PETALING JAYA: The average selling prices (ASPs) for gloves are expected to stay above pre-Covid-19 pandemic levels although they may trend lower as the urgency for the product subsides amid global vaccination programmes.
As a result, the earnings of glove companies could likely “normalise” but only in time to come.
Notably, glove companies have been making extraordinary profits in the past few quarters as demand for gloves grew exponentially amid the Covid-19 pandemic.
In a report on the sector, MIDF Research said it expected demand for gloves to remain strong but the “dwindling urgent requirement” for rubber gloves is likely to “tone down” high ASPs.
The demand for gloves is expected to continue to outstrip supply into 2022 and the tide is anticipated to turn in about two years.
The Malaysian Rubber Glove Manufacturers Association has predicted that there would be a shortage of some 80 billion pieces of gloves this year even as supply is expected to reach 420 billion pieces.
There was a shortage of 100 billion pieces last year year.
MIDF said in 2020, glove makers had ramped up production by about 25% to meet the spike in demand for disposable rubber gloves.
In 2021, companies continued to add in new production lines to churn out more gloves and the estimated new supply, contributed by existing players and new setups, is estimated to increase by more than 30% compared to the previous year, MIDF added.
“The higher capacity has also contributed to the easing in demand for urgent orders.”
On ASPs, MIDF said compared with the end of 2020, spot ratios for rubber gloves had eased.
It said, in its report, that based on channel checks, glove makers have lower spot allocation compared with one to two quarters ago.
“Some are focusing solely on contractual orders.
“Meanwhile, pricing for contract orders are softening at a gradual rate as a result of the ever-changing demand and supply dynamics, ” it added.
Profit margins for the glove players may also narrow with lower ASPs and firmer cost structures.
“While raw material prices are expected to ration with incoming supply, average prices are still higher year-on-year.
“Coupled with the weaker ASP trend, we expect profit margins to narrow, ” MIDF said.
That said, higher hygiene awareness and better healthcare practices will likely keep demand for gloves healthy.
“The glove companies are also in a good position to defend their market share given their healthy cashflows, sturdy balance sheets and investments into new facilities as well as into research and development, ” the research house said.
Nevertheless, MIDF downgraded the sector to “neutral”, stating that it lacked near-term catalysts.