Rubber glove industry likely to miss export revenue target

PETALING JAYA: The rubber glove industry is unlikely to achieve its export revenue target of RM14.3 billion set for this year, due to shortage of manpower, water supply disruptions, and lower selling prices seen earlier this year.

Malaysian Rubber Glove Manufacturers Association (Margma) president Denis Low Jau Foo told SunBiz recently that the sector’s export revenue this year is projected to reach RM13.8 billion, short of target but still higher than the RM13.1 billion recorded in 2015.

He, however, expects export revenue to hit RM15 billion-RM15.2 billion in 2017 if latex prices, which have moved up by 30%-40% in the last two months of this year, persist for the next 12 months.

To date, Low said, rubber glove manufacturers continue to face labour shortage due to the sudden change in the government’s policy on hiring of foreign workers.

In February, the Home Ministry suspended the recruitment of foreign workers, only to partially allow hiring of new foreign workers in four sectors, including manufacturing, in May.

“But until today we are still hoping for the government to give us the (foreign) workers, because there are a lot of (production) lines that are not running at full (capacity) right now. Some lines are running at only 70% because of the labour shortage,” Low added.

Last year, some 65,000 workers were employed in the rubber glove industry, of which 42,000 were foreign workers.

Meanwhile, Low said another major reason for the setback in achieving the export revenue target this year is due to the water shortage in certain areas of the country for the past few months, particularly in Selangor.
He said this is because most of the rubber glove factories in the country are in Selangor.

Low noted that out of 106 rubber gloves factories in the country, 60 are in Selangor, while the remaining factories are in Perak (18), Negri Sembilan (10), Penang (6), Malacca (7), Johor (2), Kedah (2) and Kelantan (1).

He said lower average selling prices due to low raw material costs (prices) in early 2016 also worked to cut export revenue.

Natural rubber prices declined almost 70% during the early part of 2016, influenced by external factors, including the weakening of crude oil prices and the softening of China’s economy. China is the world’s largest consumer of rubber.

Low explained that the rubber glove industry’s earnings are mainly determined by the volatility in latex prices, noting that lower raw material prices would in turn lead to lower selling prices.

In a statement released yesterday lauding the natural gas price reduction for the first six months of 2017, Low said the growth in global demand for rubber gloves is expected to be maintained at 8% to 10% in 2017.

PublicInvest Research said the natural gas reduction would be positive for the sector with players being able to better manage their costs with scheduled price increases for the next three years.

Energy costs, predominantly for gas, account for 10% to 12% of total costs for the major glove players. The announcement of a reduction in gas prices for the January to June period in 2017, therefore, will help relieve some cost pressures for the glove players while getting ready for the following adjustments every six months, it said.

Share prices of glove players rose yesterday, with Top Glove Corp registering the biggest gain of 7 sen or 1.34% to close at RM5.30. Supermax Corp, Hartalega Holdings and Kossan Rubber Industries were up 1 sen, 2 sen and 6 sen to close the day at RM2.12, RM4.76 and RM6.49, respectively.

PublicInvest Research is maintaining a “neutral” call on the glove sector due to prevailing pressures from continuous competition, especially the intense rivalry in the nitrile glove segment; surge in raw material prices; upward cost pressures from natural gas prices and labour.