Oong believes the continued narrowing of the ASP gap would mean the prolonged price war is approaching its tail-end, which ultimately allows Malaysian manufacturers to compete via product quality rather than price.
In April, Malaysia’s glove exports volume spiked 3.6% m-o-m and 46% y-o-y, its steepest ever y-o-y gain post-pandemic. However, exports value contracted by 3.8% m-o-m at RM1.1 billion. Meanwhile, China glove exports contracted by 12% m-o-m in April, following a 21% m-o-m growth in March.
All in, RHB maintains its 2024 global glove demand growth at 22%, premised on the recovery of glove restocking activities in 2H2024. “That said, Malaysian Rubber Glove Manufacturers Association or Margma expects global glove demand to chart a CAGR growth of 10% to 450 billion pieces from 2023-2027,” Oong notes.
Supply-wise, current industry plant utilisation rate has seen encouraging improvement post production plant rationalisation undertaken in 2023, Oong highlights. Local manufacturers are running within the range of 60%-80%, versus 40%- 70% in the previous quarter.
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Despite this, RHB expects a marginal change in global industry supply of 4.3 billion pieces in 2024, on the back of planned capacity replenishment by Hartalega as well as 300 million planned capacity by Sri Trang Gloves .
The sequentially higher sales volume from more balanced demand-supply dynamics should lead to an improvement in glove makers’ profitability in 2024, Oong reiterates. He adds that as the industry’s excess capacity is phasing out, the industry should achieve its demand-supply equilibrium by the end of 2024.
“We also expect the risk of price competition from Chinese peers to gradually subside, premised on arising quality concerns resulting in higher rejection rates from the US Food & Drug Administration and Chinese players’ pivoting stance towards sustainability. The recent announcement of a 25% tariff on Chinese-made medical grade gloves is expected to result in a trade diversion towards the Malaysian-made products,” he adds.
Oong names Riverstone as one of RHB’s top picks, thanks to its above-peer margin performance, exposure to cleanroom gloves as well as consistent dividend payout.
As at 9.50am, shares in Riverstone are trading 1.5 cents higher or 1.6% up at 95.5 cents.
