KUCHING: The average selling price (ASP) of rubber gloves will not likely ‘fall off a cliff’ moving into the second half of 2021 (2H21), with analysts noting that by even assuming a 15 per cent demand growth in 2022, supply barely matches demand.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) recapped that according to the Malaysian Rubber Glove Manufacturers Association, the global shortage of rubber gloves will sustain beyond the first quarter of 2022 (1Q22) with growth rate averaging between 15 per cent and 20 per cent per annum going forward compared to pre-Covid-19 of eight per cent to 10 per cent, with still high lead time averaging six to eight months (although lower compared to 12 to 15 months at the start of the pandemic).
On this, Kenanga Research had done an analysis on the supply-demand dynamics which in conclusion quashed concerns of oversupply.
“We highlight that even assuming a 15 per cent demand growth in 2022, supply barely matches demand,” Kenanga Research said in its latest rubber gloves sector update.
“Interestingly, players are getting orders for new users that include airlines, restaurants, retail apparel chains and hotel operators.
“If we look at the capacity expansion numbers in isolation, it looks overwhelming. Juxtaposed against the annual demand growth and new pandemic-led demand, the additional capacity is not a concern.
“In fact, the estimated new yearly capacity may not actually materialise as scheduled and hence unbale to meet the post pandemic demand growth of 15 per cent per annum moving into 2022.
“Typically, to cater for normal demand, glove makers essentially need to build just one plant per year.”
However, from the research arm’s channel checks, to cater for this current pandemic-driven demand, two to three plants are required for each glove maker (on average) annually in order to meet the super-normal demand, which take between 12 to 24 months to complete.
“Hence, we conclude that ASP is unlikely to fall off a cliff moving into 2H21.”
Kenanga Research noted that although sentiment on the sector is diminishing, lead times suggest that current year 2022 (CY22) demand will remain strong, from increased demand brought by heightened hygiene awareness extending beyond the healthcare sector.
The research arm further noted that incremental volume growth is expected from new users of examination rubber gloves including nitrile and latex-based ones.
“Latest news reports that resurgence of Covid cases have led to lockdowns in Europe as the third wave of Covid has swept across Europe.
“Several European countries in certain parts are extending or reintroducing lockdown measures including Spain, Germany, France and Italy as a third wave of the pandemic sweeps the continent.”
In Kenanga Research’s view, from the perspective of a long-term investor, it still sees significant value being derived from Malaysian glove players which commands 68 per cent global market share and have consistently evolve and innovate in terms of capacity, products and plant modernisation via automation.