Capacities building up in rubber gloves’ sector, oversupply possible
KUCHING: Analysts observed that glove-makers are starting to ramp up their capacities due to the current robust demand for rubber gloves but they warned that an oversupply is possible at this rate.
In a report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said: “Following a period of capacity consolidation starting back in mid-year 2016 which led to falling average selling prices (ASPs), nascent signs of glovemakers ramping up capacities are emerging again.
“The robust demand is attracting players to ramp up production. In anticipation of higher demand and switching from vinyl gloves, players are raising capacities again. Our analysis suggests that potential oversupply is looming.”
It noted that the previous oversupplies in the sector occurred back in year 2014 and 2016.
“From our checks with rubber glove players under our coverage, demand is mainly from nitrile and natural rubber instead of vinyl. Contrary to market expectations of a massive industry switch from vinyl to rubber gloves, Top Glove’s second quarter of 2018/ first six months of 2018 (2Q18/ 6M18) demand growths were led largely by emerging markets that are not predominant vinyl glove consumers.
“Specifically, demand growth for natural rubber gloves stemmed from emerging markets, where healthcare awareness and hygiene standards are rising steadily, particularly Asia ( ex- Japan) and Eastern Europe, which respectively saw 60 and 40 per cent boost in sales volume for the first half of 2018 (1H18) compared with 1H17 of which they are not vinyl gloves consuming nations,” the research team said.
It pointed out that the production of vinyl gloves in China has resumed and normalised in early 2018.
“Hence, we understand that over the past six months, delivery lead times ( the time frame between order and delivery) has shortened from between 60 to 70 days as compared to 30 to 45 days, potentially indicating that strong demand is tapering off,” it added.
All in, Kenanga Research pegged an ‘ underperform’ call on the stock. It said: “Anecdotal evidence suggests that rubber gloves stocks’ share price rally was led largely by massive price earnings ratio (PER) expansion in view of the pedestrian earnings growth over the past eight quarters and 12month period.