With an extensive research & analysis of the industry activities for over one and half months after lots of communications, meeting with industry people, Mr Pragath Dvivedi has put the entire industry projection with great optimism during the 13th edition of Market Update with Pragath Dvivedi program. The program was organized in association with Modak Ply which was live on Ply Reporter facebook page. The discussion touched upon the entire industry segments in length with forecasts which includes: Timber, Tree Out of Forest (TOF), Energy Crisis, Price, Raw Materials, Folders Cost, Price Stabilization, Industry Sustainability, etc. Here is a brief on the discussion.
The best part of our wood panel & decorative and allied building material industries is that they are going forward with their zeal overcoming the challenges. It makes us happy today. The zeal to fight for the best comes with clarity; and most of the entrepreneurs in this industry are enthusiastic because they have clarity that they are on the right track in the right industry and moving forward in the right direction.
There have been a lot of ups and downs and the last two years were challenging for every stakeholder in the industry, right from the workers to the industry and all across the channel partners, but very few of them leaneddown to their knees in challenging times of COVID. Over 99% of them won the battle fighting all odds not only on the health front but also to the economic front. Whether it is manufacturers, suppliers, vendors, retailers, dealers or distributors all have back to tack and are happy as they were before.
Today everyone has the pain of rising raw material cost and no one has abstained from it. Since the 12th episode of this program in the last one and half months there have been a lot of changes happening in the industry. The last analysis came true to some extent. In this episode also the analysis is regarding plywood, rising price of timber or melamine, Kraft or any other raw material like resin and many other issues and area of operations. What is their status, and in the coming time how it will impact the industry and how the trade will accept it are the prime focus areas in this discussion.
TIMBER
Its price has created a benchmark in April and everyone is affected by it. If we talk about the lowest grade (less than 3 inch girth – lops & tops of trees) timber that is used in manufacturing particle board or MDF. Earlier that’s benchmarking used to be Rs 3 has reached to on an average Rs 6 frolicking to Rs 3.5 during covid period, Rs 4 during post covid time, then Rs 4.5, Rs 5 and above. It means the price of timber escalated very fast. The similar effect is on the plywood manufacturers as the timber which was available at Rs 600 to Rs 700 has reached to Rs 1200 to Rs 1400 due to scarcity in supply and rising demand. The reason behind, is the lack of plantation in the previous cycle.
THE TREE OUT OF FOREST (TOF)
The Government of India is now considering it and giving high priority with a lot of discussion going on. The scientists as well as the industry conglomerates all are talking about TOF and advocating for the plantation with great efforts but the concrete formula is still awaited. In fact until the industry takes interest and take initiative for making nursery and distribution of sapling for plantation, all these are in the air. The discussion has been done a lot and there is no end to it. But, this is the time to take concrete initiative. If we don’t initiate immediately, the industry has to go through a profound change that the industry has never thought of.
Last year during covid, the imports were on a setback, logistic charges put imports into an extremely troublesome situation. Due to rising cost of freight of goods and containers, the import of materials like particle board, MDF and the Chinese furniture were on hold due to non viability. The situation gave a respite to the domestic manufacturing industry to move forward. Today the domestic manufacturing sector is bullish with demand and the consumption of timber is high. The plantation of timber is still not to that extent but the industry is taking initiative in this regard. Greenpanel has taken forward this initiative in Andhra Pradesh and is moving on with high note. They are also taking it forward at Rudrapur.
Century Ply is also working a lot in this direction. Plantation in Gujarat is on the rise, says media news reports. The initiative for plantation in Nagaland is also going on at a fast pace. We will see its positive effect in times to come. Although these initiatives for the wood panel industries are miniscule. The paper industry has done tremendous work in this regard in Andhra Pradesh and Uttarakhand long before. Now there is a need to take up the wood panel industry by allocating considerable funds for it with all inclusive efforts without ignoring the small scale industries. The industry has to create a fund, make a nursery and promote it for the cause.
THE ENERGY REQUIREMENT
The timber lops and tops – a basic raw material for MDF and Particle Board has reached to Rs 6, the fire wood price is also on the rise, coal is being seen as energy crisis, the power cut is at its peak. In this situation expecting that coal will be made available and the continuous supply of fossil fuel would be there forever is not a logical thinking. Looking towards the Government is not a solution, only their efforts are not the solution for all issues. Public partnership is equally important.
The energy crisis is real today, many of the particle board plants and MDF plants are not running to their full capacity. They are running one shift. In Haryana the boilers at MDF plant are ignited for 12 hours and plants are running for the same time. The similar situation is everywhere in the plywood industry as well as in the laminate industry. The reason is the energy crisis.
