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Industry developments offer Malaysian glove makers to expand amid the challenges, while the clampdown on powdered gloves by the US FDA will see a switch to non-powdered ones, says Angelica Buan in this report.
Global demand for rubber gloves is strong. Indian market research firm Koncept Analytics says that with improved healthcare awareness, progressive emphasis on healthcare regulations and rising expenditure in healthcare, the demand for gloves in emerging markets will peak. The demand for rubber gloves will be further driven by other factors including the possibility of governments in developing countries making the use of gloves in the healthcare sector compulsory; recovery of the global economy and consequent rise in the living standards, among others.
The global rubber gloves market is poised to grow at a CAGR of around 10% in the next five years to reach approximately US$6.4 billion by 2020, according to a report by India-based Accuray Research.
This uptrend could conjecture that the rubber gloves sector is undisrupted by looming global factors. Yet, as in all other industry sectors that are continuously growing, challenges are not far behind.
Malaysia has kept its lead as the world’s top source for medical gloves (examination and surgical gloves), with its roster of rubber glove players like Top Glove Corporation, Hartalega Holdings, Kossan Rubber Industries, Supermax Corporation and Latexx Manufacturing, serving half the global demand for gloves.
Maintaining a buoyant supply and demand is not the only deal breaker for the Malaysian glove sector to remain globally competitive. Factors such as low rubber output are pressing onto glove makers’ profit margins as well. Likewise, developments pertaining to regulations, wage hikes and duty adjustments are just some of the many intrinsic aspects that the glove industry is facing.
No surplus: tight rubber supply
Low oil prices and lower demand due to a slowdown in economies from large buyers, especially China, are triggering a decline in rubber prices, and therefore, discouraging new rubber plantations and replanting, according to the Association of Natural Rubber Producing Countries (ANRPC).
China represents 40% of global natural rubber consumption; 80% of which, it imports. Thus, this will result in supplies becoming tighter from 2020 onwards, the group said, and not the oversupply scenario as pulling down rubber prices. This oversupply of rubber is “only on paper”, according to Sheela Thomas, Secretary-General of ANRPC, speaking at the 2016 China Rubber Conference held recently in Qingdao.
Malaysia, the fifth largest rubber producer and third largest exporter of natural rubber, is witnessing a slowdown in rubber planting as local tappers have lost confidence in the sector due to the almost 70% price drop of natural rubber. As such, local plantations are switching to oil palm as a cash crop.
Late last year, the Malaysian Rubber Glove Manufacturers Association (MARGMA) alerted the industry on a price increase in gloves. It said that rubber glove producers needed to make up for the adjustments in manufacturing costs, following the 17.2% increase in a tariff on natural gas that took effect in January. The glove manufacturing process requires the use of natural gas, and thus it accounts for 10% of total production costs. The projected cost increase is about RM0.40 to RM0.70 cents per 1,000 units of nitrile gloves and RM0.30-50 cents for latex gloves.
Rather than impacting their earnings, Malaysian glove makers pass the additional costs on to their customers.
Minimum wages; levy hike for foreign workers
Minimum wages; levy hike for foreign workers Meanwhile, the Malaysian government has implemented a new minimum wage scale and increased tariff rates on foreign workers. Effective 18 March, the new levy rates for the First Category, which covers the manufacturing, construction and services sectors, is RM1,850, up by RM600; and the Second Category, covering plantations and agriculture, is at RM640, up by RM50, according to Malaysia-based Affin Hwang Investment Bank.
With the increase in remuneration, industries, especially the labour-intensive ones, are advised to undertake corresponding measures like shifting to automation. Affin Hwang states that labour costs account between 9-13% of the operating expenses; and the impact of the new levy hike in earnings is estimated at 0.5% to 1.5%.
While the rubber glove sector is labour-intensive, the impact on higher remuneration is minimal. The Malaysian Rubber Board (MRB) says that the local glove manufacturing industry has already started automating operations and lessening dependency on foreign labour, thus the new wage structure will not have a significant bearing on operation costs.
Meanwhile, Top Glove is reportedly planning to taper its foreign labour by 5% this year to offset the wage hikes. The streamlining will affect its 7,000- strong foreign workforce.
In a related development, the 12-nation Trans-Pacific Partnership Agreement (TPPA) could also affect the sector. The pact will immediately remove tariffs on 85% of rubber products, while duties on the remaining rubber products will be phased out within 16 years from the implementation of the agreement in 2018.
The Malaysian Rubber Export Promotion Council (MREPC) has expressed its optimism on the TPPA as a springboard for Malaysia to overtake its contending ASEAN neighbours like Thailand, Indonesia and Sri Lanka in exporting products to trading partners in the US, Canada, Mexico and Australia.
However, the agreement will also bring with it competition, which some opine is unbalanced between locally manufactured rubber goods and cheaper imported ones.
Yet, the rubber gloves sector in particular, is expected to gain from the TPPA, albeit, marginally, according to AmResearch. The country’s top exports market of Japan and the US are not levying import duties on medical and surgical rubber gloves, says the research house.
On the other hand, it says that the TPPA will reduce or remove import levies for rubber gloves; and that will result in better market access for Malaysian manufacturers. Moreover, the cost savings from the elimination of duties will also be applicable when importing machines and materials needed for producing rubber gloves, says AmResearch.
New safety rules versus powder gloves
When the US Food and Drug Administration (FDA) recently proposed that it is banning most powdered medical gloves for sale or distribution in the US, major glove manufacturers responded by promoting more of their powder-free gloves. The FDA proposal identified three types of surgical gloves: powdered surgeon gloves, powdered patient examination gloves, and absorbable powder for lubricating surgeons’ gloves.
Exposure to the powder used in the gloves has been associated with occurrence of asthma, latex allergies and other severe complications, as well as presenting risk of severe airway inflammation; wound inflammation and post-surgical adhesions. The FDA, on its economic analysis of the ban, assured glove makers that the rule will not cause a shortage or dent the profits for the industry.
Medical glove makers took heed of the ban. Australiabased glove maker Ansell and UK-headquartered Globus, which markets the Showa brand of gloves, have started endorsing the switch to powder-free, lowprotein latex gloves and synthetic gloves.
Affin Hwang opines that Malaysian glove makers will not be distressed by the ban since most of the gloves being exported to the US are powder-free nitrile and latex gloves.
Top Glove, which specialises in latex-powdered gloves, also welcomed the FDA proposal. It said that while the company is making powdered gloves (constituting about 40% of its product mix), what it exports to the US are for non-medical use.
The company is weighing on upping capacity for powder-free and nitrile gloves, should its clientele make a switch for those types. In such a case, it says that it has the capacity to cater to this shift in demand in glove types.
Supermax, the world’s second largest producer of rubber gloves, also produces both powdered and nitrile gloves.
Latexx Partners, produces medical and industrial powdered gloves, and is not vexed by the proposal while the Malaysian subsidiary of Austriaheadquartered Semperit Group is expecting to expand further its glove production, especially with the commissioning of the new production capacity in Kamunting this year.
Other Malaysian glove players like Kossan and Hartalega are in a safe position with the proposed ban since both focus on synthetic rubber gloves. The US accounts for half of the sales for Hartalega, which caters mainly to the medical industry.
Based on the Department of Statistics Malaysia data, the country’s exports value of non-surgical gloves in 2015 was over RM11 million, a modest increase from the 2014 shipments of more than RM9 million. For surgical gloves, exports in 2015 were pegged at RM1.1 million, a slight decrease from RM1.2 million shipments value the previous year.
Thus, the Malaysian glove sector is able to surmount any challenges and continue to grow, hands-down.