Rubber gloves: From oversupply to shortage due to pandemic and MCO

The Covid-19 outbreak which is now categorised as a global pandemic has upended everything and there are now concerns of undersupply in the rubber glove industry at this very crucial time.

IT was only last year when there were repeated concerns of an oversupply in the rubber glove industry that hogged the headlines.

But the situation has completely changed today in just a span of just a few months into the year 2020 with talk of an oversupply in the rubber glove industry being firmly a thing of the past.

The Covid-19 outbreak which is now categorised as a global pandemic has upended everything and there are now concerns of undersupply in the rubber glove industry at this very crucial time.

The past week had seen the Malaysian Rubber Glove Manufacturers Association (Margma) asking the government to allow for the industry to operate at 100% capacity.

Association president Denis Low)pic below) said in a statement that it 'pleads and begs' the Prime Minister and the government to take into account the urgency and importance of allowing the glove manufacturers to continue production of manufacturing gloves at 100% capacity.

Low tells StarBizWeek that rubber glove factories were unable to meet the demand today mainly due to the restrictions on industries from the recently declared movement control order (MCO) in Malaysia.

Full capacity

“It was stated to us that the caveat of being able to operate in our industry will only be using 50% of the usual available workers. In reality this means that our output will be cut down more than that to less than 50% amid this shortage, ” Low says.

“There is now a huge shortage in the world. Many governments have written to us and are literally begging us to run our factories at full capacity. The situation out there is chaotic, ” he adds.

Low hopes that the government will be able to exempt the rubber glove industry and the industries supporting it from this 50% caveat due to these extraordinary circumstances.

“We are also afraid during this period and all necessary worker safety precautions are being taken, ” he says.

Pertaining to this matter, CGS-CIMB says in its report that the current surge in global demand for rubber gloves is now at an unprecedented level, surpassing what glove makers had witnessed during the H1N1 outbreak in 2009 and the SARS outbreak in 2003.

“To put into context, we understand that average lead time for glove makers to fulfil orders has risen up to a minimum of four months vs. usually one to two months on average.

Note that the lead time for rubber gloves during the SARS outbreak was two months and H1N1 (bird flu) outbreak was three months, ” CGS-CIMB says.

Notwithstanding the caveat of being only able to operate at 50% manpower, CGS-CIMB says that the current operating environment for glove makers is very favourable.

“In the year-to-date (YTD) period, the ringgit has weakened against the US dollar by 5.4%, which is conducive for glove makers as more than 90% of their sales are in the US dollar, ” the research house says.

Global uncertainties

“On top of that, key raw material prices have continued to decline with global uncertainties, such as nitrile butadiene and latex, ” it adds.

While being resilient to the market selldown initially, rubber glove stocks had also succumbed to the weak sentiment particularly at the beginning of the week due to the continued plunge of worldwide stock markets.

While it is not clear how much these companies could gain from the current pandemic healthcare crisis it is clear that they would still be beneficiaries from the current tailwinds blowing in its favour.

On Thursday, Top Glove Corp Bhd had seen its second quarter bottomline for the quarter ended Feb 29 being boosted by 9.35% year-on-year (yoy) to RM115.68mil.

Its revenue for the quarter had also risen to RM1.23bil from RM1.16bil yoy.

Public Invest Research says in its report that Top Glove’s first half FY20 net profit was flat at RM227.1mil and that its results came in within both its and consensus projection at 48% and 47% respectively.

“The slight improvement was due to stronger contribution from the nitrile glove segment as well as lower tax expense. In view of the recent Covid-19 outbreak, we expect the coming quarters for Top Glove to be exceptionally strong, given that gloves are essential medical items, ” Public Invest Research says.

The research house notes that Top Glove’s sales order book has doubled as a result of this outbreak and its average selling price (ASP) has also been revised upwards by 3-5%.

“We believe the ASP revision will result in margin expansion in the coming quarters. In the early stage of this outbreak, the extra demand was mainly coming from Asian countries like China, Hong Kong and China. But as the virus spread across different continents, demand is now largely coming from the US and the EU, ” it says.

It also notes that Top Glove has also secured large orders for delivery in the coming months, with some clients already placing orders six months ahead of time, as opposed to the usual three months.

The high volatility in the market notwithstanding, it is clear that rubber glove companies continue to hold up their gains as Malaysia cements its pole position as the leading rubber glove manufacturer in the world.