Since its introduction over a century ago, the plywood industry has seen a rollercoaster ride in terms of prices. Unlike other wood products, this industry has witnessed historic highs and unpredictable lows as it integrated itself into the world economy. Yet despite being such an integral industry in our daily lives, why is it that the plywood rates are not increasing in tandem with the rates set by competitors? A brief talk with Mr. Sameer Garg, MD, SRG Plywood on present Plywood market scenario.
What are the reasons plywood prices are not rising unlike other panel products despite rising cost of raw material?
The answer lies in the myriad facets of technology. It is with the help of technology that Medium Density Fibreboard (MDF), Laminates and Particle Boards have entered the picture. Despite being small and comparatively newer, these industries have become a force to reckon with.
Even though the plywood sector has been around for quite a while, it is majorly an unorganized sector. This is because it consists of small and dispersed businesses. Due to the plywood industry’s low unanimity and strength in number, it has become difficult for the industry to hold its position in the market. Factors such as these withhold the plywood industry to make decisions independently. Instead, they initiate decisions based on the verdict of their competing industries.
Are the other panel products like MDF, Particle Board also impact the Plywood business?
With the introduction of the 3 aforementioned sectors into the market, the plywood industry has had to share its segment. This share is decreasing day by day and although the end production has remained the same, the pressure to sell plywood products for small players is on the rise. The plywood industry can unanimously decide to increase the prices of the existing selling shares. However, this would prove unfavourable since it would push customers to choose other alternatives.
It is necessary to notice that plywood, as we know it, is not a finished product. Due to this reason, end customers do not procure plywood as per their individual preferences. Instead, they focus on aesthetic factors such as design, pattern or prices and make purchases based on the suggestions from shopkeepers, architects, carpenters, etc. Consequently, plywood manufacturers are restricted to ensure production is made based on the market flow.
What are the risks for the plywood manufacturing being in a un-organsied sector?
The plywood manufacturing segment, being an unorganized sector, is also easily penetrable. This poses a risk because newcomers on their arrival will keep the profit margin to a minimum which in turn will affect existing rates and sellers. When they later try to increase this margin, it will backfire due to further entry from upcoming players. This leads to a vicious cycle for the plywood industry.
The plywood industry is known to change or increase its rates on a half-yearly or a yearly basis which is not the same for MDF, Laminate or Particle Boards industry. Due to this habitual trend, the plywood industry cannot roll back a rate once it is passed even if the market rates change. Moreover, laminate manufacturing businesses import their raw materials such as paper and chemicals - this gives them an added leverage to maintain a standard and fixed rate.
Plywood manufacturers do not enjoy the same advantage as they import their raw materials and also source them locally for different regions. Being an unorganized sector, the rates at which they procure raw materials and timber vary too. Therefore, it is difficult for this industry to maintain a standard rate.
Branded players in this industry are trying to increase the rates and they have been successful at it. But the fact that stands out is that these players have to bear a good portion of the expenses on their own end before the rates for the end consumer are decided.
The plywood industry is known to change or increase its rates on a half-yearly or a yearly basis which is not the same for MDF, Laminate or Particle Boards industry. Due to this habitual trend, the plywood industry cannot roll back a rate once it is passed even if the market rates change.
What are the challenges manufacturers have to face before increasing the price?
It is not to say that the plywood manufacturing industry cannot raise the prices in any manner. Branded players in this industry are trying to increase the rates and they have been successful at it. But the fact that stands out is that these players have to bear a good portion of the expenses on their own end before the rates for the end consumer are decided.
Are the ISI standards still relevant for current trend and practices of it should be revised at the earliest?
A point that also needs to be mentioned is that the existing ISI norms have not been revised as they were assembled decades ago. It would benefit the industry greatly if these norms could be reviewed and updated accordingly.
Heading into the new year we hope that the plywood industry will become more organized. This itself would reap profits and ensure that operations function smoothly throughout.