Demand for gloves is expected to remain strong
AMID market concerns about falling average selling prices (ASP) for gloves after a spectacular run, glove players say they are confident that ASPs will stay above pre-Covid 19 levels.
Newcomer to the Hong Seng Consolidated Bhd blockLester Chin’s executive director not only believes that ASPs should stay above pre-pandemic levels, he also says demand is expected to continue to remain strong.
“There are cyclical peaks of the virus around the world and this may be due to the effect of vaccine wear and tear before boosters are given in each country.
“We are also seeing an increasing use of gloves in more sectors and industries as part of the new standard. One example is the food industry which is perhaps the biggest industry in the world because everyone has to eat, ”Chin told StarBizWeek, explaining why he believes demand for gloves will remain stable.
His sentiment is shared by some glove analysts.
Pulling Info From The World’s Largest Glove Manufacturer Top Glove Corp Bhd, Kenanga Research informs its clients in a report that there has been an acceleration in ASP standardization of the global market.
From Top Glove Corp Bhd’s recent FY2021 fourth quarter earnings briefing, we learned that its ASPs fell faster than expected to 31% quarter-on-quarter to $ 48 (RM201) for 1 000 pieces, “he says.
However, while the research house is unable to quantify how far ASP will go, it says, citing glove makers themselves, that ASPs are unlikely to drop below the prices of. before Covid, as the industry’s cost structure has increased, particularly with respect to compliance and raw material costs for nitrile.
“After Covid-19, the inventory replenishment cycle is expected to drive demand coupled with increased usage resulting in new users and greater hygiene awareness,” Kenanga adds.
The research house points out that expectations of “disappointments” over the next few quarters are capped for the glove industry, given that ASPs are expected to normalize by next year, instead of 2023 as previously expected.
“As the ASPs are no longer high, expectations of disappointments in the following quarters should be capped,” he adds, maintaining his call “overweight” on the sector.
Meanwhile, Hong Seng’s Chin says that in the short term, glove supplies from China could run into problems due to issues such as power rationing and the country’s power shortage.
“We believe this will slow down the drop in ASPs as well, as glove makers will have to find alternative suppliers to fulfill their orders. This can provide opportunities for new players like us to enter the industry at an accelerated pace.
“It is also widely recognized that new viruses will emerge from time to time and that hygiene practices and knowledge will continue to drive demand. “
Chin adds that plans to start manufacturing gloves for Hong Seng remain intact, and the company’s manufacturing plant is expected to begin operations this month.
Certainly, citing information from the Malaysian Rubber Glove Manufacturers Association, the current strong global demand for rubber gloves may continue beyond the first quarter of 2022 with an average growth rate of between 15% and 20% per year compared to in the pre-Covid period. times 8% -10%, says Kenanga.
“Players are receiving orders from new users such as airlines, restaurants, clothing retail chains and hoteliers.
“Demand could also be driven by improved healthcare awareness leading to increased usage, especially in emerging economies (which traditionally have lower glove usage per capita),” Kenanga adds.
Additionally, the estimated new annual capacity may not materialize as expected and, therefore, the total industry capacity may not be able to meet the post-pandemic demand growth of 15% per year up to ‘in 2022, he notes.
“If past history is any guide, players are aware of the oversupply issues and (will take) a disciplined approach to expansion which should reduce oversupply.” Since vaccinations against Covid-19 have accelerated here and around the world, enthusiasm for the gloves has cooled and investors have turned their attention to other stocks seen as takeover proxies, such as banking and retail stocks.
That said, observers say it’s not quite a “game over” for the gloves.
“Interest has indeed shifted to a game more based on recovery, but the stock prices of most glove companies have fallen significantly and at such valuations the downside risks seem to have diminished – for the ‘instant,’ said an industry observer.