With the global vaccine roll-out underway and Chinese glove manufacturers joining the fray, could oversupply be on the horizon for the glove industry?
According to Paul Chew, head of research at Phillip Securities, Chinese upstarts may use lower prices to gain a foothold in an industry currently dominated by Thai and Malaysian companies.
“Chinese entrants such as Intco Medical and Blue Sail Medical are looking to build new markets and distribution channels. We expect them to underprice their products even at modest margins to achieve scale and new customers,” says Chew to The Edge Singapore.
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With Chinese manufacturers “aggressively adding capacity”, glove oversupply could be a concern, adds Chew. “We worry capacity expansion will remain aggressive until gross margins normalise to pre-pandemic mid to high teens from higher than 60% currently.”
As of late May, glove prices have fallen 15%–20% from their recent peak, says Chew, affecting manufacturers of all glove types. “Prices are widely available and generally transparent for buyers and distributors.”
The share prices of various Singapore-listed glove makers have also come off their peaks. Top Glove is around 47% off its peak of $3.13 on Oct 19, 2020; Riverstone Holdings, which was at $2.38 on Aug 7, 2020, is now around $1.46. UG Healthcare was at one point trading at $1.15. Ten months on, it has nearly halved to 66 cents.
Due to the spike in demand over the past year, the existing players have put in place aggressive capacity expansion plans. Several companies previously not in the industry have scrambled to try and capture a piece of the growing pie too. At least two Singapore-listed companies have announced such plans. Enviro-Hub on May 21 announced it is acquiring the remaining 75% of Pastel Glove for $46.8 million. The acquisition comes with a three-year profit guarantee of US$18 million ($23.8 million). Capacity expansion is underway with a planned output of 1.42 billion by September.
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Aspen (Group), meanwhile, has sold some US$100 million worth of gloves it can produce this year via its joint venture, which will eventually have a capacity of 7 billion pieces a year. However, Aspen seems to have hit a bump or two recently. On April 24, it retracted its announcement of a US$210 million contract win from 3M. Less than a month later, on May 20, Calvin Ng, the COO of its glove-making venture, quit after less than nine months on the job.
Malaysia may still be overwhelmingly dominant in the glove-making space today but regional competitors may soon loosen their grip on the industry. According to Chew, Thai and Chinese manufacturers currently hold a combined global market share of around 30% with some manufacturers planning to double or triple capacity in the next five years.
With increasing supply, the average selling price (ASP) of gloves could gradually decline in 2H2021, says Ling Lee Keng, research analyst at DBS Group Research.
Despite the growing supply of gloves, skyrocketing demand could still gain the upper hand. According to the Malaysian Rubber Glove Manufacturers Association, the global supply of rubber gloves is projected to reach 420 billion pieces this year, about 80 billion pieces short of the projected demand of 500 billion pieces. This is only a marginal improvement as last year’s glove shortfall was 100 billion pieces, notes Ling in an email to The Edge Singapore.
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She expects glove demand to be robust until 2Q2022 as new norms due to Covid-19 are expected to sustain the current elevated demand. “Despite the positive developments on vaccines for Covid-19, demand for healthcare examination gloves is still expected to remain robust as healthcare systems around the world continue to fulfil immediate supply shortfalls and replenish reserves.”
“Furthermore, the recent resurgence of the pandemic globally and the rise in awareness of hygienic practices globally have led to a higher usage of gloves in the medical as well as other non-medical sectors, such as F&B and retail,” adds Ling.
Amid the tussle, some smaller players may not survive. “The market leaders are likely to fare better, [both] on economies of scale and also their ability to secure raw materials at more competitive pricing,” says Ling.
Large manufacturers have been working hand in glove with regular customers long before the outbreak of Covid-19. Riverstone Holdings has longstanding relationships with its customers, notes Ling. “ASPs are mainly based on negotiation instead of the spot price. Hence, there is less volatility.”
“The market leaders, which tend to be more reliable, also have more bargaining power and are expected to be able to hold prices better as compared to the newcomers, which are generally smaller in size with some short-term players.”
