Indian timber prices had shot up in July, much to the discomfort of plywood makers. However, it started to cool off in the later part of second quarter. In the third quarter so far, timber prices remain weakish much to the relief of the plywood manufacturers.
Face veneer prices too are ruling comparatively cheaper, thus helping the plywood manufacturers to improve their margins. Gurjan veneer prices have currently fallen to the level of $650/cbm from the level of $725-730/cbm. Even the Myanmar veneer prices have moderated in recent months.
Softer crude oil price good for industry
Phenol price, on the other hand, is largely impacted by prevailing crude oil price. Softer crude oil price during the second quarter, a trend which has continued in the third quarter too, has helped the price to remain benign.
Plywood is a raw material intensive industry
Plywood is a raw material intensive industry where cost of raw materials account for more than 40% of the total production cost. The main raw material required for plywood manufacturing are core veneer, face veneer and bonding glue. The core veneer are required for manufacturing interior core of plywoods. The both sides of the core veneers are pasted with face veneers.
Softwood plywood sheets designed for installation on the exterior of a structure usually use a phenol-formaldehyde resin as an adhesive because of its excellent strength and resistance to moisture. Softwood plywood sheets designed for installation on the interior of a structure may use a blood protein or a soybean protein adhesive, although most softwood interior sheets are now made with the same phenol-formaldehyde resin used for exterior sheets. Hardwood plywood used for interior applications and in the construction of furniture usually is made with a urea-formaldehyde resin.The raw materials required for urea formaldehyde resin manufacturing are methanol and urea. The manufacturers import methanol in bulk from Saudi Arabia or other foreign countries and purchase urea in bulk from FACT and other fertiliser companies. Phenol too is imported from foreign countries.
Gabon, the new star
While the core veneer is manufactured from locally available wood, face venner is imported from Asian and African countries. Traditionally, Myanmar was the main source for Indian face veneer. Till 2016, most of the face veneer and also to an extent core veneer required by the plywood industry in India was sourced from Myanmar. However, in 2016, Myanmar government banned the felling of trees which affected the raw material availability for the industry. Laos was another source for Indian veneer which also banned the cutting of trees and export of the same during the same period. Veneer from Myanmar and Laos were known not only for their quality but also for low cost. However, Myanmar ban on tree cutting forced Indian plywood makers to look out for other sources for then face veneer requirement. Most of them zeroed in on Gabon for sourcing face veneer. Further, the cost of face veneer from Gabon is much cheaper than that procured from Myanmar. However, now Myanmar too has slightly liberalised its timber export policy thus giving Indian plywood makers like Century Ply another alternative source of raw material. Quality-wise Gurjan veneer from Myanmar is found to be better than Okoume veneer from Gabon. However, Gabon face veneer is 30% cheaper than Gurjan veneer. With Myanmar policy changing which allows export if bought at government auctions some of the leading manufacturers prefer to use Gurjan veneer for premium plywood.
Cautious optimism prevails
Going forward, however, plywood manufacturers are cautious about the price movement of the raw material. According to them, face veneer price may not remain at the lower level once the current stock exhausts. Also, phenol price which is closely linked to that of crude oil, may not remain benign and one may have to be ready for some shocks. Phenol price is not only linked to the crude oil price movement but also is impacted by rupee depreciation vis-a-vis major international currencies.