Market Report

Two Good news for MDF Manufacturers in India: Robust demand plus Countervailing Duty on Imports

Two Good news for MDF Manufacturers in India: Robust demand plus Countervailing Duty on Imports

Plain MDF Board or fibreboard is a composite wood product made out of wood waste fibres glued together with urea formaldehyde resin or melamine resin by applying heat and pressure. It is widely used for modular furniture/Ready to assemble furniture due to its smooth and uniform finish.

DGTR recommends Countervailing Duty on Import of MDF

The Directorate General of Trade Remedies (DGTR) in the Commerce Ministry has recommended levy of countervailing duty or anti-subsidy duty on imports of “fibreboards” from Indonesia, Malaysia, Thailand, Vietnam and Sri Lanka.

In its final findings w.r.t. case no. 06/2019, the Directorate General of Trade Remedies (DGTR) on 3rd May’21 recommended countervailing duty (CVD) on imports of MDF into India and originating in or exported from Malaysia, Thailand, Indonesia, Vietnam and Sri Lanka for a period of five years.

The recommended CVD structure (if ratified) is likely to negate the entire pricing differential (domestic vs imports) of 8-10% in thick MDF (70% of MDF market) and prune down the differential to 8-10% (from 20-25% earlier) in thin MDF (30% of market).

In international trade parlance, dumping happens when a country or a firm exports an item at a price lower than the price of that product in its domestic market. Dumping impacts price of the product in importing country, hitting margins and profits of manufacturing firms. According to global trade norms, a country is allowed to impose tariffs on such dumped products to provide a level-playing field to domestic manufacturers.

The ratification is expected to take at least 2-3 months. The investigation for CVD was started in Nov’19 and the application was initiated by Greenply Industries, Rushil Décor, and Century Plyboards.

The quantum of CVD recommended ranges at 8.3%-27.5% for Thailand, 10.5%-18.1% for Malaysia, 12.4%-19.1% for Vietnam, 13.7%-15.8% for Indonesia, and 12.4% for Sri Lanka.

The CVD would be in addition to ADD levied on all plain MDF from the subject countries, which would make imports further unviable. The DGTR recently recommended ADD on Thin MDF from Malaysia, Indonesia, Thailand and Vietnam on 20th Apr’21 for the next five years (yet to be ratified by Union finance ministry). The DGTR also recommended to extend ADD on Thick MDF (6mm or above) for further five years in Jan’21 from Malaysia, Thailand and Sri Lanka. We believe CVD and ADD together would make imports unviable going forward. It may be noted that the ADD on imports of Thick MDF from Vietnam and Indonesia (vide notification 34/2016 dated Jul’16) would expire in Jul’21 and would come up for a review.

MDF demand is picking up

The demand scenario for the domestic MDF industry is healthy right now, owing to the rapid displacement of low-end plywood by MDF, drying up of imports due to ocean freight bottlenecks and aggressive penetration strategies by the larger players. There is a visible pick up in online sales in furniture segment while the organised players such as IKEA are in expansion mode in India, which provides the growth visibility for the domestic MDF industry in India. 
Robust MDF demand sustains on growing market for modular furniture. Post covid, demand for MDF has seen sharp revival largely driven by: a) increasing preference for modular furniture vs customised carpentry; and b) India gradually becoming a manufacturing hub for modular furniture replacing China. Besides the strong OEM demand, increasing acceptance and awareness of MDF for renovation/refurbishment projects to drive robust demand over the near to medium term. MDF margins for south-based MDF manufacturers are likely to remain firm. The recommended CVD structure (if ratified) is likely to negate the entire pricing differential (domestic vs imports) of 8-10%-thick MDF (70% of MDF market) and prune down the differential to 8-10% (from 20-25% earlier) in thin MDF (30% of market) segment. This we believe would enable south-based MDF manufacturers to replace major MDF imports (on structural basis), which are currently estimated at 25-30% of overall MDF market in India.

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