HomeIndustry TrendsIts boom time for wood panel industry

Its boom time for wood panel industry

Improving fortunes of the real estate industry is good news for the building material manufacturers, especially for those in wood panel industry. Also, higher replacement demand due to increased spending on home improvement post pandemic augurs well for wood panel market. Apart from these factors there is growing furniture market which is enjoying active support of the government that will add more demand for wood panel industry in the coming years.

Furniture demand to quadruple

India’s furniture market, which was valued at US$6.2bn in 2019, is expected to quadruple to US$24.4bn by 2035 at a CAGR of 8.9% due to urbanisation, favourable demographics and increased focus on tourism/hospitality. Furniture market is currently dominated by unorganised sector who control 80% of the market. However, to adapt to the rapid changes in the furniture market, it is expected that the organised players will grow faster.

In 2019, finished furniture products were the dominant form of furniture imports in India (at 48% share of total furniture imports), followed by raw materials (46%) and intermediate products (6%, includes particle boards, MDF boards, decorative ply woods, etc.).

Higher growth for plywood makers

The organised plywood players are expected to witness higher volume growth going forward due to increase in demand from real estate/replacement market and also due to the shift of market away from unorganised players. The price difference between unorganised and organised players has come down to 10-15% (vs earlier 25% during pre-GST period), due to stricter implementation of GST/e-way bill wherein market is gradually shifting to organised companies. Also, higher raw material prices have increased the working capital requirement, impacting the unorganised players adversely.

Robust demand for MDF expected

Currently, MDF is the best performing sub-segment in the wood panel industry. The demand for MDF is expected to remain robust as there is increased acceptance for ready-made furniture post the pandemic. According to the industry experts, Indian work from home (WFH) furniture market was US$2.22bn in FY21 and is expected to be US$3.49bn by FY26 which will thus lead to higher demand for MDF. Also, higher input cost and GST compliance issues have made MDF prices very competitive against the low-cost plywood market, thereby gradually substituting plywood.

Before the outbreak of the pandemic nearly 30% of the domestic MDF demand was met through imports as the imported MDF were found to be price competitive in and around the regions close to ports. However, post pandemic, imports have not yet picked up due to global economy reviving and MDF prices increasing from US$170-180/CBM pre-pandemic to US$250-270/CBM. Also, post the pandemic, major MDF exporters like Vietnam have seen domestic demand for MDF increase, as they have become one of the beneficiaries of sourcing of furniture from a market beyond China, whereby the export of MDF has declined. Further, higher freight rates and scarcity of containers also make imports less competitive, though the situation on this front is improving of late.

Meanwhile, MDF capacities are expected to increase from 2.3mn CBM in FY22 to 3.3mn CBM by FY24. On a conservative estimate, domestic demand is expected to be 2.3mn CBM with industry operating at capacity utilisation of 71% as against 74% in FY21. Usually, it takes 18-24 months for a Greenfield project to go on stream which puts the existing players in an advantageous position vis-à-vis newcomers.

Thus, demand seems to be assured for the wood panel industry, at least for next few years. Higher economic growth and lesser threat of Covid-19 (despite the current talks about the third wave and Omicron) will act as additional booster for the industry. However, raw material prices and their availability may play truant but such possibilities are short term in nature. On the whole, it may be a smooth sailing for the industry in the coming few years.

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