It was a smooth sailing for wood panel industry in the first two months of 2020 before Coronavirus crossed Chinese border and wreaked havoc with lives of thousands of people all over the world. In January and February, wood panel industry consisting of plywood, particle board, MDF and laminates recorded reasonably good performance and that too has come on the back of poor health of real estate sector. In fact, fourth quarter of FY20 would have been the best quarter for the industry (organised segment) but for the Coronavirus breakout.
Two consecutive seasons lost
One thing that the industry is ruing about is the timing of the epidemic breakout – it started spreading towards the end of February leading to complete lockdown towards the end of March. For the industry, March to June is the peak period from the point of view of demand and perhaps the epidemic has done an irreparable damage to industry. Remember, last year too industries, in general, rued the loss of business during the peak season due to General Elections and economic slowdown which followed thereafter. Thus, the industry is seeing two consecutive busy seasons getting spoiled for reasons beyond its control.
Tackling the liquidity crisis
Soon after the lockdown is lifted the manufacturers will have an uphill task of dealing with the demands of dealers/distributors most of whom would be facing liquidity crisis. The manufacturers may have to relax credit norms at least on a case-by-case basis. Some of the manufacturers themselves may be facing liquidity problem as they have to meet fixed expenses without there being corresponding revenue.
Ramping up production a tedious task
Once the lockdown is lifted ramping up the production will be a tedious task. However, MDF manufacturers may not face much of the problem as most of the plants are new ones and are also automated as compared to traditional plywood factories. Ramping up of MDF plants may not take more than a week. However, ramping up of plywood and laminates facilities would depend upon how soon the workers would return to work.
Sourcing raw material not an issue
Securing raw material is not a problem in case of MDF as most of them are available locally. In case of laminates, the major imported raw material is design paper. Usually manufacturers keep sufficient stock of the material, however, procuring additional material may result in delay as Coronavirus has affected many countries who have, in turn, imposed lockdown.
For the plywood segment, face veneer is the major imported raw material. Material is imported either from Gabon or Myanmar. While shipments from Gabon will have a lead time of three months, from Myanmar it will be much faster as the lead time is just one month. However, supply from Gabon is more reliable than Myanmar and most of the face veneer needs of Indian plywood industry is met from there. Core veneer is procured locally for which resumption of logistic service is essential. Resins, on the other hand, can be procured either from the international market or through local sources.
Falling crude oil price a good news
Falling crude oil price is a good news for the industry as some of the raw materials are crude derivatives. However, the impact of crude price generally comes with a lag and therefore, benefits should keep flowing in over the next few quarters.
Demand not to pick up soon
The industry now doesn’t expect the demand to come back soon after lifting of the lockdown as the virus has created a sort of fear psychosis among the general public and unless and until they get confirmed that the virus threat has been nullified they may not undertake any major repair/renovation work. Further, two months down the line the country will see onset Monsoon when most of the construction activities come to a halt.
The industry expects the demand to pick up gradually and that may happen in the second half of the financial year. The industry fears that there could be slowdown before the demand picks up. Much will also depend upon the stimulus package of the government.
Further demand can pick up only when construction activity commences. Construction work at the sites can start only when workers, mostly migrants who might have returned to hometowns, return to work. Usually, once the construction workers go back to hometowns take 2-3 months to come back.