Banking on MDF growth
Transition from
Plywood to MDF
Currently, the estimated consumption of plywood in India is
around 25 lakh m3/yr, and the demand is expected to grow at a CAGR of 5-7%.
However, the government has reduced the issue of new licenses on on addition of
new capacities of plywood, which will result in a shortage and increase the
prices of plywood. Thus, as the production of plywood cannot be increased from
the current levels, we expect this 5-7% increase in plywood demand to be
substituted by MDF (and allied products), which will result in a huge demand
for MDF in the coming years. Currently, the estimated demand for MDF is around
600,000 m3/yr, which is set to grow at a CAGR of around 25-30% (to substitute
for the increasing demand in plywood).
Around 80% of Global
Wood-Panel Market Constituted by MDF
In most countries, around 80% of the wood panelmarket is
constituted by MDF and particleboard products and only 20% by plywood. However,
the situation is reverse in India, where around 80% of the market is controlled
by plywood. With the government controlling the issue of new licenses on
plywood, there has been an additional growing demand for engineered panel
products like MDF. The fact that these engineered panels have a very high
utilization of raw-material resources as opposed to plywood, and considering
India's scarce supplies of raw-material, has resulted in the government
strongly promoting the manufacturing of these products.
MDF is widely used by furniture manufactures globally, and the
same trend is being adopted by Indian furniture manufacturers, as it is
cost-effective, easier to apply and more flexible than plywood. We believe that
MDF will slowly but surely substitute plywood in various applications (thin
plywood can be substituted by MDF in the production of cabinet backs, drawer
bottoms, door-skins, panelling applications in house building, internal
decoration etc, while thicker plywood can be substituted in table tops, cabinet
construction, moulding production etc). Globally, MDF is widely used in
furniture, architecture, indoor decorations, loud speaker boxes, TV boxes,
musical instruments, flooring, sports equipments and isolated panels.
Consumption
Pattern to Change
Currently, India has around 20% of the world's population, but
only consumes 1% of the total MDF produced, even though it's a cheaper, more
environment-friendly and versatile product. This was partly attributable to the
fact that plywood was relatively cheap in India and was well-accepted in the
largely custom-made furntiure market in India. However, going forward, with the
control on plywood capacity, as plywood prices keep going up, MDF is likely to
increasingly subsitiute the lower and mid-range plywood demand in the country,
offering a more attractive price vs. quality trade-off. This is also likely to
coincide with an increasing preference for cheaper, factory-manufactured,
modular furniture by the Indian consumer, which compulsorily requires MDF
rather than plywood as an input. Accordingly, we expect demand for MDF to pick
up significantly in the future; thus, we believe that GIL will be well poised
to benefit from the future growth in this segment.
China is currently the largest manufacturer of MDF in the world
by a wide margin, with a massive production of about 24.9mn m3/yr (as compared
to just 0.3mn m3/ yr in India). While direct exports of MDF in China account
for about 15% of total production, a large chunk of the MDF is consumed by the
furniture and other household fixtures and accessories industries. China is
also the world's largest exporter of furniture and allied products and industry
data indicates that about half of the output is exported. This still means that
almost about 40% of MDF manufactured in China is currently being used to
manufacture furniture and allied products that are domestically consumed. This
translates into an approximate MDF consumption of about 10-11mn m3/yr in China as
against just about 0.6mn m3/yr in India at present, indicating the vast
potential market for MDF in India.
Exhibit
1: Top Five Producers of MDF in the World
Producers
|
Production
|
Exports
|
Imports
|
Consumption
|
|
|
|
|
|
China*
|
24,986,000
|
3,841,102
|
1,324,877
|
22,469,775
|
Germany*
|
4,380,000
|
613,992
|
1,274,440
|
5,040,448
|
United States of
America*
|
3,334,680
|
306,977
|
3,059,303
|
6,087,006
|
Turkey*
|
1,952,000
|
515,000
|
184,000
|
1,621,000
|
Brazil*
|
1,879,000
|
120,000
|
4,000
|
1,763,000
|
World*
|
57,313,163
|
|
|
|
India**
|
200,000
|
1,600
|
420,000
|
618,400
|
The Indian Furniture
Industry
Greenply Industry (GIL) expects to sell around 40% of its MDF
products to Indian Furniture manufacturers. The India furniture industry is a
Rs36,000cr industry, and is highly unorganised (85% of the market is
unorganised). India is ranked among the top 14 furniture markets in the world
(CSIL Milano), and the wooden home furniture segment has the biggest market
share in the industry. In FY2009, the Indian Organised Furniture Industry
registered a healthy growth of about 13-15%, and is expected to grow around
25-30% over the next five years, on the back of the real estate and housing
boom, tourism and hospitality Growth, increasing per capita income, and the
increasing consumption of lifestyle products, including furniture. Some of the
leading Furniture manufacturers in India are Godrej & Boyce, BP Ergo,
Featherlite, Haworth, Style Spa, Yantra, Renaissance and Millenium Lifestyles.
|
|
|