Luxchem studying options to expand


  • Corporate News
  • Monday, 20 Jul 2020

“The demand for gloves will likely continue to grow, regardless of whether an effective vaccine is found, and the demand for latex-related supplies will grow in tandem, ’’ said Luxchem CEO Tang Ying See.

THE current focus on safety, health and hygiene does not only impact the rubber glove industry, but also suppliers of raw materials to the glove industry.

One such company that supplies latex and chemicals to the glove-related sector is Luxchem, where production is almost at full capacity.

But it has not decided yet on further expansion plans and is closely watching the demand situation especially after a vaccine is found against the coronavirus.

At the same time, it is in search of new markets, in countries where there are glove manufacturing activities.

With regard to the issue that Top Glove has with the US Customs not allowing its gloves into the United States, Luxchem believes that it will not have a big impact on the glove industry as gloves are still in great demand worldwide.

The recent pandemic has created a stronger awareness and necessity for higher standards in safety and hygiene.

“The demand for gloves will likely continue to grow, regardless of whether an effective vaccine is found, and the demand for latex-related supplies will grow in tandem, ’’ said Luxchem CEO Tang Ying See.

The boost in production of supplies is seen at Transform Master, which Luxchem bought 100% of four years ago, to complement its existing business of supplying raw materials to the glove industry.

Since the acquisition of Transform Master, its production capacity has been doubled; the current plan is to maximise the utilisation of its capacity.

For this year, the expansion plan under Transform Master has almost been completed, with production up by 30%.

The annual production capacity at Transform Master will be expanded from 18,000 tonnes to 24,000 tonnes by year-end.

The utilisation rate at Transform Master, based on a capacity of 18,000 tonnes, is about 95%.

Despite its optimism, the group will tread carefully when it comes to expansion of its glove-related supplies.

“We are watching the market expansion in gloves and evaluating all possibilities, whether the market will be back to normal after a vaccine is found, or the demand for gloves will continue to expand, ’’ said Tang.

For these two years, growth is expected from its manufacturing segment, mainly contributed by the latex division.

The group is in the process of sourcing and identifying potential markets that have glove manufacturing industries.

About 35% of group revenue comes from sales to the glove industry; during the movement control order (MCO) period, the increase in sales was not significant.

But in percentage terms, it had increased as the other industries that the group supplies to, were in lockdown.

Group revenue is expected to be lower in the second quarter compared with the first.

“However, the other industries that Luxchem supplies chemicals to, have been showing signs of recovery since May, and we see our revenue for June coming back to pre-MCO levels, ’’ said Tang.

There are good growth prospects in the other divisions that supply fibre reinforced plastic (used in the aerospace, automotive, marine and construction industries), polyvinyl chloride (used in the building and construction, healthcare, electronics, automobile and other sectors), and rubber.

A fall in raw material prices will reduce group revenue, while the quantity of chemicals and raw materials produced, is maintained.

This is against a general downtrend in global chemical prices, as reflected by the drop in oil prices and the overall weak market.

Luxchem exports to Indonesia, Vietnam, Thailand, Singapore, Bangladesh and Australia, all of which were in some form of lockdown; although there are signs of recovery, they are not up to pre-MCO levels yet.

Luxchem is open to acquisitions and partnerships if the business complements its existing business, and enables it to provide a more complete range of products.

As it does not want to compete with its customers, the potential new business would likely be in the upstream industries, for example, in sources of raw material supplies to its existing manufacturing activities.

Going towards the recovery phase, Luxchem aims to provide support to its customers especially those under non-essential services that were not allowed to operate during the MCO period.

As they may have high stock holding or cash flow issues, the group will work closely with them to monitor their production levels and stock requirements, as well as exercise tolerance in case of payment delays.

The group has 250 staff; during the MCO period, Luxchem Trading, Transform Master and Luxchem Polymer were allowed to operate with certain conditions.

The workforce was maintained and with its many divisions and subsidiaries, it is always on the lookout for suitable new staff who can contribute and grow with the group.

Currently, the group uses cloud-based services for some of its subsidiaries while the others are likely to follow suit.

Its existing accounting system is constantly being upgraded, and the group is in active discussion with its bankers to improve its payment processing for higher efficiency and security.

While ironing out operational issues, Luxchem is also not putting all its eggs into one basket; it is developing other businesses to supply to other industries apart from the currently booming rubber glove sector.

The views expressed here are the writer’s own.

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