The second wave has suddenly changed the outlook of several industries in a matter of few days. Wood panel industry is one such industry which was sailing smoothly till the end of March but the Covid-19 which is intensifying day by day has changed the scenario drastically. Though the reappearance of the pandemic has affected the industry as a whole, it’s the unorganised sector which is facing a crisis like situation.
Plywood hub is in crisis
Yamunanagar is considered to be main hub of plywood production reflecting the general condition and health of the industry. The industry in Yamunanagar had almost recovered from the after effects of last year’s lockdown with sales in March almost reaching the pre-lockdown levels of last year. Most of the units had started operating at optimum capacity in March but the scenario in April was altogether different thanks to the second wave. Demand had slumped which in-turn forced the manufacturers to cut down their capacity utilisation by half. Most of these units were catering to NCR, Central India and the Western India – all are worst affected by the second wave. Most of the regions have also seen migrant workers returning to their native villages, thus affecting the construction activities. Sudden aggravation of the pandemic (in a matter of couple of weeks) had resulted in several orders being cancelled putting the industry in deep trouble. Also, manufacturers were facing liquidity problems as the payments from debtors were delayed and defaults are not a rarity anymore. Rubbing salt to the injury is the ever increasing raw material prices and in some cases their non-availability. Most of the markets to which Yamunanagar manufacturers are catering have announced lockdowns and if the same is further extended most of the units may have to close down their units which will have disastrous effect in the short and medium terms.
Rising raw material prices
Rising prices of raw materials is another problem which the manufacturers of plywood and laminates have to confront with. It may be recalled here that the associations based in Yamunanagar and Kandla had announced a suggestive price hike in the range of 8-10% for plywood, blockboards and flush doors in the last week of March 2021. Manufacturers are increasingly worried about the prevailing high operating costs arising due to increase in prices of wood, formaldehyde, face veneer etc. Increasing raw material prices will in turn increase the need for higher working capital for the manufacturers. Not receiving the payments on time from the debtors is not helping the cause either.
Kraft paper shortage
The demand and supply mismatch in kraft paper during the recent 3 months has become a major issue for dependent industries like decorative laminates. Surging raw material prices is another big challenge being faced by the laminates manufacturers and the prices moving northwards unabated since last 6-9 months. Kraft & designer paper account for 60-65% raw material cost while chemicals like phenol, melamine & formaldehyde account for rest of the 30-35% of the raw material cost.
Unorganised laminate players are the worst hit due to non-availability and sharp price increase in Kraft paper. Kraft paper price have increased in recent months mainly due to increase in imports logistics cost due to container non-availability and also lower domestic production as scrap paper, wasted cartons etc. are not coming back into the supply chain which is adding to the problem. Further it’s reported that in recent months there is an increase in kraft paper exports to China due to better prices.
Decorative papers too in short supply
Further, non-availability of decorative paper is another problem faced by the laminates’ manufacturers. The problem is more severe with the smaller unorganised manufacturers of laminates as they buy in small quantities and that too irregular intervals. On the other hand, large laminates manufacturers are not that much impacted by this problem as they buy in large quantities and that too through direct import from the manufacturers. Further, cash rich companies keep high inventories of raw materials to take advantage of such unforeseen circumstances.
Cutting down production
However, some of the laminate products are very price sensitive. For example, due to raw material price increase manufacturers had to hike the prices of liner laminates which impacted its demand. Eventually, the manufacturers had to reduce their liner grade production by 50%. While the liner laminates are highly price sensitive material it has 50% market share in India’s laminates industry. The industry now stares at supply shortage and price volatility in this segment.
However, most of these problems are faced by the manufacturers in the unorganised sector who don’t have ready access to working capital finance. Expected reduction in capacity utilisation by the informal sector may only intensify the demand shift from the unorganised to organised sector. Though the user industries may not feel the pinch of this shift, it may result in closure of many small units which will have its own social impact in the form like massive job losses.