Malaysian rubber glove sector unfazed by cost spikes

ERJ staff report (TP)

Kuching − Malaysia continued to see healthy sales volume growth for rubber gloves in the first nine months of 2013 (9M13) in tandem with growing global demand, further aided by the cheaper average selling prices (ASP) thanks to the subdued raw material prices, reported The Borneo Post.

According to the research group at JF Apex Securities Bhd (JF Apex Research), the increase in sales volume was reflected in the top line of local manufacturers with the exception of Top Glove Corporation Bhd, mainly due to its lower ASP while it was also in the transition period to rebalance its product mix.

“On average, the industry registered eight percent of top line growth in 9M13 which we deem sustainable going forward,” said the research house.

JF Apex Research also added that prices of raw material, the biggest component in rubber glove manufacturing costs at circa 50 to 60 percent were in subdued form in 2013.

As of 9M13, nitrile and latex prices have declined 24 percent year on year and 17 percent year on year respectively, as demand on the commodity failed to pick up due to the slow growth in global economy.

As a result, glove manufacturers managed to capitalise on weak raw material prices by offsetting the cost spikes that arose from the implementation of the minimum wage earlier this year.

China, as the world largest automotive market, is set to grow at 8.8 percent in 2013 to 21m units following the recovery in sales volume seen in the second half of 2013; as the territorial dispute between China and Japan that sparked boycotts against Japanese products cooled off.

“The demand switch from latex gloves to nitrile gloves remained strong as the nitrile gloves exported from Malaysia grew at a three-year compound annual growth rate (CAGR) of 36.6 percent in 2009-2012 while the contribution of the nitrile gloves to total glove exports rose to 46 percent in 2012, up from 22 percent back in 2012,” said the research house.

“Together with its higher profitability due to its lighter weight, manufacturers in the industry are induced to ramp up their production capacity in the related field.

“We estimate an extra 14.9bn pieces of new capacity to be added to the industry by the four listed manufacturers in 2014, which represents an increase of 15.6 percent from their existing total production capacity installed in 2013.

“However, we are cautious on the chances of all additional capacity to be fully absorbed by the market.

“Hence, we expect manufacturers to adopt an aggressive price strategy to fight for the market share as the competition heightens going forward, as well as plan their capacity expansion wisely to be in tandem with the market growth,” it added.

Following the implementation of the minimum wage early this year, the electricity tariff was revised upward by circa 17 percent in November whilst the gas price revision is set to follow suit.

While the impact to the manufacturing cost spike varies according to their weightage, JF Apex reckon that the Malaysia’s glove manufacturers will be inevitably losing ground in the sense of competitiveness and cost effectiveness to their peers in China, Indonesia and Thailand.

“However, we opine that the local glove maker still hold the edge with their superior expertise and advanced technology level, while the aggressive large scale expansion is not matched by the regional peers.

“In a nutshell, Malaysia is still in a strong position to maintain its lion’s share of the global market of 63 to 64 percent in the near future in view of its conducive environment in spite of the cost inflation, hence the manufacturers will still be able to pass through the extra costs to their customers.”

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Full story from The Borneo Post