After last year’s turmoil, a semblance of normalcy is returning to MDF market where the price slide has stopped and new capacity addition has become rare. As far as the demand-supply scenario is concerned, the supply actually has not increased in last about 6- 9 months’ time which is a good sign from the point of view of the manufacturers. Capacity utilisation for MDF has reached healthy level as compared to last year. This may also encourage the manufacturers to go for next round of capacity expansion.
In the last 6-9 months there have been no further addition to the MDF installed capacity in the country much to the relief of existing manufacturers. Presently, in North India, there are three important players, Century with capacity of 600 cubic meter per day, Greenply with capacity of 600 cubic meter per day and Action with capacity of 1,000 cubic meter per day. In South India, Greenply has over 1,000 cubic meter per day capacity and Rushil Décor 500 cubic meter per day, and they are expanding capacity, which should be operational by year-end and thus total installed capacity in South should reach 2,000. These are the major capacities operating in the country at present. Apart from this, there are some marginal players with a total capacity of 600 CBM.
Century Ply had announced its plan to expand its capacity in Hoshiarpur in Punjab from 600 CBM to 1,000 CBM. However, the company has dropped that plan and instead is planning to set up Greenfield project in Uttar Pradesh of a capacity of 500 CBM. According to the company, expansion of Hoshiarpur would have impacted the availability of wood and its price in the market. According to the company sources, currently wood (required for making MDF) is available at the rate of Rs 3-3.50 per kg in Punjab. If the capacity is increased it may push up the price to Rs 4 per kg. On the other hand, wood is available in UP which is the richest in plantation timber, at half this price which can bring down the cost of production to an extent.
Apart from the availability of raw material, states are giving incentives in the form of GST exemption to attract industries. While Punjab Industrial Policy gives GST exemption to the extent of 70% of the investment UP offers incentives to the extent of 200% of investment as GST exemption over 10 years period. However, industry people are little sceptical about availing this facility within 10 years fully. The state GST, at the highest level is 9%, after availing input credit may come to 5-6%. At this rate it is not possible to avail of full benefit in 10 years. However, if the company is able to avail of even 100% of the benefit that would make the investment free within 10 years.
As far as price of MDF is concerned, normalcy seems to have returned to the market in the last 6-9 months and last year’s blood bath has become a thing of past. According to market sources, since October last year, price has remained stable and there has been no price cuts announced by the producers. Also, there have been no fresh additions to the capacity which has limited the possibility of flooding the market with supplies. In fact, Century Ply has hiked the price of thicker MDF (6mm-plus) by 3-4% during the current financial year which has been absorbed by the market.
However, manufacturers rule out further hike in the price, especially in Southern markets due to threat of cheaper imports. It takes hardly one month to import MDF from abroad and ASEAN countries like Vietnam, Indonesia, Malaysia and Thailand have duty exemption which can be exploited by dumping the product whenever price in the market become attractive. However, transporting MDF from North to South and vice versa is an expensive proposition as it will add an additional amount of Rs 3000-3500 to the cost due to logistics expenses. While Southern market is exposed to the threat of imports, Northern market is relatively insulated from this threat.
Despite the price stability seen in Indian market, the overall growth of MDF globally is subdued. However, if one tracks growth history of other emerging markets, MDF in India has a bright future. Take the case of China where MDF made late entry as compared to plywood and today MDF and particleboard have surpassed plywood in terms of volume. While the plywood’s total volume in China today is around 17 million cubic meters MDF and particleboard joint volume is five times of this capacity. On the other hand, the present total volume of plywood in India is around 10 million cubic meters and MDF and particleboard together is less than 2 million cubic meters which means latter has lot of ground to cover in the coming years. So, the growth prospects for MDF in the country is much higher than that of plywood.