HomeIndustry TrendsWood panel industry looks forward for better times ahead

Wood panel industry looks forward for better times ahead

Wood panel industry seems to have left the Covid-19 stigma far behind and is racing ahead thanks to robust growth in demand. It will be an understatement to say that the industry has rolled back to pre-covid level because situation now is far better than what the industry had undergone just before the outbreak of the pandemic. For example, Century Plyboard declared highest ever quarterly performance emphasising the fact that growth is not just due to pent-up demand nor due to low-base effect. More importantly, most of the players in the industry are highly optimistic about the future prospects.

Unorganised sector in bad shape

However, some analysts add a word of caution – industry (both unorganised and organised) per se may not be growing as indicated by the growth numbers of some of the leading players in the industry. According to them, most of the growth has come due to market share gains to organised sector players at the cost of unorganised players who are in pathetic condition. Unorganised plywood and laminate players are likely to remain under stress in the near term driven by sustained rise in input costs and higher working capital requirements. In fact, their drift had started the day GST regime was introduced in the country.

Spike in raw material prices

However, it may not be a smooth sailing all the way for the wood panel industry as the raw material price spike shows no signs of abatement. Most of the industry players are resigned to fact that input costs like phenol, melamine, paper and timber would remain at elevated levels in the near term. For example, in case of laminates, paper and melamine continue to rise in Q3. Craft paper prices increased by 5-13%, decorative paper by 10-12% while chemical prices have increased by 70-100%. Roughly, paper comprise 65% and chemicals 35% of raw materials costs.

Frequent price hikes

In order to partly offset hike in input costs, the manufacturers have undertaken some price hikes across the product portfolio. For example, Greenpanel Industries, leader in MDF segment, undertook price hikes in the first week of October due to rise in chemical prices. The company is expected to hike plywood prices in the third quarter to offset increased cost of raw materials. Century Plyboards is also targeting to take additional price hikes to offset overall increase in input costs. Similarly, Greenlam Industries  increased domestic price by 7% and exports by 3% in Q3 along with incremental freight to be passed on to customers. The company had taken 5-6% price increase in domestic market in Q2 and 3.5% price increase in exports in H1.

Expected to show good growth

MDF demand is expected to grow at 15-20% per annum over the next two years. Plywood segment too is expected to see double digit volume growth as demand from plywood has resurrected from Q3FY2021 onwards and is expected to maintain the growth trajectory going ahead. However, in case of plywood, realisation is expected to moderate in the near to medium term as the manufacturers may change the product mix due to higher traction in lower value brand.

Apart from pent-up demand, key growth drivers in the medium term are rising income levels, urbanisation, real estate development, and Housing for All, among others. Further, leading wood panel manufacturers are expected to grow at a faster pace, benefiting from market share gains from the unorganised sector, leveraging their strong distribution network. The government’s focus on making India an export hub provides strong export growth opportunities for the industry as a whole. Also, positive growth prospects of real estate industry is another good news for wood panel industry.

Further, the size of India’s wood panel industry is too small compared to some other markets, especially that of China. India’s annual capacity for plywood, and particle boards is currently at 10 mn CBM and 1.5 mn CBM, respectively as against China’s annual capacity for plywood and particle boards at 200 mn CBM and 35 mn CBM. This shows the huge growth prospects for the industry in the long term.

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