CitiViews – India Market Watch
➤ Spotlight on Wood – The product registering 100% growth for the last six
months. Latest data on industrial production pegged growth at 9.8% in June1-
below the double-digit mark for the first time in 11 months. With the investment
side of the story largely intact as reflected in sustained buoyancy in capital goods
production – up 29% in June, the slowdown in growth was due to the moderation
in the rate-sensitive sectors – consumer goods and transport equipment.
However, what has been puzzling is the extraordinary surge in production of
wood and wood products – where growth has averaged 100% for the sixth month
in a row, with latest numbers pegging growth in June07 at 104%yoy.
➤ Housing may be the driver behind the rise... Production of wood and wood
products comprises two key components- plywood and particle board
production. Of the two, it is the latter that is contributing to the rapid growth in
this segment (see chart) as particle boards are a cheaper substitute of wood,
particularly used in the manufacture of furniture such as table tops, door/window
panels, show cases, etc. While current trends in wood production could be a
result of the negative base during the previous year or maybe even written off as
a data error, we think a possible explanation could be the result of rising housing
demand which in turn has created greater demand for interior wood and valueadded
wood products. Looking ahead, on the back of the current shortage in
housing, the demand for wood products could likely sustain. Key companies in
this space include Century Plywood, Greenply Industries, Kitply Industries.
➤ …but higher imports of raw materials need a close watch: A key factor to
watch out for, however, is imports of wood products, which amounted to
US$114mn in Mar07 (+47%yoy). Following the implementation of the National
Forest Policy in 1988 which banned the felling of trees in forests located above
1000 meters, the wood industry in India has faced severe shortages in raw
materials. Higher demand for production is thus met by increased imports of
unprocessed lumber- which must be discounted from the rise in production.
➤ Spotlight on Wood – The product registering 100% growth for the last six
months. Latest data on industrial production pegged growth at 9.8% in June1-
below the double-digit mark for the first time in 11 months. With the investment
side of the story largely intact as reflected in sustained buoyancy in capital goods
production – up 29% in June, the slowdown in growth was due to the moderation
in the rate-sensitive sectors – consumer goods and transport equipment.
However, what has been puzzling is the extraordinary surge in production of
wood and wood products – where growth has averaged 100% for the sixth month
in a row, with latest numbers pegging growth in June07 at 104%yoy.
➤ Housing may be the driver behind the rise... Production of wood and wood
products comprises two key components- plywood and particle board
production. Of the two, it is the latter that is contributing to the rapid growth in
this segment (see chart) as particle boards are a cheaper substitute of wood,
particularly used in the manufacture of furniture such as table tops, door/window
panels, show cases, etc. While current trends in wood production could be a
result of the negative base during the previous year or maybe even written off as
a data error, we think a possible explanation could be the result of rising housing
demand which in turn has created greater demand for interior wood and valueadded
wood products. Looking ahead, on the back of the current shortage in
housing, the demand for wood products could likely sustain. Key companies in
this space include Century Plywood, Greenply Industries, Kitply Industries.
➤ …but higher imports of raw materials need a close watch: A key factor to
watch out for, however, is imports of wood products, which amounted to
US$114mn in Mar07 (+47%yoy). Following the implementation of the National
Forest Policy in 1988 which banned the felling of trees in forests located above
1000 meters, the wood industry in India has faced severe shortages in raw
materials. Higher demand for production is thus met by increased imports of
unprocessed lumber- which must be discounted from the rise in production.
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