No barriers to growth for Malaysian glove makers

May 1, 2017

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Malaysia dominates the global rubber industry, supplying more than half the world’s glove requirements. It is well positioned to do so for reasons such as its natural rubber resources, and even with challenges on the horizon, the industry is taking it in its stride, says Angelica Buan.

Malaysia is the world’s fifth largest producer of natural rubber after Thailand, Indonesia, Vietnam and China, and home to Top Glove Corporation, Hartalega Holdings, Supermax Corporation, Kossan Rubber Industries, Rubberex Corporation, and other major glove makers.

The latex goods have remained the largest contributor to Malaysian exports of rubber products, reaching RM14.6 billion in 2016 and accounting for 80.7% of the total exports of rubber products in the year.

Rubber gloves, under the latex goods category, continued to contribute significantly to total exports of rubber products, reaching RM13.3 billion in export value or 73.2% of the total value of all rubber products exported, according to the Malaysian Rubber Export Council (MREPC).

In 2016, Malaysia exported RM11 billion nonsurgical rubber gloves and RM1 billion surgical gloves, MREPC cited data from the Department of Statistics (DOS).

Top-Glove-

However, life is not all a bed of roses for the glove industry, which has undergone a few blows brought about by uncertainties in the economy. Handling pressure with grace is the industry’s virtue.

Coping with price hikes

The year opened with rubber prices swelling by 55% on account of lower rubber supply and higher consumption from China’s automotive industry, thus almost cueing glove makers to mark up their prices by 10%-15%.

But in the middle of February, prices of rubber started plunging and from end of March onwards the situation has somewhat improved for the industry.

Adding to the more positive sentiments is the improved US and Europe economic outlook, as well as recovery in oil prices that is anticipated to stabilise prices even further, according to the Association of Natural Rubber Producing Countries (ANRPC), an inter-governmental organisation of 11 rubber producing countries.

The fickle pricing condition has affected industries reliant on rubber, particularly the gloves industry. While global demand for gloves, which are commonly used in vital industries such as the healthcare, cleanroom manufacturing and food, continues to flourish, Southeast Asia’s glove producers, which collectively account for more than 60% of the world’s total rubber gloves, have to contend with this and other challenges the year unveils.

Shah Alam-headquartered Top Glove disclosed that the rising materials cost, aggravated by higher labour and utility costs, has dampened its profits. The world’s largest rubber glove producer indicated its second quarter earnings of RM83 million slid by more than 20%, against the RM104 million posted during the same period last year.

This is corroborated by the Malaysian Industrial Development Finance (MIDF) Research’s findings that Top Glove underperformed based on a full-year earnings estimate, on account of higher raw material prices during the quarter.

Likewise, feeling the cost pressures is Supermax. The company’s first-half financial year 2017 earnings were below expectations, analysts said. This was mainly due to a lower production output from higher operating costs, and other relevant factors.

To cope with latex price increases, Supermax says it would have to pass on the additional costs to its customers. Yet, this is easier said than done, considering that competition among its peers in the gloves industry is tight, the company adds.

Relief from lower gas prices

When the government increased the tariffs on natural gas for the non-residential, non-power sector, first by 17.2% in January 2016; followed by nearly 6% in July, the gloves sector knew it may have to adjust its pricing too. The Malaysian Rubber Gloves Manufacturers Association (MARGMA) says the hike would range from US$0.40 to US$0.60 per 1,000 glove pieces.

Higher energy costs will make a dent of between 10%-12% in the total cost of production for major glove players.

Rubber-gloves_02

However, a revision in the gas tariffs has been announced for this year. Gas distribution company, Gas Malaysia, has allowed for adjustments to the natural gas tariff for the non-power sector in Malaysia from January this year to end of December 2019. Under the Gas Cost Pass Through mechanism, a tariff rebate of RM0.40 per MMBtu (million British Thermal Unit) is effected on all tariff categories for the sixmonth period beginning January-June 2017; or a 2.7% reduction from the previous average tariff. The cut in gas prices is a welcome relief for the glove sector, which expected a sustained build-up of global demand for rubber gloves at 8% to 10% in 2017.

Powdered gloves ban not a setback

Once an operating room’s essentials, powdered gloves are getting the boot, this time, officially. The US Food and Drugs Administration (FDA) enforced a ban on powdered gloves early this year, based on what it says are “health risks of illness or injury to wearers, patients and individuals exposed to the powder particles.”

