KUALA LUMPUR: The global oversupply of rubber gloves is gradually being addressed through key capacity rationalisation efforts, although price pressures may persist for a while longer, industry observers said.
Analysts expect the excess capacity to only head towards equilibrium in 2025. This is when there is no more capacity coming onstream while global demand for gloves continue to grow.
Hartalega Holdings Bhd chief executive officer Kuan Mun Leong said the capacity rationalisation will ease some pressure on the excess supplies in the market.
But global oversupply of rubber gloves is expected to persist even as the sector continues with its adjustment phase, he added.
"As such, pressure on average selling prices would remain amid challenging demand supply fundamentals.
"Notwithstanding, the capacity rationalisation exercises undertaken by certain key domestic manufacturers together with the exit of some smaller players have helped to relieve a certain degree of oversupply pressure in the market," Kuan said in a statement on Hartalega's latest results today.
He, nevertheless, said the recent demand had shown signs of improvement after the notable decline in 2023.
The expected gradual return to pre-pandemic levels in the later part of 2024 or early 2025 also bodes well for prospects in the industry over the long term, Kuan added.
Turning increasingly bullish on the glove sector, JP Morgan in a recent report said the sector was seeing a stabilisation of average selling prices (ASPs). This was due to the tightening in supply-and-demand, and producers are expected to benefit from improved utilisation and the resulting operating leverage.
"We think the re-stocking can sustain into 2024-2025 based on our supply-and-demand analysis on the key assumption that global glove demand will be 337 billion and 349 billion pieces in 2024 and 2025, respectively," it said.
With China's producers such as Intco and Blue Sail running at maximum utilisation currently, JP Morgan said the incremental volume would accrue to ex-China producers such as those in Malaysia and Thailand.
ASP has also stabilised in view of tightening supply-and-demand, and producers will now benefit from improved utilisation.
"It's easier to forecast supply than demand given the relative inelasticity of the former. We will track capacity expansion plans by the Chinese players, and this will be the next inflection point for the sector," JP Morgan said.
Maybank Investment Bank Bhd (Maybank IB) said while sales volume remained volatile with a shorter order lead time as buyers were in no rush to lock in a contract due to excess supply in the glove market, sales volume had improved significantly among the Malaysian glove makers.
This improvement could be attributed to rising restocking activities and lower price gap compared to their China counterparts (by US$2,000-RM,000 pieces).
"Consequently, we expect plant utilisation rates to increase in the upcoming quarters, reaching between 35 to 50 per cent (from the current range of 35 per cent to 40-45 per cent), leading to lower production costs ahead," the firm said in a recent report.
Maybank IB said raw material prices had also started to stablize after surging in November 2023.
Additionally, it said natural gas prices (the key energy source for Malaysian glove makers; constituting 16-20 per cent of total cost) had been trending down since early November 2023 too.
"Due to a time lag, glove makers' natural gas cost is expected to be higher in the first quarter of the calendar year 2024 but it should come down later, perhaps from mid-2024, following international pricing.
"This will cushion the impact on the bottom line and make pricing more competitive," it said.
In anticipation of improved demand, Kuan said Hartalega is gearing up its capacity and resources.
"Being a necessity in the healthcare sector, glove consumption is expected to return to pre-pandemic levels and thereafter continue to grow over the long term with increased glove usage, especially from emerging markets that have a low glove consumption base.
"The increase in demand could also be supported by the higher hygiene awareness and health consciousness among healthcare practitioners post-pandemic" he added.
Hartalega returned to profitability with a net profit of RM22.38 million in the third quarter ended Dec 31, 2023 thanks to lower raw material costs and reduced utilities expenses.
It also saw enhanced production efficiency from higher capacity utilisation, and cost savings from the decommissioning of the Bestari Jaya facility.
It made a net loss of RM31.91 million for the third quarter ended Dec 31, 2022.
Group revenue stood at RM415.64 million, down from RM461.84 million in the same quarter last year due to lower sales volume and ASP.
For the six-months period, Hartalega recorded a net loss of RM2.39 million compared to a net profit of RM84.71 million in the previous comparative period.
Its revenue shrank to RM1.31 billion from RM1.89 billion as sales volumes and ASP narrowed.