End of good times for the rubber glove makers?

In 2020, when COVID-19 broke out, eight out of 10 companies in Malaysia were floored to the ground.

They include the hoteliers, aviation firms and the property sector.

The rubber glove makers however, were grinning from ear to ear rolling over and over in their profits.

At it's height, rubber glove makers such as Top Glove, Supermax, Hartalega and Kossan to name a few, made ridiculous amounts of profits.

Almost all the companies made billions of ringgit in profit between them in their financial years due to the rampaging pandemic.

And now, the tide is turning. 

Almost all Malaysians are vaccinated and the pandemic has become an endemic.

In the West, most people walk around unmasked and lockdowns have ended except for a few countries such as Brunei.

As a result, average selling prices of rubber gloves have also weakened due to soft demand, intense competition and higher production cost putting a dent on rubber glove sales.

Demand for rubber gloves have waned. Is the boon time for rubber glove companies over?

"We are still concerned with the headwinds faced by the glove makers currently due to weak average selling prices due to strong competition and higher production costs.

"We do not expect the headwinds to dissipate in a short period of time,” said Hong Leong Investment Bank research analyst Sophie Chua Siu Li in a glove sector update.

“In our view, glove makers’ inability to fully pass on higher costs (due to stronger competition) would also compress margins further.”

Given the downside, HLIB Research has further downgrade its rating on Kossan Rubber Industries Bhd to “sell” (from “hold” previously) and consequently its outlook of the glove sector to “underweight” from “neutral” previously," said Chua.

The sector is also experiencing labour shortage due to the borders closure.

"With the re-opening of the labour market to foreign workers, we understand that glove makers have submitted applications to collectively bring in another 30,000 foreign workers.

“The industry’s automation push has also led to a huge reduction in the number of workers per output.

Industry data suggests that it takes around 1.6 worker to produce 1 million pieces of gloves currently from a high of 9.7 workers per million pieces of gloves in 2009."

Meanwhile, PublicInvest Research maintained its “neutral” rating on the glove sector as it expects margin to remain under pressure in the near term due to falling average selling prices and higher input cost.

“Nevertheless, we are still positive of the long-term prospects of the glove sector due to growing demand from the emerging markets,” said Public Invest.

However, the Malaysian Association of Rubber Gloves Manufacturers or MARGMA does not agree with the research houses and are still optimistic of the sector.

MARGMA forecasts that global glove demand will grow at a stronger rate of 12%-15% post-pandemic (compared to pre-pandemic levels of 8%-10%) with total glove demand in 2022 reaching 452 billion pieces.

The stronger growth projection is expected to be supported by better hygiene awareness; higher glove consumption in countries with low per capita consumption of gloves as well as increasing usage of gloves in more sectors and industries.

In a statement to the media, MARGMA said it is still positive that increased glove usage in non-medical industry, food and beverage, tattoo parlour and the semiconductor industry would help to lift overall glove demand.

With regards to the Government’s decision to raise the minimum wage level by 25% to RM1,500, MARGMA estimates that the overall production cost for glove makers will increase by 1%-3% depending on the workers’ profile in each respective glove maker.

On the foreign labour force, MARGMA said the Malaysian rubber glove industry hires around 40,000 foreign workers which accounts for 1.7% of the total documented and undocumented foreign workers in Malaysia.

So will the good times be over the rubber glove makers?

It may or may not be over as the virus is still lurking around. In the meantime, let's wait and see. – DagangNews.com