Glove sector stand to benefit from recent US tariff imposition on China

Malaysia’s glove manufacturers stand to benefit from the recent US tariff imposition on China – made gloves, leading to higher demand for medical gloves, analysts observed.

Of note, effective from September 1, 2019, the US government had imposed a 15 per cent tariff on medical gloves made in China. This is in addition to the 25 per cent tariff imposed previously on industrial glove made in China.

“As a result, US importers are shifting the source of supply for medical and industrial glove from China to glove manufacturers in the Asean region specifically Malaysia, Thailand, Indonesia and Vietnam.

“The imposition of tariff on medical glove from China is expected to have a positive impact to the top four local glove manufacturers in the near term given their focus on producing medical glove (more than 90 per cent of production volume) and established presence in the US market (more than 30 per cent of total revenue),” MIDF Amanah Investment Bank Bhd’s research team (MIDF Research) said in a report, noting that the US imported about 10 per cent of its glove from China.

“We gathered that the uncertainties on tariff imposition resulted in glove importers to hold back on their purchasing decision previously.

“Due to this, total export of natural and nitrile glove decreased by 4.4 per cent y-o-y to 38.7 billion pairs in the the first half of 2019 (1H19),” it added.

Nonetheless, it expected a better 2H19 as the demand normalise.

“Note also that the total annual production capacity of the top four manufactures is expected to increase to about 160 billion pieces by the end of 2019 (nine per cent y-o-y).

“This is after taking into account the reschedule in capacity expansion plan of about six billion of capacity in 2019.

Hence, the additional capacity will be matched by an elevated demand from the US at least until the next US presidential election in November 2020,” MIDF Research added.

Despite its positive sentiments on the glove sector, it pointed out that downward pressure on average selling price (ASP) are expected to persist.

“As at 2Q19, we observed a marginal improvement in ASP (between one to two per cent quarter-on-quarter).

“However, in reaction to the aforementioned trade sanction, China’s glove manufacturers will reroute its export to Europe.

This will result in an intense competition given that Europe is another big market for local glove players which historically constitutes between 20 and 40 per cent of total revenue.

“To maintain the demand and supply equilibrium, we expect that ASP will remain subdued.

In such environment, we do not think that glove players can fully pass on any upward variation in cost of production,” it explained.

Overall, MIDF Research maintained its ‘neutral’ call on the glove sector.