There has been 30% increase in timber prices and wood demand in last couple of weeks. Manufacturing industry of wood panels specially Plywood and Boards have no choice but to pass on the cost of raw materials to the markets. Main reasons behind this are monsoon, supply issues and reopening of the factories post second wave. The biggest pain today is to tackle the increasing cost and how it is passed on to traders & consumers. As a result, wood panel associations like AIPMA, KTMA, PPMA, HPMA etc have voiced to raise the plywood prices by 7%. Thus, wood panel products were costly by 6 to 8% during July 2021.
Formaldehyde, Melamine and Phenol are among the most crucial raw materials. Melamine is not available below $2300 from China, having sold in India markets at a price of INR 220 a kg which was 140 earlier, and in the range of INR 90 to 100 pre-Covid. The sharp price rise in Phenol has added to the cost. Due to environmental concerns, 15-20 formaldehyde plants in North India were shut leading to price rise from INR 17 to 26 a kg. Price of PVC resin has increased too and presently at its peak.
If we consider the total impact on wood panel products, the scenario is scary where I see weak plants on the verge of bleeding, followed by working capital gap in such times of uncertainty. Laminate manufacturers are facing the same along with rising prices in imported base paper. The only relief was offered by kraft but that remained on the levels of 36. However, if we compare with pre-covid levels, it is 40% higher.
The dilemma in laminates is driven by fear of losing sales to competitors but wise businessmen are aware that ‘No business relation is worth continuing without a sensible bottom line’
The present laminate prices are under pressure which is a result of ‘super over- supply’. The organized players are better off with their earnings despite of 3-4% drop compared to previous years. But in case of semi-formal or emerging players, the market is a tough grinding wheel. There is hardly 3% margin left, that too for right purchase driven companies who deal in bulk. As a matter of fact, if anyone is calculating the cost and passing on the price, there is no option lesser than Rs 40 per sheet for 0.8 mm. The dilemma in laminates is driven by fear of losing sales to competitors but wise businessmen are aware that ‘No business relation is worth continuing without a sensible bottom line’.
Credit control is another crucial factor which is affecting the trade. Manufacturers have been trying their best to cut down on credit period from 120-150 days to less than 50 days. Anyone who is left behind in this race, and paying late will find it difficult to sustain.
GST, Taxation, reforms are here to stay. Let’s accept the changes, encourage formal business practices and get prepared to take the organized path in order to grow.