HomeIndustry TrendsWood panel industry expects a sharp recovery post lockdown 2.0

Wood panel industry expects a sharp recovery post lockdown 2.0

Things were moving smoothly till the end of FY21 and for some weeks initially during April but the Covid second wave and the subsequent localised lockdowns in almost all the states changed the fortunes of wood panel industry dramatically thereafter. For most of the branded players in the wood panel industry situation was okay till April but May is a washout as only 10-15% of the market is operating while rest is closed due to lockdown.

While Delhi has announced gradual relaxation of lockdown rules from June onwards, Maharashtra is more cautious in doing so and may start relaxing norms only by the end of June. Meanwhile, many other cities like Bengaluru, Chennai and Kolkata may take much longer to get back to normalcy.

Situation under lockdown 2.0 better than last year

However, many people we spoke to in wood panel industry are of the opinion that the situation this time is much better than what the industry had experienced last year when the whole country had come to standstill. Unlike last year, this year some economic activities are being carried out which has helped the industry to cover at least part of the fixed cost. Also, demand from projects has not stopped which is partly helping the industry. Further, many players believe things could pick up much faster than earlier as the channel is operating at low inventory, of which some might have been sold during current partial lockdowns.

MDF is still better off

Prior to April 2021, MDF and particle board manufacturers were running at full capacity and, in fact, were operating at only the cash-and-carry model. This segment of the wood panel industry continues to do well and is benefitting from the fact that projects are still operational and demand from ready-made furniture manufacture still exists. Thus, players during these times are also busy creating inventory to help them meet demand once markets open.

Unorganised sector badly affected

However, the unorganised sector has been badly affected by the current lockdown as it had not recovered completely from last year’s lockdown. Small players in the industry were already operating at 30-40% pre-second wave mainly due to sharp increase in raw material prices. Going ahead too these plants will be unable to manufacture at full utilisation given the continued elevated raw material prices.

Some explore exports avenue

While domestic market is in doldrums some of the laminates manufacturers have turned to exports to keep the factory wheel moving. For example, Merino Industry is focusing on exports for survival. Similarly, Greenpanel Industries is also focusing on higher MDF exports for the next couple of months till the domestic market reopens and demand revives.

On the other hand, plywood manufacturers find exports market not an easy option as the African products are already well accepted in Europe and America. Therefore, Indian plywood manufacturers don’t see any large opportunities in plywood exports directly. However, there is rising trend of ready-made furniture exports from India which may benefit the industry indirectly.

Industry concerned by raw material price surge

However, the industry is more concerned about prices of key raw materials such as timber, melamine, phenol, formaldehyde and paper which have more than doubled vis-à-vis last year. This has forced the manufacturers to resort to frequent price hikes to absorb the raw material price increase which has also affected the demand. Steep increase in raw material price and also difficulty in procuring the materials have affected the capacity utilisation by the unorganised sector.

According to analysts, prices of some of these raw materials are likely to remain at elevated levels given the global supply chain is still impacted. Many plants in China, including that of melamine, are shut, creating global shortages. In an era of high inflation branded players are better placed to pass on the cost to the consumers through frequent price hikes than the unbranded players. In a way, rise in raw material prices is proving to be too costly for the unorganised segment of the industry.

As per industry participants, the current lockdown and demand weakness have provided industry participants an opportunity to stock-up to meet demand once it starts to pick-up. According to some of the industry people, industry will see sharp recovery in demand once the lockdown norms are relaxed. Industry expects normalcy to return by the end of June or in July though the pace and scale normalisation may vary from region to region. The threat of third wave is the distinct headwind for the industry as well as for the whole economy.

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