Thursday

17


October , 2019
Depreciating real estate sector denting plywood industry
13:56 pm

Kuntala Sarkar


Plywood is manufactured from timber logs and formed by combining thin timber sheets. India has around 2800 operational wood panel processing and plywood manufacturing plants. According to industry estimates, the plywood market in India is well placed to reach the $5.7 billion mark by 2024. Since plywood and allied products are an essential part of housing, furnishing and construction, the demand for plywood is directly related to the growth of the real estate and infrastructure sectors.

Nilanjan Saha, CEO and Head of Marketing, S. A. Plywood, told BE, “We consider the downturn in the real estate sector to be time-bound and are looking forward to a synergic situation to come very soon. In the very recent past, we had to push back our production capacity reluctantly, considering the market scenario on a pan Indian basis.”

Increasing cost of production

A persistent challenge for plywood manufacturers is ensuring a steady flow of timber. In recent years, Eucalyptus timber is being increasingly used for plywood manufacturing as it is relatively easy to source. However, there has been a sudden escalation of prices of Eucalyptus timber which has gone up by around 20%. Additionally, price escalation of Poplar timber (another prominent input for the plywood industry), fuel and necessary chemicals have negatively impacted the industry.

According to industry sources, the labour wages have also increased and all these factors have pushed up the industry’s production cost by around 10%. In order to factor in this rise in production cost, many prominent plywood manufacturers have curtailed their production. In West Bengal, the industry is facing certain challenges pertaining to power. According to industry sources, in other states, plywood manufacturers are procuring power at Rs 3-Rs 5 per unit, whereas in Bengal they are paying around Rs 10 per unit.

Saha added, “The districts of Coochbehar, Raigunj, Alipurduar, Siliguri and Darjeeling in North Bengal are quite backward. Only tea and wood based industries are operational in this region. We are facing serious problems pertaining to high electricity tariff. Timber is not always readily available ever since the Indian government banned using forest timber. However, there is no bar on using imported timber. We are often facing constrains regarding procurement of raw-materials. Since procurement and availability of timber in West Bengal is an issue, we have to procure from Uttar Pradesh by incurring more costs.”

Industry status

The plywood industry is integrally related to the real estate industry. Traditionally, the maximum demand for plywood is registered from north and south India. There was good demand in office and leasing spaces in Delhi-NCR, Mumbai-CBD, Pune and Bangalore, Utter Pradesh, Ahmedabad, Telangana and Andhra Pradesh which translated well for the plywood industry. However, the slowing economy and the resultantly weakening real estate sector have negatively impacted the plywood industry in recent times. However, many industry insiders feel that with the governmental push to affordable housing, the plywood industry may witness a spurt in demand in near future.

The industry is also in a state of transition. Traditionally, the sector was largely fragmented and unorganised. However, with passing time, there is a distinct shift towards more penetration of organised players. Branded plywood brands are gaining greater traction as the market is equating branded organised players with ensured quality.

Additionally, there has been an increasing competition in the supply of the medium-density fibreboard (MDF) among producers, which is leading to oversupply. Its production has approximately doubled compared to the demand in market.

Melamine and phenol are two important chemical inputs for the plywood industry. The manufacturing of these two chemicals is restricted in India and most of it is imported. However, the government is trying to reduce import dependency for these two chemicals through anti-dumping duties. The demand for these chemicals is now to be fulfilled by domestic manufacturers but there is a problem in that.  The government has initiated steps to put melamine and phenol manufacturing under compulsory BIS registration, keeping in mind the harmful environmental impact of these chemicals. The Federation of Indian Plywood and Panel Industry (FIPPI) has approached the Ministry of Chemical and Fertilisers to rethink this step and not implement it rapidly as it will be detrimental for the plywood industry. 

 

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