Though signs of demand revival were visible in late 2019 itself, it was the lockdown and subsequent emergence of social distancing and work from home concepts that have changed the fortunes of medium density fibreboard (MDF) dramatically during last nine months or so. Demand has continued to remain robust even now which has provoked many manufacturers to go for capacity expansion.
While Greenpanel has recorded revenue growth of 50%, Century Ply, another manufacturer of MDF has posted revenue growth of 21% during the third quarter. What’s encouraging is that this trend is continuing even in the fourth quarter. According to leading MDF manufacturers, demand will remain robust for next two years at least.
Many reasons for demand surge
According to market sources, demand from furniture manufacturers continues to remain strong due to increased demand for ready made furniture and significantly lower MDF imports which is due to logistical issues. Also, shortage of particleboards/bagasse boards helping the cause of MDF manufacturers to an extent, though this may ease as supply side issues abate.
Tier-2-and-below cities remain demand drivers in the domestic market for MDF manufacturers. Metro cities are also recovering post unlocking but the recovery slow and uncertain, especially in view of recent outbreak of second wave. Exports, however, have been delayed during Q4 due to a scarcity of containers and of late due to disruption in Suez Canal.
Not much capacity additions of late
Rushil Décor has finally commenced operations at its Achutapuram facility in Visakhapatnam in Andhra Pradesh in March after much delay. The new facility with 800 cbm per day capacity to manufacture thin and thick MDF will cater to Southern market. Apart from this, there is no significant capacity addition envisaged in next one year. Century Ply and Greenpanel have announced brownfield expansions at Hoshiarpur and AP facilities, respectively, which may take 12-18 months for completion. Both the manufacturers are operating at very high rate of capacity utilisation. For example, Greenpanel is targeting full capacity utilisation at the very least in FY22. The business has a rated capacity of 540,000cbm which can run at peak utilisation levels of 110%. The company’s MDF plant debottlenecking will be completed by Q3FY22, adding 50,000cbm of capacity. Similarly, CenturyPly has announced Brownfield expansion of Hoshiarpur unit. The company’s existing operating capacity of 600 cbm per day will be increased to 1000 cbm per day. The expansion of capacity is likely to be completed in next 12 months.
Import threat negligible
Meanwhile, threat of imported MDF has gone down substantially due to duty protection provided by the government. Also, non-availability of containers has given rise to some logistics issues making the imports further difficult. Further, new capacity additions in recent months and also capacity additions planned in the region in the near future will ensure abundant supply of the material in the short to medium terms.
Inventory level with distributors has increased
Inventory levels with distributors has increased and is closer to pre-covid levels after a sharp reduction as it had declined by 30-40% during July-September 2020. Inventory levels have improved due to healthy recovery in sales and better demand visibility.
Raw material prices rising
Rising trend in the cost of raw materials is a cause of worry for the MDF manufacturers. In the last 6 months, cost of chemicals/resins has increased by 70-80% due to sharp rise in Brent crude oil price which has gone up by 70% in last 6 months. Raw material prices are also impacted by higher container freight rates, strong dollar and price increase in origin countries.
Recent spurt raw material prices and strong demand condition have encouraged the MDF manufacturers to go for price hike in the last few months. For example, Greenpanel hiked prices by 3% in South India and 6.5% in the rest of India between December 2020 and January 2021 due to an increase in raw material cost. Similarly, other manufacturers, including Century Ply, have hiked prices by 3-8% in last few months.
Domestic industry for ready made furniture manufacturing has seen a strong uptick post the Covid-19 unlocking due to sharp fall in furniture imports which has 35% decline in CY20 on the back of logistics issues and also anti-China sentiment prevailing in the country. Healthy manufacturing activity has led to strong demand for MDF as 70-80% of ready made furniture is made from MDF. The government has an ambitious plan to make India the global hub of furniture and this may not be an impossible task considering manpower availability, high craftsmanship and creativity in the workers and availability of raw materials at reasonable prices. A booming furniture industry will be a good news for MDF industry in the coming years.