Like other sectors, wood panel industry too is undergoing a phase of uncertainty post lockdown relaxation due to demand disruption. The industry is uncertain as to when the recovery will happen and its dependence on the health of other industries for demand generation has further added to the confusion. Further, some products are dependent on exports which makes matter even more complicated.
Hiatus in launching of new real estate projects is another issue of concern for the industry. Usually, wood panel is consumed in real estate projects towards the end of the execution of the project and therefore, no launch (of new projects) this year means no demand from new projects next either as it usually takes 18-24 months for the projects to complete.
Normalcy yet to return
The industry has undergone virtual nil sale for nearly 6 weeks during the lockdown which was extended couple of times. And when it was lifted, some cities (major ones like Mumbai, Chennai and Delhi) were left out from the relaxation list. These cities are major centres of demand for building materials including wood panel products and as a result the industry has not seen ‘back to normalcy’ scenario yet. Delay in occupation of premises in other regions too has affected the demand prospects in places where lockdown has been lifted completely.
Further, renovation demand is slow in reviving partly due to fear in the minds of people to recruit workers as the social distancing norms are still being observed. Also, in most of the urban areas renovation work was carried out by the migrant workers who have returned to their home villages and may return only after Monsoon that too after verifying the prevailing condition.
Premium products are the casualty
In such a prevailing situation, the major casualty is the premium products and in wood panel industry too demand for premium products have seen substantial slide. Apart from delayed occupation of premises, substantial check on discretionary spending by the people (who face uncertainty about job and sources of income) too has caused disruption in demand. Non-availability of carpenters due to reverse migration of workers is another issue which forced many to postpone their renovation jobs who are also influenced by social distancing norms. As a result, leading plywood brands have seen their revenue from premium plywood category plummeting. Decorative veneer, too, is expected to witness a significant demand deterioration led by its high pricing (vs a laminate) and likely muted capex in the commercial real estate segment like hotels, retail stores, etc in the near term.
Mixed feeling among laminate manufacturers
There is a mixed feeling within the laminate manufacturing sector as the demand scenario within and outside the country present contradictory picture. While those catering to domestic market are not hopeful of market recovery in the near future exporters are optimistic about their prospects. Growing export penetration is expected to benefit large Indian laminate exporters particularly with global competitive intensity likely to ease in the post Covid-19 environment. On the other hand, scenario on the domestic front is bleak, at least in the near future, due to expected lower demand for commercial real estate and decline in renovation demand in the near term. However, fortunately for them material cost is expected to remain under check as resin prices are likely to correct over the next two quarters.
MDF manufacturers optimistic
Medium Density Fibreboard which has suffered due to excess capacity and subsequent price crash in recent time is likely to see revival of demand much earlier than other segments of the wood panel industry. Presently, MDF is in direct competition with cheap plywood material and cheap plywood manufacturers (mainly in unorganised sector) are battling for their survival and are being forced to increase prices in a post Covid-19 environment. Further, in the post-COVID environment there will be 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 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. With expected muted timber prices and likely fall in resin prices, MDF players are sitting pretty while others a grappling with battle for survival.
Some optimists feel that the current situation arising out of breakout of COVID-19 and subsequent lockdown is a blessing in disguise as it will force the manufacturers to become more efficient and cost effective. Most of the leading manufacturers of wood panels are already into the task of cost cutting and fortunately they are aided by the muted timber prices. Further, according to analysts, prices of phenol and melamine are likely to decline in the coming quarters which if happens, will help the industry to maintain their margin.