HomeIndustry TrendsMDF is the best performing segment in wood panel industry

MDF is the best performing segment in wood panel industry

It has been relatively a good fourth quarter for the medium density fibreboard manufacturers though the hanging sword of inflation still continues to keep an element of uncertainty in their operations going into the new financial year. Despite that MDF segment was the best performing segment in the wood panel industry both in terms of revenue growth and margins and the leading manufacturers don’t find any reason to worry about the future prospects. On the other hand, consumers too must be happy as the fourth quarter passed by without witnessing any major price hikes despite threat posed by the geopolitical situation in Eastern Europe.

No new capacity additions in near future

If the MDF manufacturers are optimistic about their future prospects, at least in the medium term, it’s not without any reasons. The ongoing tension in the Europe between Russia and Ukraine has ensured that new capacity addition cannot happen immediately. This will be beneficial for the existing manufacturers in the short term as there will be no further capacity addition in the near future. This may also impact the product pricing in the short to medium term.

At present, Centuryply and Rushil Décor are adding capacity to manufacturer MDF. While Rushil is on the verge of completing the project, Century has started executing the project a couple of months back. Due to geopolitical tension sourcing of parts has also become difficult and time consuming. “If you look at FY ’23, there’s possibly only one new capacity coming into existence, which would probably be around 1,30,000 cubic meters. So, we are not facing any substantial capacity addition in FY ’23,” says V. Venkatramani, CFO, Greenpanel Industries Ltd.

Due to uncertainty prevailing, some manufacturers are temporarily holding back their capex plans. For example, Greenpanel has decided to take a final call on the capacity expansion only towards the end of May or early June. Delivery of plant can start only after one year from the finalisation of the supplier. Thereafter, it may take 12-18 months for the execution and completion of the project. Thus, prevailing war may cause delay of 6-12 months in the completion of new projects. Further. High cost of steel which has gone up by 20% in last three years is another issue in new capacity addition.

Threat from imports receding

Meanwhile, threat from imports is also receding while realisations from exports are going up. For example, for Greenpanel Industries, the largest MDF exporter, average realisation from exports in the fourth quarter has gone up to Rs 21,000 from earlier levels of Rs 14,000. At the same time, imports from other countries have fallen substantially due to various reasons.

Due to price inflation on the raw material side, international MDF prices have gone up substantially in recent months which in turn has reduced pressures on the domestic markets. Secondly, international ocean freight cost has gone up considerably and keeping in mind that crude prices are at a fairly high level, there is no reason to believe that it will come down soon. And lastly, Vietnam and Indonesia, the major exporters to India in the past, are witnessing lot of domestic consumption of MDF due to increased demand from furniture makers. In these countries, furniture demand is thriving due to demand from USA and European countries. They’ve taken away substantial market share from China. Due to these reasons, Indian MDF manufacturers don’t foresee any major threat from imported MDF.

In the domestic market, MDF competes with economy category plywood which are mostly manufactured by the unorganised sector. But the unorganised sector is finding the going tough due to increasing cost of poplar wood. On the other hand, MDF manufacturers use eucalyptus wood where price inflation has not been so strong. Also, cost inflation in wood prices has been compensated by softer price of chemicals for the MDF manufacturers.

Thus, due to various positive factors emerging, the industry is confident about the future prospects. Government’s encouragement to furniture industry, revival of real estate sector and waning threat of Covid-19 are the other major positives for the industry. Industry hopes for the doubling of capacity by next few years and a growth of 15% in the current financial year and that too without undue price hikes.

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