While some players have returned to the black, Kenanga Research noted the “tepid profitability does not support the lofty valuations.”
PETALING JAYA: A tough operating environment is expected to persist for the glove sector over the immediate term given the still weak earnings in the first quarter of 2024, according to Kenanga Research.
While some players have returned to the black, the research house noted the “tepid profitability does not support the lofty valuations.”
The research house, in a report, said the industry would continue to face massive oversupply and predatory pricing by certain overseas players that are selling below cost over an extended period of time.It would also be burdened by weak demand and high cost of raw materials including latex.
Glove players would also continue to grapple with the high operating cost and sustained poor economies of scale from less than optimum sales volume despite seeing incremental orders, added Kenanga Research.
The glove industry can expect volatile quarterly sales as distributors and buyers see no urgency to place sizeable orders or hold substantial stocks as supply is readily available.
The industry players are cautious about raising prices significantly given the competitive landscape.
“With a low industry utilisation of about 45%, this is without a doubt a buyers’ market,” Kenanga Research said.
The further decommissioning of older production facilities locally should also help to ease supply pressure.
“Overall, players are mindful that the prospect of raising average selling prices in subsequent quarters will be challenging due to the current massive overcapacity situation,” it said.Due to the current competitive pressure emanating from oversupply and low industry utilisation averaging 40%, customers could just walk away and choose to buy from other players whenever there is an attempt to raise prices, according to Kenanga Research.
For example, buyers could turn to Chinese manufacturers that are still selling below US$20 per 1,000 pieces at US$16 to US$18.
Based on its estimates, the research house said the demand and supply situation would only start to head towards equilibrium in 2026.
This is when there is virtually no more new capacity coming onstream, while assuming the global demand for gloves will to rise by 15%, underpinned by increasing hygiene awareness.
The demand for gloves will likely go up by 30% in 2024 to 390 billion pieces on restocking, the research house added.
