Has the Darkest Hour Passed for the Rubber Glove Industry? Insights from Analysts
Despite lackluster profitability in the rubber glove industry over the past few quarters, manufacturers remain optimistic about the order outlook for 2024. Phillip Capital is bullish on the sector and has issued an 'overweight' rating. Analysts contend that the industry has weathered its roughest period.
Customers Restocking Inventories Spurs Uptick in Rubber Glove Demand
Denis Low Jau Foo, former president of Malaysia Rubber Glove Associatio, noted that the rise in glove demand is attributed to customers restocking as COVID-19-induced supplies near expiration. Phillip Capital believes that restocking activities will continue through the fiscal years 2024/25, with global demand expected to recover to 329 billion and 368 billion respectively (year-on-year growth of +15%/+12%). It is expected that the current top four Malaysian glove manufacturers, including Top Glove, Hartalega, Kossan, and $SUPERMX(7106.MY$, account for 49% of the global production capacity. Of this, Top Glove alone comprises about 50% of the production capacity of these leading four local manufacturers.
Rising Hygiene and Safety Standards Boost Rubber Glove Demand
The Covid-19 pandemic has significantly altered public perception of health and hygiene, leading to a shift in consumer behavior. Faced with health threats such as H1N1, malaria, dengue fever, and Covid-19, there has been an increased demand for protective measures, particularly for disposable gloves.
Moreover, the World Health Organization (WHO) predicts that by 2050, the global population aged 60 and above could double, and the rise in the elderly population will translate into an increased demand for healthcare products and services, including the consumption of gloves.
Globally, governments have implemented stricter occupational safety regulations. For instance, in the Food and Beverage (F&B) industry, developed countries have issued guidelines and recommendations emphasizing the importance of using gloves for sanitary protection to reduce the risk of foodborne diseases. These trends are expected to boost sustained and higher demand for rubber gloves.
Alleviation of Production Overcapacity Signals Market Respite
During the pandemic, new entrants to the rubber glove market, particularly Chinese manufacturers, added significant production capacity. However, due to overcapacity which led to a decrease in average selling prices, many glove manufacturers have exited the market. Meanwhile, Kenanga has indicated that the further decommissioning of older production facilities in Malaysia should help alleviate the oversupply.
Reduced Costs Enhance Malaysian Rubber Glove Competitiveness
Malaysian local rubber glove manufacturers currently have an average selling price hovering between $19-20 USD per kilogram, while Chinese rubber glove manufacturers have set an average selling price at $17-20 USD per kilogram. The price gap between the two countries has narrowed to about $1-2 USD per ton, mainly due to the decline in natural gas costs. Chinese glove manufacturers use coal as a source of fuel, which is cheaper than the natural gas used by local manufacturers in Malaysia. Energy costs account for approximately 15-20% of their overall production cost structure.
Analysts Top Picks Hartalega and Kossan for Industry Leadership
Analysts have issued a buy rating for $HARTA(5168.MY$ and $KOSSAN(7153.MY$ due to their more efficient cost structures, robust balance sheets, and high levels of cash. However, they are less optimistic about $TOPGLOV(7113.MY$'s near-term earnings turnaround due to uncertainty tied to a less efficient cost base.
Source: BERNAMA, Phillip Capital
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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