PETALING JAYA: The rubber glove industry will have to contend with normalising profitability this year due to heightened competition and global vaccination progress since demand has come off its peak seen in the first quarter of 2021 due to the Covid-19 pandemic.
Since the strong performance of the glove sector in the last two years, MIDF Research head Imran Yassin Md Yusof pointed out that many new players, especially from China, have entered the market to get a share of the business.
“As such, competition is intensifying among both incumbent players and new entrants which could further push the average selling price (ASP) downwards,” he told SunBiz.
“Therefore, we posit the ASP to normalise by the first half of 2022 and may return to the cost-plus basis model.”
In terms of the emergence of new variants of the Covid-19 virus and the resurgence of Covid-19 cases, Imran observed that the interest in the glove sector is often short-lived, resulting in a mini rally.
With the current rising global vaccination rates, he opined that the ASP would remain under pressure, moving forward, except for short-term interests.
Overall, MIDF Research has retained a “neutral” call on the sector.
“The glove companies with healthy cash flow, sturdy balance sheet and investment into new facilities as well as research and development are in a good position to defend their market share.”
Similarly, Inter-Pacific Securities head of research Victor Wan believes that in the long term, Malaysian glove makers still hold an advantage over Chinese producers due to their experience, technical know-how and expertise.
“On the whole, the glove sector’s outlook is seen as a mixed bag due to the pandemic-led demand as well as increasing production from China.”
In the short term, he sees the pandemic situation still driving demand for gloves but should Covid-19 infections ease, the demand will subside.
Due to this consideration, Wan sees the exponential capacity growth by glove makers during the start of the pandemic in 2020, will be more in tune with the current demand realities.
Rakuten Trade vice-president of equity research Thong Pak Leng believes glove producers’ performance in 2022 will be a lot less impressive than during the peak of the previous year but it will still be a good year even as the players in the sector contend with the heightened competition.
“However, one silver lining is the weak ringgit against the US dollar which will benefit the local glove makers,” he said.
The usual competition issues aside, Thong expects an increase in raw material prices, particularly rubber, due to the uptrend in the commodity supercycle, to throw a spanner in the works for glove makers.
He pointed out that during the H1N1 outbreak in 2009, there was a surge in rubber prices in the following year – after the pandemic had subsided – and he believes the commodity would chart a similar course with Covid-19.
With the influx of new glove makers in the market, Thong said some of them would struggle to turn a profit, pointing out that in the pre-pandemic period some producers were not making money.
“Given the decline in ASP and rise in commodity cost, I expect this will be the case for some of the glove makers.”