KUALA LUMPUR: CGS International expects Malaysian glove producers’ earnings before interest and taxes (EBIT) margins to remain subdued at US$0.50 per 1,000 pieces in calendar year 2024 (CY2024), with a recovery to pre-COVID-19 levels of US$3 per 1,000 pieces unlikely before CY2028.
It said the prolonged oversupply in the global glove market, coupled with shifts in cost structures particularly in fixed costs such as labour and energy, has transformed Malaysian producers from pre-pandemic cost leaders into marginal cost producers compared to newer China-based manufacturers.
"By our estimates, new capacities by Chinese producers outside China to avoid US tariffs could add 17.2 per cent or 84 billion pieces to global supply by CY2027, providing further headwinds to market equilibrium and margin recovery,” Asia’s Global Investment House said in a note today.
CGS International noted that the Malaysian glove producers have lost their position as cost leaders, 17.7 per cent cheaper than Chinese producers in CY2017, and are now the marginal cost producers, being 7.5 per cent more expensive than China in CY2024.
This, it said, makes them more vulnerable to demand-supply dynamics.
It said higher fixed costs arising from the removal of energy subsidies and increased labour costs in Malaysia have driven this shift.
Among Malaysian glove producers, CGS International said Top Glove currently has a cost structure comparable to Chinese peers, while Hartalega Holdings Bhd
and Kossan Rubber Industries Bhd will potentially catch up by CY2027.
"We have reduced our sector core net profit estimates by 12 per cent, 11 per cent, and 11 per cent for CY2025, CY2026 and CY2027 respectively, as we believe the sustained global oversupply will continue to weigh on margins,” it added. - Bernama
