Most of the examination gloves produced by the “Big 4” are mainly consumed by the medical sector, with less than 10 per cent consumed by non-medical sectors like retail, transportation and others. — Bernama photo
KUCHING: Elevated average selling prices (ASPs) for rubber gloves can be sustained until the first half of 2021 (1H21) as analysts assume that vaccines for Covid-19 will not be available until then.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) believed that most of the examination gloves produced by the “Big 4” are mainly consumed by the medical sector, with less than 10 per cent consumed by non-medical sectors like retail, transportation and others.
“Although both the World Health Organization (WHO) and US Centers for Disease Control and Prevention (CDC) do not recommend that people wear rubber gloves while out in the public to prevent the spread of Covid-19, as single-use medical gloves should be prioritised for use by the healthcare professionals, some countries or governments have started requiring certain industries to start using gloves in their everyday business,” the research firm said in a report on Kossan Rubber Industries Bhd (Kossan).
“This ‘new’ demand could help sustain the ASP uptrend.”
AffinHwang Capital has thus revised its capacity growth forecast higher for the “Big 4” for 2020 and 2021 to 18 per cent from 12 to 15 per cent, but believed the risk of an overcapacity situation is still relatively low for both years.
That said, the research firm noted such a risk could be higher in 2022 if the overall expansion growth is similar to that in 2021.
“We think the Big 4 manufacturers would act rationally and keep their capacity expansion growth rate at around 10 to 12 per cent year on year (y-o-y) post-2021, similar to historical demand growth.”
“We believe that the elevated ASPs can be sustained until 1H21 as we assume that vaccines for Covid-19 will not be available until then.”
On the foreign labour issue, AffinHwang Capital recapped that it is currently a heated topic within the industry, as the US Custom and Border Protection (CBP) has put two of Top Glove Corporation Bhd’s (Top Glove) subsidiaries on the detention list on suspicion of using forced labour.
“We understand that these were past practices followed by most industry players. However, Kossan’s management believes that it is fully compliant with the latest international standards and has passed several social audits.
“Certainly, if the ban on Top Glove products is prolonged or expanded to more countries, it could benefit other manufacturers like Kossan.
On a separately note, the research firm recalled Deputy Human Resource Minster Awang Solahudin telling the parliament recently that the government is determined to limit foreign workers to 3 sectors only, namely construction, agriculture and plantation, to improve the local employment situation.
“The Federation of Malaysia Manufacturers and Malaysia Employers Federation have opposed the suggestion.
“If such a policy is implemented, we believe that it will have an adverse impact on the future expansion of the glove industry, although the industry has started automating most of its processes since the implementation of a minimum wage a few years ago.”