KUALA LUMPUR: Kenanga Research has reiterated its 'underweight' call for the gloves sector, noting that sector players have been hit by lower average selling price (ASP), sales utilisation and crimped margins.
In a research note, it said the recent round of results reported by glove makers suggested that their earnings have yet to bottom out with the ASP expected to continue declining, and the situation is exacerbated by low plant utilisation due to softening demand.
This is likely to persist over the medium term amidst intense competition, coupled with customers' reluctance to commit to sizeable orders as they expect selling prices to ease further.
"We expect the ASP to remain in the doldrums during the second half of 2022.
"Due to the massive capacity expansion by incumbent players and influx of new players during the pandemic years (who were enticed by the then super fat margins that had since evaporated), we estimate that the global glove manufacturing capacity has jumped by 22 per cent to 511 billion pieces in 2022," it said.
However, with the COVID-19 pandemic receding in more countries, the research house projected the global demand for gloves to ease by 10 per cent to 387 billion pieces in 2022, partly due to the destocking activities along the distribution network.
This will result in an excess supply of 124 billion pieces, assuming that capacity utilisation is maximised, it said.
"In 2023, we estimate that the global glove manufacturing capacity will surge by another 16 per cent to 595 billion pieces, as more capacity planned during the pandemic years finally comes online, while the global demand for gloves shall resume its organic growth of 15 per cent annually, resulting in the excess supply ballooning further to 150 billion pieces.
"The demand-supply situation will only start to head towards equilibrium in 2025 when there is virtually no more new capacity coming on-stream, while the global demand for gloves would continue to rise by 15 per cent per annum, underpinned by rising hygiene awareness," it said.