KUALA LUMPUR: China's ongoing expansion in the glove industry on the global market is expected to have an impact on Kossan Rubber Industries Bhd's utilisation rate.
PublicInvest Research anticipated a modest increase in sales volume for Kossan, with the blended average selling price (ASP) remaining stable at US$16 per 1,000 pieces.
It stated Kossan's management expects limited growth in ASPs moving into 2024, owing to
persistent pricing competition from China and normalisation of raw material prices.
"We are wary of China's expansion and its ability to secure a larger global market share at the expense of Malaysian glove makers.
"We believe Malaysian glove manufacturers may face challenges due to the country's structurally higher energy and labour costs, while the use of obsolete technology and machines in most of the Malaysian glove manufacturing facilities is likely to keep production costs elevated compared to China," it said in a note.
Kossan's management does not expect a significant hike in ASPs, mainly due to stiff pricing competition from Chinese glove makers that are selling at US$2 per 1,000 pieces cheaper than Malaysian players.
"We observed that the price gap between Malaysian and Chinese players has narrowed from US$4 per 1,000 pcs to US$2–3 per 1,000 pcs, partly due to rising coal prices and stronger China's power demand, which limits the Chinese players' ability to further decrease ASPs," it said.
The firm added that Kossan is currently running at a 50 per cent utilisation rate based on 25 billion pieces per annual installed capacity.
Kossan decommissioned two plants in the financial year 2022 (FY22). For this, a total of RM35 million will be written off in FY23.
"The group has no plans for plant decommissioning going forward. Instead, Kossan is set to revamp its old machines and invest in automation, with an anticipated cost of more than RM100 million in FY24."
The research firm has further observed a downward trend in nitrile butadiene prices, coupled with a slight uptick in natural latex prices since September.
Looking ahead, it anticipates raw material prices to remain stable while natural gas costs are expected to climb higher in the first quarter of 2024, attributed to a time lag effect, but it is expected to normalise.
The firm downgraded its call for Kossan to "underperform".