KUALA LUMPUR: Affin Hwang Research says Malaysian rubber glove manufacturers could benefit from the trade spat between the US and China as a tariff is being imposed on rubber/plastic gloves from China.
The research house noted that the gloves are on the US$200bil list of Chinese goods that will be subject to a 10% import tax.
"The 10% tariff on medical gloves (rubber/synthetic and plastic) will certainly hamper China manufacturers’ competitiveness, as gross profit margins for the efficient Malaysia manufacturers are only at 15-20%, in our view.
"We believe that Malaysia exporters will be able to benefit from it, building on their 60% market-share base," it said.
Affin Hwang noted that the US consumes 30% to 25% of the world's medical gloves, and the introduction of the tariff will likely derail China manufacturer's expansion plans to produce nitrile gloves in the near term.
It added that some 70% of the medical gloves exported from China into the US are vinyl gloves, with the remaining 30% being rubber/synthetic rubber.
"We believe that the price hike would help to build a better case for distributors, which are already pushing their clients to switch from vinyl gloves to other alternatives like rubber gloves, due to the narrowing price differences.
"If China were to continue with its strict environment policy during the winter months (starting in October), we expect vinyl glove prices to rise further."
The research house further added that it is not concerned about the "Big 4" expanding their capacity by 10% to 15% despite historical demand growth of 8% to 10% as industry players are expected to phase out their expansion plans to protect margins if needed.
It added that demand may also receive a boost from the switch from vinyl gloves.
Affin Hwang is reaffirming its overweight call on the sector with Kossan
and Supermax as its preferred picks.