No danger of glove oversupply as Covid-19 demand outpaces capacity: Maybank IB
25 Jun 2020
As the novel coronavirus (Covid-19) pandemic continues to infect and claim lives, there is no danger of an oversupply of gloves just yet.
According to Maybank Investment Bank Research, global demand for gloves is expected to grow 20% in 2020-2021.
This would be supply-led as there is insufficient capacity to cater to the sudden jump in demand stemming from Covid-19, the brokerage points out.
In contrast, the total capacity growth of the world’s top five biggest glove producers is only expected to grow 16%-19% in 2020-2021, according to Maybank IB.
These glove manufacturers are Top Glove Corp, Hartalega Holdings, Kossan Rubber Industries, Supermax Corp and Sri Trang Agro-Industry.
Only Malaysia-listed Top Glove and Thai-listed Sri Trang have a secondary listing on the Singapore Exchange.
Given the stock replenishment requirement and the long sales lead time into mid-2021, Maybank IB believes the market would only reach equilibrium in 2H21.
As such, short-medium term oversupply risk is low, it says.
However, there is a risk of oversupply in 2022, warns the brokerage.
Maybank IB expects global demand for gloves to grow just 8% in 2022, lagging the total capacity growth of the “Big 5” of 12%.
Still, the brokerage believes the new capacity could be absorbed by the local China market as the country needs to replace some of its vinyl gloves consumption with nitrile gloves.
“Moreover, given that the margins of the China glove-makers are not superior to that of Malaysia’s glove-makers, we believe the average selling price pressure from the China peers may not be excessive in an oversupply situation,” Maybank IB analyst Lee Yen Ling writes in a note June 24.
Source: The Edge Singapre