Weaker demand may hurt glovemakers

Report: It’s difficult for manufacturers to pass on costs to customers

PETALING JAYA: The weaker demand for rubber coupled with the weaker US dollar and high latex costs may make the cost pass-through, a mainstay of margins among manufacturers here, increasingly difficult.

According to a report by HwangDBS Vickers Research yesterday, slower demand has made it difficult to pass on costs to customers.

The research house said this coupled with a weakening greenback (local manufacturers’ earnings are in US dollars) and high latex costs, would pressure margins of companies such as Top Glove Corp Bhd and Kossan Rubber Holdings Bhd.

“Demand could be normalising to lower levels as the flu outbreak is under control and customers are reducing inventory holding periods to one to two months (compared to three to four months inventory during the flu outbreak),” it said.

HwangDBS Vickers said new capacity coming on-stream made the slowdown in demand worst.

“We expect Top Glove’s utilisation rate to fall below 75% when factories 18 and 21 start operating at the end of this year,” it said.

The price of latex-in-bulk traded on the Malaysia Rubber Exchange was at its highest in April after steadily climbing from lows hit in January last year.

The ringgit, meanwhile, has strengthened more than 8% against the US dollar since the beginning of the year, placing more pressure on glove manufacturers’ margins.

An analyst with a local investment bank told StarBiz that demand growth would normalise to about 10% this year compared with about 18% last year.

She said growth would continue to be supported by demand from the healthcare industry, albeit at a slower pace.

Another analyst pointed out that demand was normalising now due to the increased manufacturing capacity.

“Demand for rubber gloves is always steady and the flu outbreak did not really push up demand that much,” he said.

Previous reports showed demand for rubber gloves remained strong with most manufacturers having sold forward to September.

HwangDBS Vickers expects longer-term demand to remain resilient supported by improving healthcare standards worldwide and increasing healthcare spending per capita.

Rubber glove stocks were down yesterday, Top Glove shed 11 sen to RM6.13, Supermax Corp Bhd dropped 14 sen to RM6, Kossan Rubber was down 14 sen at RM3.67 while Hartalega Holdings Bhd slipped 12 sen to RM7.98.

(biz.thestar.com.my)