The supply shortage in timber is not due to one reason and the price is rising due to it. Other costs are also on the rise like labour, transportation, cutting trees, etc. So, the price escalation is not the issue of only supply and demand. Somewhere the other costs are pushing up the situation to aggravate. This is the reason the industry has to bear the suffocation. Although, in the last 20 days after the end of crop season the timber supply has improved a bit to the factories, due to increasing cutting of trees in the festive season of Eid-ul-Fitr. But, the power supply is disrupted.
The industry has only an issue that is scarcity, either it is labour if the timber is available, if labour and timber is available the other issue comes forward, if everything is right the demand shortage in the market and above all the crisis of payment. It means, the shortage is a fate of the industry that is today concentrated on the energy (the fuel cost) crisis.
THE PRICE ESCALATION WILL CONTINUE
Observing the energy and timber crisis in my opinion the price escalation scenario in wood, panel, decorative and allied industry will continue. The economical grade plywood is going to touch the price of Rs 60 by the year end (ranging from Rs 55 to Rs 65) because 18 mm plywood which was below Rs 40 are being dispatched at Rs 45 to Rs 46. And similarly others range with a difference of Rs 5 per sq ft.
The timber price is going up next as well and I see a saturation point of it at 10% to 15% more because of the growing need. Presently whatever softness we have witnessed in the last 10 to 15 days, we will see again the next level of price itself next fortnight.
It means with increasing quality the price difference is less. In percent calculation it can be placed among 10% to 3% with rising quality of plywood. This is because the industry is unorganised and they have to face the challenges according to their own positioning. If a product is costly with smaller market size and volume, its price increase is also less because the input cost is less, inversely if the product is cheaper their input cost role play is higher, so it sees the higher price escalation.
The consumers if not go for costly products and contractors with their turnkey projects will divert to cheaper quality and the sales will increase in economical grade plywood. The company involved in this category is already enjoying the demand. It will continue up to one year, because these are either semi-formal, informal or unorganised players. The pressure on them is less and they will enjoy the rising demand. So, with firm belief I would like to say that lower price plywood demand will be gaining traction whereas the higher price plywood will witness a little dullness in coming times if prices go up further. One thing is very clear that it is directly related to demand. The higher price plywood demand is not going to fall down all of sudden. They have to work to gain traction.
The timber price is going up next as well and I see a saturation point of it at 10% to 15% more because of the growing need. Presently whatever softness we have witnessed in the last 10 to 15 days, we will see again the next level of price itself next fortnight. Due to festive and Eid the April was a bit sluggish the demand will be signing again the first fortnight of May 2022.
FUTURE OF PLYWOOD INDUSTRY
Mr Jai Prakash Shah asks about the future of plywood. Future of plywood is that it is a base of the pyramid of wood panel industry and the base is still intact as there is no product that can replace plywood. If any comes, they have to struggle a lot because the Indian consumer psychology does not allow changing. For the next ten year the plywood industry will be signing bright. This is like riding a motorcycle for the first time, but after some time car driving lures the bike rider with numerous advantages of safety and protection from dust, heat, rain water and pollution.
The plywood industry resembles that as the plywood players look at MDF and Particle Board with a feel good factor. But, in the traffic jam when bike riders move faster in narrow passage the car drivers remain silent. If we see with this perspective the plywood industry will remain an evergreen industry and you have to enjoy riding it rather than feeling regret. When you enjoy riding, you learn the tricks of the trade of how to ride well. Many are enjoying being in the plywood industry and many who are in other industries are distressed.
So, signing bright should be your mindset as I don’t see any downfall. Until you position your product in the right price segment among the right consumers and make efforts, relaxing is difficult. If you sell economical grade you should focus on to its limit with no expenses on brand, imaging and marketing efforts. If your objective is to make a brand, you must focus on it and marketing as well. The answer must satisfy the question asked above.
Mr Jindal from Ambica Ply Industries, Rampur asks about the price by the end of this year. If we talk about phenolic plywood (PF) I don’t see much of an increase. But if we talk about price benchmarks I can see the next level of 18 to 20 % increase. The Rs 45 plywood will go up to Rs 55 and accordingly with other ranges of plywood within this FY
MDF
MDF is a high demand product. In this segment also, the high density and high moisture resistance category MDF has entered into the wood panel industry with a bang. In the last one and half years it has become a loving product for everybody with first class surface, sturdiness and above 8 densities, anti-swelling along with features of water proof. With such wide features and workability people have trust. It has opened doors for numerous applications. Today as the PVC laminate and Acrylic sheets trend evolved, when we press it on plywood we get a complaint for undulation and delaminating to some extent. But, when it is pressed on birch plywood and MDF the complaints are not there.
DECORATIVE SURFACES
Acrylic laminate is a good product if it is handled properly. In India the market of Acrylic laminates is growing faster due to evolving techniques of applications. The use of tools and equipment of modular furniture, the acceptance of high gloss products, acceptance of new products have gone up. The available right substrates are pushing its demand.
