KUALA LUMPUR: The average selling prices (ASP) for gloves are likely to tilt lower as the urgency for gloves subsiding, despite the anticipation of higher prices than pre-pandemic level, according to MIDF Research.
The firm has downgraded the glove sector to neutral as it lacks near-term catalysts.
Its analyst Ng Bei Shan said high vaccination rate implied the urgency for rubber gloves in developed countries might slow down and put further pressure ASP going forward.
"The higher capacity has also contributed to the easing in demand for urgent orders. We expect demand for gloves to remain strong but the dwindling urgent requirement for rubber gloves is likely to tone down high ASPs," Ng said in a report today.
She added that demand for gloves was likely to continue to outstrip supply into 2022 but the tide should turn in 2023.
"Compared to end of 2020, spot ratios for rubber gloves have eased, which means that the urgent orders for rubber gloves might be subsiding," she said.
Ng said glove makers had lower spot allocation compared to one to two quarters ago, adding that some were focusing solely on contractual orders.
Meanwhile, she said pricing for contract orders were softening at a gradual rate as a result of the ever-changing demand and supply dynamic.
"One of the factors is buyers adopting a wait-and-see approach as they try to reduce their risk of holding high-price inventory," she said.
She said one of the developments that had shifted the urgent demand for rubber gloves was the improving situation of the pandemic in the developed countries.
"The number of new Covid-19 cases in the United States and the European countries have declined drastically since the peak in the first quarter this year.
"The Covid-19 vaccination programmes in the developed countries continue to accelerate. The United Kingdom has over 60 per cent of its population vaccinated at least once while the US, Italy and Germany has about half of their population receiving at least one Covid- 19 vaccine shot."
Ciing an example, she said ASP in the North American market for nitrile rubber gloves could fetch about US$10 higher compared to other markets.
"The US is known to have the highest consumption per capita at 281 gloves in 2019. The consumption of gloves per capita is followed by UK at 133, Italy at 129, Germany at 120 and Japan at 112."
She said glove makers had ramped up production by about 25 per cent in 2020 to meet the spike in demand for disposable rubber gloves.
"In 2021, companies continue to add in new production lines to churn out more gloves and the estimated new supply, contributed by existing players and new setups, is estimated to increase by more than 30 per cent compared to the previous year."
She cautioned that profit margin might narrow with lower ASP and firmer cost structure, although average prices would still be higher year-on-year.
"Coupled with the weaker ASP trend, we expect profit margin to narrow with rising costs of doing business (higher labour cost)."