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Demand for gloves likely to remain strong

Demand for gloves likely to remain strong

02 Oct 2021

Companies getting orders from new users like hotels

AMID the market’s concerns about the average selling prices (ASPS) of gloves coming down after enjoying a spectacular run, glove players say they are con-fident that ASPS will remain above pre-covid 19 levels.

New kid on the block Hong Seng Consolidated Bhd’s executive director Lester Chin not only believes that ASPS should remain above pre-pandemic levels, he also says that demand should continue to remain strong.

“There are cyclical spikes of the virus worldwide and this may be due to the effect of vaccines wearing out before boosters are administered in each country.

“We also see increasing usage of gloves in more sectors and industries as part of the new norm. One example is the food industry which is perhaps the largest industry in the world as everyone has to eat,” Chin tells Starbizweek, explaining why he thinks demand for gloves will remain steady.

His sentiment is shared by some glove analysts.

Drawing information from the world’s largest glove maker Top Glove Corp Bhd, Kenanga Research tells clients in a report that there has been an acceleration in the overall market’s ASP normalisation.

“From Top Glove Corp Bhd’s fourth quarter for financial year 2021 results brief­ing recently, we gather that its ASPS have dropped faster than expected at 31% quarter-on-quarter to US$48 (RM201) per 1,000 pieces,” it says.

However, while the research house is not able to quantify as to how low ASPS will go, it says, citing glove manufacturers themselves, that ASPS are unlikely to go below pre-covid pricing as the industry’s cost structure had risen especially with regards to social compliance and nitrile feedstock costs.

“Post Covid-19, the inventory restocking cycle is expected to spur demand coupled with increased usage arising from new users and higher hygiene awareness,” Kenanga adds.

The research house points out that expectations of “disappointments” in the coming quarters are capped for the glove sector, considering ASPS are expected to normalise by next year, instead of 2023 as earlier expected.

“Since ASPS are no longer lofty, expectations of disappointments in subsequent quarters are expected to be capped,” it adds, maintaining its “overweight” call on the sector. Meanwhile, Hong Seng’s Chin says over the short-term, glove supplies from China may face problems due to issues such as power rationing and power supply crunch in the country.

“We believe this will also slow down the fall of ASPS as glove makers there will have to source for alternative suppliers to fulfill their orders. This may provide opportunities for new players such as us to move into the industry at an accelerated pace.

“It is also widely acknowledged that there will be new viruses appearing every now and then and increased hygiene practices and knowledge will continue to spur demand.”

Chin adds that the plan to venture into glove manufacturing for Hong Seng remains intact and the company’s manufacturing plant is expected to commence operations this month.

To be sure, citing information from the Malaysian Rubber Glove Manufacturers Association, the current high global rubber gloves demand will be able to be sustained beyond the first quarter of 2022 with growth rate averaging between 15% and 20% per annum compared to pre-covid times of 8%-10%, Kenanga says.

“Players are getting orders from new users such as airlines, restaurants, retail apparel chains and hotel operators.
“Demand could also be led by better healthcare awareness leading to increased usage, especially from emerging economies (which traditionally have lower glove usage per capita),” Kenanga adds.

Additionally, the estimated new yearly capacity may not actually materialise as scheduled and hence, total industry capacity may be unable to meet the post pandemic demand growth of 15% per annum moving into 2022, it notes.
“If past history is any guide, players are cognisant of oversupply concerns and (will) adopt a disciplined approach to expansion which is expected to curtail excess supply.”

Since Covid-19 vaccinations have gathered pace here and globally, the excitement about gloves has cooled down and investors have shifted their attention to other stocks deemed as recovery proxies such as banking and retail shares.
That said, observers say it is not entirely “game over” for gloves.

“Interest has indeed moved to a more recovery-based play but stock prices of most glove companies have come off by quite a lot and at such valuations, downside risks appear to have lessened – for now,” one industry observer says.

Source: The Star