In the decorative surfaces is witnessing change that is going toward pastel colours from shuttle colours. In this segment now dull matt and dull colours folders are available now in large numbers. Matt is growing but in a different category. It is going towards feeling like anti-finger, velvet, smoother touch, water non stick, etc. Recently a company has launched high value products in the laminate segment. The products are being taken by the retailers and architects in a very welcoming manner. The product is at high value, but with the right quality it is being accepted well. We see the changing trend there.
If we see the design philosophy of the majority of nonfolder players a slow chain from wood grain towards solid, wood grain towards plain and very shuttle colours is very much visible. Scandinavian feels, Scandinavian interiors, light colours are very much there. The decorative industry is going towards that area. All the retailers who are ready to accept quickly install and demonstrate in their showrooms and create a selling pattern like the retailers when bringing new highlighters call their customer base to see it. They receive a sample from parent companies and sell to the buyers and that’s how the sales grow. Today when you create a mock-up of applications it helps. It is the changing trend of the retail segment.
PRICE MECHANISM FOR LAMINATES
Today when we talk about plywood prices have gone up. In MDF since the last one and a half months there has been no price increase. But, I definitely see if the energy crisis continues there will be an announcement. In the laminate segment there is a twist as in February after the Ukraine war the prices rose very fast. There were two continuous price increases in this segment. The organized players got it accepted but the unorganized players did not move fast in terms of implementation of second rise. In the meanwhile the melamine price softened and kraft also dropped a bit, perhaps it was the reason they held on the price to that level only.
But, if we include the energy cost, transport and other expenses like labor cost and décor paper then sooner or later they will also be forced to increase the price. As of now since April did not see much of a sales traction the prices were on hold, but in times to come the rising cost will keep the laminate industry under pressure or further price increase. The industry fraternity cannot grow if the price is a maximum discussed subject among them. The price rise in the industry is looked at as a profit making mechanism and sometimes in compulsion. Everyone in the industry wants profit but if it is gained by pressing others, the price will never sustain and later on the trade will also lose its ground in competition and your profit ultimately drops. The trade should go ahead helping each other together at the platform without doing undercutting.
Mr Ashish Gupta, Premier Plylam Marketing Company the distributor / channel partner of wooden plywood, block board & decorative laminates & door skins from Jaipur, Rajasthan asked whether the GST will go up to 28%? This is a big threat, but I think the government will not move towards 28% as it will not solve the purpose, because the inflations are already high, such types of steps will be very detrimental. The demand will drop if that is done. Until there is concrete evidence that the government is moving in this direction I cannot comment on it. Still I feel it will come down in time to come. As the tax base increases the taxes collection will increase, not to decrease the collection the government will increase the GST. Overall the price of products of the wood panel and decorative industry will fluctuate on the higher side.
FOLDER COSTS
Mr Ashish also asks about the folder cost and what should be the way forward? In the big companies without price there is no presence of any folder. If the dealers/ retailers wish to have a folder they have to pay for it to the distributors. They have to think twice before giving folders from branded players, because they have to pay for it. People are getting conscious about the folder. Whether it is 0.8mm of 1mm the company has a cost of Rs 3000/- for one folder. Since the paper price has increased considerably higher plus the laminate samples, fixing it and its forwarding in transportation cost to the retailers its cost go much higher to the above mentioned price.
I would like to suggest the laminate companies to fix a price for it whether it is lowest to Rs 2000 and give it in an issued CN or scheme but there must be valuation criteria. If its cost would have been below Rs 1000, you could have considered it a sample. But, as the way prices have gone up, folders pricing has become a brining topic and definitely the associations whether it is of the distributors or body like ILMA should take note of it and take it forward by putting a value and process in system in charging for the folders and implementing in the trade.
It can displease the traders/dealers because the free traveling getting paid creates a pain first time. In villages the electric use by pinning to the open wires was a normal phenomenon but the scenario has changed now and meter installation is a must for electric use now. The same mechanism must be implemented to laminate industry also then only the folders will get respect and the distributors will be relaxed disseminating the folder respectfully. Along with that the sales personnel will feel proud carrying it forward with its value. The folder pricing can be charged from the consumers.
If we talk about the entire wood panel and decorative industry and trade, May is going to be better. The matter of concern is that the statement of RBI issued on the Indian economy states that due to COVID Indian economy has been hit badly and if we wish to touch upon the pre-covid level of economic scenario it will get into that by 2035. It is a big jolt. If an organization like the RBI says that COVID has taken us back that will be covered in the next 13 years is a matter of concern.
The demand is good among the upper class with their high earning and spending but the lower segment of the society is suffering a lot with inflation and their spending capacity is going down. Its effect will reflect later on. But, May will be good because April was slow. The laminate industry is going to see profound changes in coming times. In terms of capacity, bigger players are getting bigger and smaller players are also going bigger. Is the market expanding that much? In the next episode we will discuss that. Keep sending your questions for a separate episode of the question answer session which is going to start by May 2022 itself.