The risks involve, according to FDA, severe airway inflammation and hypersensitivity reactions. Getting the axe are powdered surgeon’s gloves, powdered patient examination gloves, and absorbable powders for lubricating a surgeon’s glove, FDA said.

The ban means manufacturers are prohibited to export powdered gloves to the US but are allowed to export the same to countries where they are legal.

As a result, major manufacturers are switching from powdered gloves to powder-free gloves.

This latest regulation, however, is viewed as negligible for Malaysian glove makers with the ban having no major impact on earnings, since Malaysia ships only 2%-3% of powdered gloves to the US.

Globally, Malaysia exports 23% of powdered gloves and the remaining 77% is of the powder-free variant. Hence, it can easily sell the latter type to the US; or, producers can convert their production lines to produce more powder-free gloves provided that they are given a grace period to convert, according to MARGMA. The association also said that other countries in Asia, Europe and Africa, where Malaysia supplies gloves to, still allow sale of powdered gloves.

On the other hand, the ban will boost demand for nitrile gloves, which give better profit margins than latex ones, and is also a way to prevent oversupply of nitrile in the market, according to Kenanga Research’s January 2017 report of overweight rating for the rubber gloves sector.

Future still a good fit

Against the challenges, the Malaysian rubber gloves sector continues to dominate the total exports of rubber products. MREPC cited that in 2016, rubber gloves (under the latex goods category) reached RM13.3 billion in export value or 73.2% of the total value of all rubber products exported, from RM13.1 billion in 2015.

Since it is clear that the sector can be affected by economics, Malaysian glove firms are allowing for safety nets, such as improving quality, firming up capacities or even diversifying.

Kossan Rubber, for example, is investing about RM100 million for its expansion plans, including an R&D centre it will open in July this year. Likewise, to remain at the top of competition, it has invested some RM2 million in R&D of the FDA-patented Low Derma technology for synthetic gloves to garner demand from users who are sensitive to natural rubber latex. The technology eliminates allergy-causing accelerators in the glove-making process while preserving the glove’s tensile strength, flexibility and sensitivity. Between 15% to 20% of the company’s 22 billion glove/year-capacity is allocated to producing Low Derma gloves.

Perak-based Rubberex Corp is also tackling expansion efforts. Recently, it was reportedly raising RM16 million for capex through a proposed private placement of 22.93 million shares, representing 10% of the group’s issued share capital, to its major shareholder, Kuala Lumpur-based investment holding firm, MedBumikar Mara (21.1%), to expand its nitrile disposable gloves production lines in Ipoh.

Supermax, on its end, is diversifying into the eye care sector through contact lens manufacturing. The company announced in 2016 that it is earmarking RM2.4 billion as capex over the next 10 to 15 years to buoy up its glove and contact lens manufacturing operations. Its 10 to 15-year roadmap for gloves targets to raise capacity from 24 billion pieces to 45 billion pieces with a capex of as much as RM1.2 billion; while the contact lens manufacturing will be increased to 2 billion pieces, from 70 million pieces, with a capex estimated to amount to as much as RM1.25 billion.

Low-Derma-technology-gloves

Meanwhile, Top Glove is meeting the challenges head-on by improving glove quality and pushing through with its expansion plans. This year, the company’s capex is placed between RM250 million and RM300 million due to some of the acquisitions and capacity building moves such as the purchase of larger plots of land and establishment of new plants.

It is completing a new nitrile glove factory with capacity of 4.4 billion units/year in May, while another nitrile glove factory, with a capacity of 2.8 billion units/year, is slated to be completed by November. A third 4.8 billion units/year-factory is expected to start up next year. By then the company is projected to have 632 production lines and a production capacity of 60 billion gloves/year. After a capacity-building splurge this year, the company says it will ease its capex for 2018.

At the end of the day, what matters most for Malaysian gloves makers is to cater to the rising global demand for rubber gloves – a challenge that is worth taking up.

(RJA)

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International Rubber Prices
(as of 15, September 2017)

Monthly The prices shown above do not include VAT @4% on purchase and expenses towards packing, transportation, warehousing  and other incidentals


Source: India Rubber Board

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