Will Malaysia's rubber gloves sector remain robust?

BY WONG WEI-SHEN

Rubber glove makers saw a positive third quarter for the calendar year 2015, mainly due to higher growth in volume due to new capacity expansion, fuelled also by the favourable exchange rates.

 

PETALING JAYA: The rubber gloves sector has been benefitting from the weaker ringgit since sales are mainly denominated in US dollars, but this may change following the ringgit’s recovery against the greenback.

The ringgit rose yesterday to a three-month high after the revised Budget 2016 spurred investors with measures to boost the local economy amid falling commodities and external headwinds.

It was quoted at 4.162 to the US dollar compared with 4.2055 last Thursday. It also strengthened against the pound sterling at 5.945 and the Singapore dollar to 2.922.

Experts expected the ringgit to trade at around 4.40 to the dollar by year-end, driven by China’s yuan and commodity prices.

Rubber glove makers saw a positive third quarter for the calendar year 2015, mainly due to higher growth in volume due to new capacity expansion, fuelled also by the favourable exchange rates.

Major players such as Kossan Rubber Industries Bhd, Hartalega Holdings Bhd and Top Glove Corp Bhd recorded double-digit growth in sales volume.

While growth in Supermax Corp Bhd was driven by additional volume from new plants and better margins.

Analysts believed that rubber glove stocks were headed for further re-rating backed by the automation of plants and production processes.

This would lead to better efficiency and productivity, and hence potentially better margins.

Also, rubber gloves makers have the ability to transform and increase their product mix from purely latex-based gloves into the higher margin nitrile gloves.

However, experts expected the sector to continue enjoying robust earnings given that capacity was still below market demand.

According to the Malaysian Rubber Export Promotion Council, the demand for rubber gloves had been steadily increasing since 2005 with a compound annual growth rate of 5.74%.

Additionally, the Malaysian Rubber Gloves Manufacturers Association is expecting global demand for rubber gloves to grow at 6% to 8% per annum going forward.

MIDF Research said this was in tandem with the trend in healthcare industry, growing ageing population, increasing hygiene standards and healthcare awareness, the emergence of new health threats, and more stringent health regulations.

“Hence, we think that demand will remain resilient due to the aforementioned reasons and also due to low average per capita consumption globally, especially in the emerging markets, when compared with developed countries such as the United States,” it pointed out.

In the first half of 2015, Malaysia shipped 52 billion gloves, an increase of 16.2% year-on-year from 44.7 billion pieces in the first half of 2014. Malaysia exported 28.5 billion pieces and 23.4 billion pieces of latex and nitrile gloves respectively in the first half of 2015.

Analysts were not unduly worried about oversupply issues as Malaysia only constituted about 60% of world rubber glove demand. Malaysia had been the world’s top supplier of rubber gloves for almost two decades.