Falling imports can get MDF firms out of woods, but it will be slow grind
India’s implementation of stricter quality control rules to curb imports of medium-density fibreboard (MDF) is yielding results, clearing room for growth for domestic wood panel companies.
MDF, an engineered wood, is a popular alternative to traditional wood both because of its higher suitability for products such as modular furniture and its affordability. The Bureau of Indian Standards’s rules for MDF imports were implemented in February.
In April, MDF imports declined for a second consecutive month, with volumes falling 27% month-on-month and 69% year-on-year to 2,954 tonnes, showed the latest available government data compiled by ICICI Securities. Most of the imports into India in April were from China (about 37%) and Thailand (about 30%), the data showed.
Domestic wood panel companies were struggling with acute margin pressure, elevated timber costs, and a lack of pricing power due to overcapacity in the industry. The influx of low-cost imports had added to the pressure.
MDF imports are now expected to remain tepid, which should aid in faster ramp-up of new domestic capacities. This would eventually improve the sector’s capacity utilisation, which is hovering at 55-60%.
According to India Ratings and Research, India’s MDF industry capacity is estimated to have increased to about 4.5 million cubic meters (cbm) in 2024-25 from about 3.5 million cbm in FY24.
“Demand is anticipated to improve, but the presence of large domestic capacity means absorption could take time,” said Rohit Sadaka, director and head, materials and diversified Industrials, India Ratings.
That said, with easing concerns of overcapacity, companies may now be able to pass on the burden of elevated timber costs to customers with gradual price hikes in FY26, he added.
Timber prices rose due to supply shortage and are expected to ease with produce from new plantations coming in from the second half of this financial year.
These factors should gradually aid the sector’s profitability. But for now, given the demand-supply imbalance, shares of most wood panel companies have been beaten. Stocks of Greenlam Industries Ltd, Greenply Industries Ltd, Rushil Décor Ltd, and Stylam Industries Ltd have corrected by 5-22% over the past year. Century Plyboards Ltd is an outlier, but with a modest 2% returns.
Apart from low-cost imports, listed wood panel companies also face competition from unorganised firms, which tend to price their products lower. This means companies will fight for market share, which in turn could contain sharp margin improvement for listed companies until demand meaningfully outpaces supply.
