Keruing is a costlier timber and the replacement from Soloman Islands is much cheaper.
In the meantime, Myanmar has partially lifted the ban on cutting of trees. However, the entire operation has now been nationalised. This has slowed down the entire process of felling-to-export of timber. According to industry sources, materials from Myanmar have started coming in again but at a slower pace.
However, Indian plywood industry has started looking at Asian countries as a source of its raw material needs with a pinch of salt. Indian plywood industry has now realised that Asian countries, like, Myanmar, Indonesia or Laos are no longer dependable as a source of their face veneer requirements. As a result they have started scouting for new sources in Africa. Greenply has set up veneer plant in Gabon in Africa which can take care of its face veneer requirements in India. Further, the cost of face veneer from Gabon is much cheaper than that procured from Myanmar and Indonesia. Century too has set up a peeling unit in Gabon though the company has not yet started using the commerical veneer. According to Century, Soloman Island veneers are far better than Okoume veneer, the veneer procured from Gabon. Also, Gabon is attracting large number of investors setting up peeling units in its economic zone. It is reported that there are more than 100 peeling units in Gabon.
However, domestic plywood industry is facing no issues as far as core veneer is concerned because that is procured entirely from domestic sources. Last year, there was some problem relating to overloading with the new government taking over the regime in Uttar Pradesh. Strict enforcement of truck overloading rules had increased the cost of raw material transportation in UP. However, the transport ministry has recently relaxed the norms regarding truck overload thus bringing in relief to timber users.
On domestic front, irregular supply of timber, especially in the North Eastern Region has affected its price. For example, for plywood industry in North East major raw material, that is, timber comes from Meghalaya. This year, timber from Meghalaya forests was not coming on time in the last quarter of last financial year. As a result of which price shoot up from Rs 250 CFT to Rs 400 CFT and in some cases material was not available even at the highest price. This has affected the production of plywood units in the region. Though the situation has slightly improved now, price has not yet come back to the original level Rs 250 CFT.
Apart from, veneer and timber problem, plywood and laminates manufacturers are also facing problem on other raw material front too. Phenol is the major raw material used in laminates industry whose price is largely dictated by the crude oil price. Recent surge in the price of crude oil has resulted in phenol price too moving northwards. There had been price rise almost every month which has affected those manufacturers who cater to the domestic market. As the price was rising every month it was not possible for the manufacturers to hike the price of their products every month. Also competitive environment is making it difficult to pass on the price rise effect to the consumers.
However, plywood manufacturers feel that over the short to medium term these problems would get resolved and once the real estate market condition improves, normalcy will return to the market.