China-US trade rift a boon for Malaysia’s rubber gloves - MIDA | Malaysian Investment Development Authority
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China-US trade rift a boon for Malaysia’s rubber gloves

China-US trade rift a boon for Malaysia’s rubber gloves

07 Jun 2024

The ongoing trade rift between US and China is expected to benefit Malaysia’s rubber gloves sector as both countries seek other countries to import or export rubber gloves to meet demand.

Of note, in mid-May 2024, the US President Joe Biden has announced a series of new tariffs targeting Chinese electric vehicles, semiconductors, aluminum, steel, and other import. Notably, the import tariff on Chinese-made rubber medical and surgical gloves will rise from the current 7.5 to 25 per cent, effective by 2026.

“Assuming Chinese glove players do not absorb the tariff increase, we believe the imposition of tariffs could potentially benefit Malaysian glove manufacturers by making their pricing more competitive.

“We gather that the Chinese glove players are currently selling at discount circa US$17 to US$18 per 1,000 pieces, meanwhile the Malaysian glove players are selling at circa US$20 to US$21 per 1,000 pieces. With the implementation of a higher tariff, we expect the pricing gap between Chinese and Malaysian players will narrow, enhancing the competitiveness of Malaysian players,” said the research team at Public Investment Bank Bhd (PublicInvest Research).

Based on its channel checks, Chinese players currently hold a market share of around 30 to 35 per cent in the US.

“We believe US would continue to import gloves from other regions, rather than increasing its own capacity in US to produce more gloves, given the disadvantage of higher production cost.

“Meanwhile, with the implementation of higher tariff, China players would likely shift their business focus from the US to other markets including Europe and Asia.

“This is expected to benefit Malaysian glove manufacturers, the world’s largest glove producers, as they are likely to capture more sales in the US market,” the research team opined.

“Acknowledging the potential advantages for Malaysian glove manufacturers due to change in economic policy, we reckon that the overall economic impact may not be significant.

“It’s worth noting that the Chinese glove manufacturers are operating with new, highly efficient machinery and are benefiting from cost advantages with the usage of coal in production. If Chinese players are able to absorb a portion of the tariff increase and enhance their efficiency by 2026, we believe they may still remain competitive in the global market, which could mitigate the extent to which Malaysian glove players benefit from the tariff hike,” it added.

Meanwhile, on the prices of raw material, PublicInvest Research said raw material prices (nitrile butadiene and natural latex) which account for around 30 per cent of total production cost has trended upwards since January 2024.

“We anticipate the trend would lead to a squeeze in operating margins for Malaysia glove players in 1H24, but it’s expected to normalised in 2H24 due to seasonality.

“However, we also note that natural gas prices (which accounts to around 20 per cent of total costs) have risen around 34 per cent from an average US$1.7/MMbtu in March 2024 to US$2.3/MMBtu in May 2024, which will translate to a higher gas tariff in 2H24, due to a time lag effect,” it said.

The weakening of ringgit against US dollar is also expected to benefit the rubber glove sector as sales are mostly denominated in US dollar.

“The strengthening of US dollar would translate to higher ringgit revenue. However, as some of the raw material costs are also quoted in US dollar, this would partially offset the positive impact arising from a stronger US dollar,” the research team said.

Source: Borneo Post