KUALA LUMPUR: Order visibility of glove makers is expected to continue at least until the first half of 2021 on the back of the current strong demand for glove globally.
CGS-CIMB analyst Walter AW said the acute global shortage of gloves was likely to worsen as Covid-19 cases worldwide had shown no signs of slowing down.
"Many developed markets (with high glove usage per capita), such as the United States and United Kingdom have continued to record new highs in daily Covid-19 cases.
"We expect the situation to worsen as more western countries head towards the wintering period in fourth-quarter (Q4) of 2020, which could lead to further spikes in Covid-19 cases," he said in a research note recently.
Walter said acute shortage would drive higher average selling prices (ASPs) for gloves until the first-quarter (Q1) of 2021 due to the increase in raw material prices.
Based on the research firm's estimates, glove ASPs could rise between 10 per cent and 45 per cent quarter-on-quarter (QoQ) in Q4 of 2020 to US$50 to US$100 per 1,000 pieces," he said.
However, Walter said certain glove buyers were willing to offer fixed ASPs (at a substantial premium to current ASPs) with a minimum one-year contract tenure to secure glove supply.
"In our view, this should provide certainties of ASPs for 2021 if glove makers agree to these contracts."
On the potential windfall tax, he said glove makers and Malaysia Rubber Glove Manufacturer Association (MARGMA) had indicated that there was no engagement with the government on the matter.
"The implementation of a windfall tax on the glove sector would have long-term negative implication as this will drive glove makers to countries with more conducive environments in particular for labour, tax incentives and utilities," he added.
Glove stocks had been under selling pressure for the past two weeks due to the recent development of the Covid-19 vaccine.
The firm said the eradication of the pandemic might take a while longer given that no Covid-19 vaccine candidates had passed Stage 3 and 4 of clinical trials, current limited production capacity may hamper mass availability, and potential mutations of the virus.
"We believe that glove demand is unlikely to taper off even with a vaccine, as glove use will in fact increase when masses rush to be vaccinated," he added.
CGF-CIMB has maintained its "overweight" on the glove sector as the concerns on potential declines in ASPs from 2021 onwards were premature at this juncture, as signs were showing that ASPs might stay elevated for a longer period until end of 2021.