PETALING JAYA: The ramp-up in nitrile glove production from China over the next three years is not an immediate threat to Malaysia’s rubber glove industry.
According to CGS-CIMB Equities Research, domestic glove makers have greater technological edge in the industry, cost advantages as well as better production quality when compared to China-based players.
“Besides higher labour costs, natural gas prices are higher in China versus Malaysia.
“The consumption of natural gas to manufacture gloves in China, which makes up 10% of total cost, is also higher due to weather conditions (four seasons).
“Additionally, China has in the past had issues with natural gas shortage, which may lead to quality issues and production disruption, ” said CGS-CIMB Research in a sector note.
China glove makers Blue Sail Medical and Intco Medical aim to raise their nitrile glove production capacities. Blue Sail Medical intends to increase its production to 36.1 billion pieces per annum by end-2023 from 4.3 billion pieces as of end-2019.
On the other hand, Intco plans to expand its nitrile glove capacity to 59.2 billion pieces per annum by end-2023, from 5 billion pieces at end-2019.
As China’s glove usage per capita should rise from better healthcare awareness due to Covid-19, CGS-CIMB Research is of the view that Blue Sail and Intco’s new capacity will mainly cater to the rise in domestic demand.
In 2019, China’s annual glove usage per capita was six pieces, as compared to 150 in the US and 100 in the EU.
Meanwhile, Maybank IB Research estimates that the combined new supply from Blue Sail and Intco Medical would account for 1%, 4% and 7% of its projected global rubber glove demand in 2020 to 2022.
“The global demand in 2020 to 2021 would be supply-led as there is not enough capacity to cater to the sudden demand jump stemming from Covid-19.
“For the world’s Big Five (Top Glove, Hartalega, Kossan, Supermax and Sri Trang), we estimate a combined effective capacity growth of 16% and 19% in 2020 and 2021, respectively.
“Accounting for capacity growth from other players, we project global demand to grow 20% per annum in 2020 to 2021.
“Given the stock replenishment requirement and the long sales lead time into mid-2021, we believe the market would only reach equilibrium in the second half of 2021, and short-medium term oversupply risk is low, ” said Maybank IB Research.
However, the research house suggested that prior to reaching a balanced market, the average selling prices may gradually ease from the second quarter of 2021, which is after the usual flu season during winter.
China’s aggressive nitrile glove expansion plans are likely on the back of demand switch in developed markets as well as China’s drive to cut pollution and support local demand migration from vinyl to nitrile gloves.
As such, Maybank IB Research believes China’s migration to rubber gloves could be supply-led in the next five years, in view of the capacity expansion in the nitrile space to cater for the huge local demand in China, which would otherwise be met by higher imports.
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