RHB Research has made a “Neutral” recommendation on Rubber Gloves” as it has reached the bottom.
It said that glove manufacturers have noted ASP erosion, slowing from the current USD30/1,000 pcs mark and operating margins are coming close to pre-pandemic levels. “For the immediate term, the risk of the price war intensifying has toned down – given capacity restrictions and the energy crunch that is ongoing in China,” it said.
RHB Research said that it does not exclude the possibility of price risk worsening once the situation normalises.
It said that Glove manufacturers have noted ASP erosion, slowing from the current USD30/1,000 pcs mark and operating margins are coming close to pre-pandemic levels.
“For the immediate term, the risk of the price war intensifying has toned down – given capacity restrictions and the energy crunch that is ongoing in China. However, we do not exclude the possibility of price risk worsening, once the situation normalises, “the research house said
RHB said that despite achieving the required vaccination coverage to operate fully, major manufacturers are only currently running at a 70% utilisation rate.
It said that the demand remains soft as buyers continue to practice making minimal purchases to prevent sitting on high-cost inventory.
RHB said that it believes companies that expanded the most throughout the pandemic are at greater risk of recording poor utilisation rates going forward. Moreover, a prolonged period of sub-optimal utilisation rates should heighten the risk of further delays in capacity expansion.
The research house said that while there is much to be studied on the characteristics of the new variant, it does not think it will result in the rise of ASP as the health care system is much more prepared than before; the advantage of mRNA technology allows the rapid development of a variant-specific vaccine, and greater production capacity of gloves compared to 2020.
It said that given that most manufacturers are currently running at below optimal utilisation rates; we believe there are further lines to run before the creation of a spot market.
It said that natural latex prices have declined from their peak of USD1.66/kg in Apr 2021 to an estimated USD1.28/kg in Dec 2021, which is slightly above the pre-pandemic average of USD1.10/kg.
However, RHB expects the rate of moderation to slow in the coming months due to the advent of wintering season. “Similarly, nitrile latex prices have declined 37% from Sep 2021 to an estimated USD1.28/kg in Dec 2021 due to additional butadiene capacity and lower demand from downstream production.
