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MDF back in the forefront

Leading plywood manufacturers in the country like Greenply And Century Ply have reported more than 60% decline in their plywood business during the first quarter of the current financial year. Rubbing salt to the injury was the Cyclone Amphan during May 2020 which affected the performance of Greenply and Century Ply as their West Bengal plants were adversely impacted by the cyclone. Further, major demand for plywood comes from Metro cities which were also the worst affected regions from the COVID-19. Greenply and Century Ply derive nearly 50% of the sales from Metro cities.

Unorganised sector in big trouble

While leading plywood manufacturers saw their sales dwindling during the first quarter due to lockdown, condition of the unorganised sector in the industry is even worse. The market witnessed supply disruption from unorganised players as they faced significant challenge on multiple fronts including raw material procurement, labour availability and working capital. If the situation continues like this, the unorganised sector may collapse much earlier than one would have anticipated. Major players in the organised segment like Greenply and Century Ply will be the main beneficiaries of this disruption.

When will normalcy return?

However, the industry is divided over the issue of normalcy returning to plywood market. Century Ply expects its revenue to decline in second and third quarters also but the intensity of the fall may not be as high as was in the first quarter. According to the company, growth may start coming back to the industry only from the fourth quarter onwards. On the other hand, Greenply, the largest plywood manufacturer expects the normalcy to return to the industry from second half of the current financial year onwards. According to the company, higher demand for wood panels from OEMs manufacturing ready-made furniture will not only benefit the MDF industry but also the plywood industry as consumer will also prefer calibrated plywood made furniture. But, most of the players in the industry believe that worst (in terms of decline in sales) is over for the industry.

MDF demand recovering fast

On the other hand, recovery in MDF demand is expected to be much faster thanks to favourable conditions created partly by the government itself. In the first quarter Century Ply saw its MDF sales falling by 70% (much higher than that of plywood) while Greenpanel was slightly better off as its sales of MDF declined by 54% thanks to lower decline in exports. However, MDF is expected see faster recovery than plywood and laminates due to changing scenario. Of late, demand for readymade furniture has picked up as reflected in increased enquiries and utilisation for manufacturers and hence they expect demand to recover almost fully by the second quarter of the current year itself. In fact, Century’s MDF revenue in July 2020 was higher than that of July 2019 while Greenpanel’s revenue reached 91% of July 2019 revenue. MDF prices are expected to continue to remain firm.

Government’s latest moves to help the industry

Recent announcement by the government about some of the user industries of MDF indicate that sunny days are ahead for MDF. The government is actively considering imposing tighter restrictions on imports of several items, including furniture. India is estimated to import readymade furniture worth Rs 2800 crore annually, of which 40-50% comes from China. Moreover, the government is considering the imposition of Anti-Dumping Duty (ADD)/Counter Veiling Duty (CVD) on imports of MDF into India. It should be noted that imports constitute 15-25% of India’s consumption. Additionally, the government has identified readymade furniture as one of the 20 sectors to make India a hub for global exports. These factors augur well for MDF manufacturers in India as it improves the visibility of a volume uptick.

While ply demand has been weak on the back of slower real estate projects absorption and high inventory, industry expects ply industry’s growth to be around 5% in medium term. Meanwhile,  MDF/particleboard industry’s growth may be much faster at 15-20%. However, part of the MDF market expansion would be at the expense of plywood market. Nonetheless, ply would continue to enjoy a major share in the wood panels space.

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