PETALING JAYA: Kenanga Research is maintaining a continuously cautious outlook on the rubber gloves sector, due to elevated costs of raw materials, energy and labour; against subdued average selling prices (ASPs) and a massive stock capacity.
The research house said the above factors, especially after taking into account their estimation that ASPs are ranging at US$19 to US$21 (RM84 to RM93) for 1,000 pieces of gloves against the manufacturing cost of US$21 to US$23 (RM93 to RM101), will result in a persistently suppressed utilisation rate of between 35% and 40%.
With this, industry players are anticipated to see losses continuing into the second quarter of 2023.
From its channel checks, Kenanga Research said some players are hopeful that the rate of decline in ASPs was slowing, whilst others believe selling prices have bottomed.
“Hopefully, selling prices have bottomed out and certain players will attempt to raise prices from end-March 2023 by an average of 5% to 10%.
“We are uncertain if this is viable, as we gathered from sources that Chinese players are selling at US$17 (RM75) per 1,000 pieces,” the research house said in a note released yesterday.
Kenanga Research said the prospect of raising ASPs was challenging due to the current massive overcapacity situation.
In view of the increasingly challenging business landscape, glove players are prioritising production at their newer and more efficient factories while temporarily leaving the older ones idle.
According to the research house, the Malaysian Rubber Glove Manufacturers Association (Margma) is projecting 12% to 15% growth in global demand for rubber gloves annually from 2023.
This was following an estimated 19% contraction last year, as the association believes that the supply-demand equilibrium could return in the next six-to-nine months.
In contrast to Margma’s relative optimism, Kenanga Research said: “We beg to differ, expecting the overcapacity situation to persist at least over the next two years.
“Based on our estimates, the demand-supply situation will only start to head towards equilibrium in 2025.
“This is when there is virtually no more new capacity coming onstream, while the global demand for gloves continues rising 15% per annum, underpinned by rising hygiene awareness.”
While agreeing with Margma’s projection that demand for gloves would rise by approximately 15% this year, Kenanga Research said this will do little to ease the overcapacity situation.
This is because the global glove production capacity will grow another 16% to 595 billion pieces during the year, as more capacity planned by incumbent and new players during the lockdown years – enticed by super-fat margins that had evaporated – finally come online.
“This will result in the excess capacity rising by 22% to 137 billion pieces from 112 billion pieces in 2022.
“The expanded overcapacity means low prices and depressed plant utilisation will likely persist in 2023.
“Not helping the already dire situation is the reluctance of customers to commit to sizeable orders and hold substantial stocks on expectations of further decline in prices,” Kenanga Research cautioned.
In line with its sombre outlook for the industry, Kenanga Research said it does not have any particular sector picks, instead advising investors to stay away for the time being.
