KUALA LUMPUR: A price war in the synthetic rubber glove market would probably not materialise as growing demand from developed nations will be more than enough to offset the need to push prices dramatically down.
“A lot of them are saying there is going to be a price war. If it does happen, it will be a challenging business environment. But I don't think a price war will happen,” Hartalega Holdings Bhd managing director Kuan Kam Hon told StarBiz.
“The environment will get tougher where margins will come down.”
Hartalega Holdings, which is the leader in the nitrile or the synthetic glove market, believes growing demand especially from Europe where nitrile gloves account for 30% of the market compared with 70% for the US market will be a catalyst for the market.
“This will continue in Europe because of the lower cost of nitrile,” he said.
Last month, Supermax Corp Bhd sent a warning of a possible price war in the nitrile market where its executive chairman and group managing director Datuk Seri Stanley Thai felt one could take place in the second half of this year.
Affin Investment Bank in a note yesterday said although latex prices fell 42% from its peak in April 2011 to RM6.30 a kg in January 2012, the expected expansion of margins of glove-makers as a result of cheaper raw material prices had stalled.
It said some of the industry giants had seen a fall in margins in the fourth quarter of 2011 although latex prices eased 16.4% sequentially in the last quarter of 2011.
“The weaker margins, we opine, is an indication of intensifying price competition in the nitrile glove segment,” it said, pointing to Hartalega's financial results which showed margins fell from a high of nearly 35% to 26.7% in the third quarter of its current financial year despite sales going up by 5%.
“To fulfil the strong demand for nitrile gloves, all four major glove manufacturers' recent capacity expansions are centred on nitrile gloves.
“The influx of nitrile glove production capacity makes a price war inevitable,” it said.
Playing down the scary prospect of an all-out price war, Kuan said there was huge capacity being built by the industry which is projected to deliver an additional 15 billion pieces of glove.
Kuan said that based on annual demand growth of 8% with world consumption now at 150 billion gloves, that would mean the consumption of an additional 12 billion gloves.
On top of that, the ongoing switching by consumers to nitrile from natural rubber gloves would mean enough demand to take up the new supply of nitrile gloves that will come onstream.
“Today. Malaysia's exports are 60% natural rubber and 40% nitrile. Last year it was 70:30. Nitrile is gaining,” he said.
“The nitrile glove business should grow by 30% this year.”
He said Hartalega still had problems meeting demand, which showed there was a shortage of nitrile gloves.
“The better ones will have better business while the new ones will find it challenging. It will take time for them to come into the nitrile business, build up their reputation and trust,” added Kuan.