Local glovemakers not likely to engage in price war with China counterparts
KUCHING: Local glovemakers are not likely to engage in a price war with their China counterparts, RHB Investment Bank Bhd’s (RHB Investment Bank) channel checks have showed.
According to RHB Investment Bank, this is in spite of China selling gloves at circa US$19 per 1,000 pieces versus the local average selling price (ASP) of US$24 per 1,000 pieces as of August, which is a difference of 21 per cent.
“Gloves from China are still subjected to a 7.5 per cent import tariff by the US, but this is expected to expire by end-November,” the research firm said in its Malaysia rubber products sector update.
“Furthermore, we believe there could be a potential risk of ASP erosion should the United States Trade Representative abolish tariffs on gloves imported from China.
“We estimate that the glovemakers’ blended ASP is at US$24 to US$25 per 1,000 pieces, with Hartalega Holdings Bhd being the leader due to its stronger product mix – circa 96 per cent of its products are nitrile gloves.”
Meanwhile, RHB Investment Bank highlighted that Top Glove Corporation Bhd (Top Glove) is taking the lead in raising prices.
Taking a cue from the recent price hike implemented by Top Glove, the research firm believed that the key rationale was to pass on the increase in input costs to customers, to stay profitable for the foreseeable future – as the industry utilisation rate had fallen below 50 per cent on average as at August 2022.
“In our opinion, the effect of this price hike remains to be seen, in terms of customer acceptance. This is because the increase was not driven by surging demand.
“Rather, it was a passive move on the company’s part – and one that may put it at risk of ceding market share. At the present, none of its peers are passing through costs.”
As for demand, RHB Investment Bank noticed that the inventory levels of some prominent glove distributors were still high as at June (still higher than pre-pandemic levels by circa 30 to 50 per cent), despite seeing some depletion in second quarter of 2022 (2Q22).
“The glove distributors’ inventory drawdown may take at least a year before easing to pre-pandemic levels – as this also factors in the notion that customers still have plenty of inventory on hand (about six to nine months).
“As such, global demand growth should remain sluggish, at four per cent and six per cent in 2023 and 2024.”
The research firm highlighted that on top of that, the glove distributors have also guided that they expect 2023 revenue from personal protective equipment or PPE sales – including rubber gloves – to further decline year on year (y-o-y), as a result of industry-wide ASP moderation and as demand normalises.
However, it noted that the demand for rubber gloves from areas such as Latin America and Africa remains robust – even while developed economies have adopted a “wait-and-see” approach when making purchase decisions.
“Malaysian Rubber Glove Manufacturers Association (MARGMA) previously cut its projection for global rubber glove demand in 2022 by 12 per cent to 399 billion pieces, from 452 billion pieces.
“For 2023, MARGMA expects 12 to 15 per cent y-o-y growth.”
RHB Investment Bank opined that this may be too optimistic, given the facts it had mentioned previously.
“As such, we have conservatively estimated that demand will grow by only four per cent y-o-y in 2023 – underpinned by price stabilisation towards the first half of 2023 (1H23), a more disciplined approach undertaken by the local glove players in terms of capacity expansion, as well as the gestation period for the drawdown of inventory at the customer level.
“We expect demand to grow by six per cent y-o-y in 2024.”