KUALA LUMPUR: Malaysia's rubber glove sector is still lacking near-term re-rating catalysts, no thanks to persisting imbalances in the demand-supply dynamics and stubbornly elevated costs, RHB Research said.
Although the pace of average selling price (ASP) softness could moderate in the near term post-market consolidation, RHB Research thinks the sub-optimal industry utilisation will continue to be a drag on glove players' margins before a gradual pick-up in demand can be seen.
The industry's ASP is currently at about US$20-US$22 per 1,000 pieces, similar to levels recorded prior to the pandemic.
The firm said the quarter-on-quarter decline in ASPs in the third quarter of 2022 (3Q22) had eased to a low single digit, suggesting that ASPs might have bottomed already.
"Nonetheless, the pace of ASP moderation continues to ease, notwithstanding the impending price war from Chinese peers. That said, the latest 3Q22 results from China's glove makers may suggest the current ASP level could be deemed unsustainable in the long run following both Intco Medical Technology and Shandong Blue Sail Plastic & Rubber reporting operating losses," RHB Research added.
At this juncture, the firm gathered that industry players were still unable to ascertain the timing of de-stocking activities from glove distributors.
"Under a bull case scenario, we expect such distributors' inventory levels to normalise by the first half of 2023 after taking into consideration the six to nine months of normalisation period from our last update in late September.
"That said, our recent takeaways from the results briefings suggest an absence of re-stocking activities from the distributor front – as such, our assumption for 1H23 inventory normalisation stands."
RHB Research kept its :underweight" call on the sctor and 2022 year-end demand outlook at 399 billion pieces followed by a four per cent increase in 2023.