KUCHING: Malaysia continues to see healthy sales volume growth for rubber gloves in the first nine months of 2013 (9M13) in tandem with growing global demand, further aided by the cheaper average selling prices (ASP) thanks to the subdued raw material prices.
According to the research group at JF Apex Securities Bhd (JF Apex Research), the increase in sales volume was reflected in the top line of local manufacturers with the exception of Top Glove Corporation Bhd, mainly due to its lower ASP while it was also in the transition period to rebalance its product mix.
“On average, the industry registered eight per cent of top line growth in 9M13 which we deem sustainable going forward,” noted the research house.
JF Apex Research also added that prices of raw material, the biggest component in rubber glove manufacturing costs at circa 50 to 60 per cent were in subdued form in 2013.
As of 9M13, nitrile and latex price have declined 24 per cent y-o-y and 17 per cent year on year (y-o-y) respectively, as demand on the commodity failed to pick up due to the slow growth in global economy.
As a result, glove manufacturers managed to capitalise on weak raw material prices by offsetting the cost spikes arose from the implementation of minimum wage earlier this year.
China, as the world largest automotives market, is set to grow at 8.8 per cent in 2013 to 21 million units following the recovery in sales volume seen in 2H13 as the territorial dispute between China and Japan that sparked boycotts against Japanese products cooled off.
“The demand switch from latex gloves to nitrile gloves remained strong as the nitrile gloves exported from Malaysia grew at three-year compound annual growth rate (CAGR) of 36.6 per cent in 2009-2012 while the contribution of the nitrile gloves to total glove export rose to 46 per cent in 2012, up from 22 per cent back in 2012,” explained the research house.
“Together with its higher profitability due to its lighter weight, manufacturers in the industry are induced to ramp up their production capacity in the related field.
“We estimate an extra 14.9 billion pieces of new capacity to be added to the industry by the four listed manufacturers in 2014, which represents an increase of 15.6 per cent from their existing total production capacity installed in 2013.
“However, we are cautious on the chances of all additional capacity to be fully absorbed by the market.
“Hence, we expect manufacturers to adopt aggressive price strategy to fight for market share as the competition heightens going forward, as well as plan their capacity expansion wisely to be in tandem with the market growth,” it added.
Following the implementation of minimum wage early this year, the electricity tariff was revised upward by circa 17 per cent in November whilst the gas price revision is set to follow suit.
While the impact to the manufacturing cost spike varies according to their weightage, JF Apex reckon that the Malaysia’s glove manufacturers will be inevitably losing certain ground in the sense of competitiveness and cost effectiveness to the peers in China, Indonesia and Thailand.
“However, we opine that the local glove maker still hold the edge with their superior expertise and advanced technology level, while the aggressive large scale expansion is not matched by the regional peers.
“In a nutshell, Malaysia is still in a strong position to maintain its lion share in the global market of 63 to 64 per cent in the near future in view of its conducive environment in spite of the cost inflation, hence the manufacturers will still be able to pass through the extra costs to their customers.”