KUALA LUMPUR: The average selling price (ASP) of gloves is expected to continue declining in the first half of 2022, albeit at a slower rate of 5 per cent month-on-month (MoM), compared to 10 per cent MoM previously.
Hong Leong Investment Bank Bhd (HLIB Research) said glove prices had fallen closer to pre-Covid levels, with the current ASP being US$25-35 per thousand pieces compared to the pre-pandemic ASP of US$21 per thousand pieces.
"We also note that the pricing difference between the US market and European Union (EU) market is also narrowing, at US$5 the difference now, as opposed to a US$10 gap earlier.
"In our view, glove prices are likely to reach pre-Covid levels by the second half (Q2) of 2022," the bank-backed research firm said in a note today.
Glove ASPs have been on a downtrend since mid-2021, following a mass rollout of vaccination programmes in major glove consuming countries, as the better vaccination coverage has greatly alleviated buyers' urgency to stock up on gloves.
The spike in glove demand previously has resulted in nitrile butadiene rubber (NBR) latex prices to more than double to a high of US$2.40 per kg in early-2021 but has since tapered off, in tandem with the weaker glove demand.
NBR latex prices are expected to reach pre-Covid levels of US$1.10 per kg in early-2022, as glove demand continues to normalise, and additional supply capacity kicks in.
Natural rubber (NR) latex prices, however, are expected to stay elevated in 1H 2022, given the La Nina phenomenon expected in January 2022, followed by wintering period that typically lasts from February to May.
HLIB noted that with ASPs declining faster than raw material price, coupled with higher operating costs stemming from better social compliance practices and
stricter standard operating procedures (SOP), margins for the glove makers are expected to compress further.
Not to mention that the impending price war arising from Chinese glove makers attempting to win market share could also exacerbate the situation further.
"Nevertheless, we are comforted by the fact that the glove makers under our coverage have accumulated a large war chest during the upcycle, and the strong balance sheet should help the glove producers to better weather through this difficult time," the research firm said.
Further, HLIB Research said amidst the falling ASPs, glove buyers have refrained from stocking up on gloves to avoid locking in purchases at high prices.
"However, with glove prices slowly approaching pre-Covid levels, we think that restocking activities could gradually resume in 1H 2022.
"That said, we expect utilisation rate for the glove producers to remain below pre-Covid levels of 80-85 per cent in 1H 2022, due to overall softening in demand," the firm noted.
HLIB Research maintains a Neutral call for the sector as the current headwinds faced by the glove makers are unlikely to dissipate in the near future.
"We expect the operating environment for glove makers to remain challenging in 1H 2022.
"However, a strong cash position should help the glove makers to navigate through these challenging times and withstand any impending price wars that might come their way," the research firm said.