KUALA LUMPUR: Malaysian glove manufacturers are set to benefit from a higher US import tariff on China that could escalate trade diversion outside China, according to RHB Investment Bank Bhd (RHB Research).
"The hike in US import tariffs on China-made products is icing on the cake, as we expect this could escalate trade diversion outside China, eventually benefiting Malaysian manufacturers.
"We favour glove manufacturers that demonstrate strong earnings resilience, a solid balance sheet profile, and higher exposure to nitrile products as latex prices remain volatile due to recent flooding in Thailand," RHB Research said in a note.
On Sept 13, the US Trade Representative announced substantial tariff increases on Chinese imports, starting at 50 per cent in 2025 and escalating to 100 per cent by 2026, up from the initially proposed 25 per cent in mid-May 2024.
The research firm said the industry operating dynamics remain in favour of local glove manufacturers on the back of better demand visibility, supply rationalisation, and average selling price (ASP) stabilisation.
While the recent weakening US dollar remains a key hindrance, the firm said local glove makers are in discussions to pass on the impacts to customers of at least US$1, which would result in the ASP range of within US$21 to 22 by the fourth quarter of this year.
Furthermore, Malaysia's glove export volume surged 66 per cent month-on-month MoM and 105 per cent year-over-year in August, while the export value stood at RM1.58 billion.
Meanwhile, China's glove exports grew 5 per cent in August following a 3.0 per cent contraction in July.
"That said, we expect 2024 global glove demand growth of 22 per cent premised on the recovery of glove restocking activities in the latter half of this year.
"Malaysian Rubber Glove Manufacturers Association (MARGMA) anticipates global glove demand to chart a compound annual growth rate (CAGR) growth of 10 per cent to 450 billion pieces from 2023-2027," it added.
RHB Research said local manufacturers are running within the range of 70 to 80 per cent hence, a marginal change is expected in global industry supply of 6 billion in 2024 on the back of planned capacity replenishment by Hartalega and Top Glove.