Malaysian Rubber Glove Industry – Impact of COVID-19

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• Surge in global gloves demand due to COVID-19 outbreak
• Major hindrance to fill demand supply gap
• Will industry face risk of oversupply after COVID-19?

In our earlier blog on “Malaysian Rubber Gloves Industry” we had discussed the growth in the healthcare industry backed by an ageing population, change in healthcare reforms, emergence of new healthcare threats and clean room manufacturing which have led to steady growth in the Rubber Gloves industry. As per earlier statistics and market expectations, MARGMA (Malaysian Rubber Glove Manufacturers Association)had projected demand of rubber gloves to reach ~300 billion pieces in 2020 with an annual growth of 12%, however, the current outbreak of novel Covid-19 has resulted in a 100% surge in demand globally in the first few months of 2020. The world’s largest rubber glove producer Malaysia, which contributes nearly 63% of global supply has revised its estimated supply to ~220 billion pieces in 2020 amid current scenario which is much higher than previously estimated numbers of ~188 billion pieces. 

Production ramp-up

Looking at the increase in demand, Malaysia’s rubber glove players are standing in a very strong position, in-fact expected to see one of the best phases in terms of revenue growth in the current year. Over the years, Malaysia’s major rubber glove producers have been continuously enhancing production capacity to meet the rising global demand. MARGMA is now planning to produce even more rubber gloves to meet the sudden spike in consumption due to the coronavirus outbreak. As per an earlier note from the association, China’s per capita consumption of rubber gloves is 10 pieces for a population of 1.6 billion. An increase of 40-50% in per capita consumption will require an additional production of 6-8 billion pieces of rubber gloves which seems a reality in the short-term.

Top gloves, the largest producer of rubber gloves worldwide, has enhanced its capacity during the last few years, increasing the same from 60.5 billion pieces in August 2018 to 70.1 billion pieces in November 2019. The company now plans to expand annual capacity by 30% more to 91.4 billion pieces by the end of 2021. Other companies are also ramping up production by tweaking the production lines to run at optimum levels to gear up with increased demand. Hartlega, for an example, is expected to reach utilization level of more than 95% in 4Q-FY20 verses 86% utilization in 9M-FY20. Its two new production lines, which commissioned in January and February 2020, are also likely to be fully utilized during this surge timings.

Shortage of labour – Key challenge

It’s true that a major hindrance for Malaysia’s rubber gloves industry is the acute labour shortage in the country. The government has imposed stricter labour requirements and cracking down on foreign workers who are working without permits. Limits have also been imposed on overtime by foreign workers up to 2 hours compared with 3-4 hours earlier. To manage increased capacity and to replace those who have left, rubber gloves industry require at least 25,000 foreign workers which is a difficult task in a rather short time span. As per Top gloves, employing a foreign worker is no longer cheap in current scenario with strict labour laws, increased minimum wages and cost of recruitment agency, hotel and transportation for foreign workers along with social compliance audit which will become mandatory from 2021. Gap of hiring a foreign worker and a domestic graduate, is getting closer due to these added costs. Though the ratio of foreign workers to total workforce has come down to 60-70% from earlier 80-90%, the industry is still heavily depended on them.

Moreover, the industry has adopted automation and innovation during the past years to counter rising labour cost and reduce dependency on external labourers. Automation is likely to result in 30-50% increase in production as stated by some companies like HLT Global. While these aspects did enhance productivity (based on the number of workers for producing one million pieces of gloves) which reduced to ~2 in 2018 from ~9.7 in 2009 (source: MREPC). Nevertheless, with increase in overall demand and supply, labour continues to be an important and integral part of this industry.

Any risk of oversupply? – perhaps no

Current scenario due to Covid-19 outbreak is not new to the industry. The industry has experienced the same situation earlier as well, such as during SARS or H1N1 outbreak. The SARS outbreak had resulted in ~8% surge in demand in 2002-03 whereas during H1N1, glove consumption grew by ~17% in 2009-10.  Currently the largest producer, Top gloves, is forecasting 10-15% rise in its sales, which can grow more, depending on the severity and duration of outbreak. With a revised estimate of ~220 billion pieces supply alone from Malaysia in 2020, overall industry is set to see more than 30% supply of rubber gloves in the current year which may lead supply to reach ~350 billion pieces by end of year.

Industry demand in any case is growing continuously (MARGMA has already estimated 12% annual increase in demand for the current year) due to increase in health awareness globally which is also reflected in top line of major rubber gloves companies. Rising cost of raw material, labour as well as cost of implementation of compliance measures will result in an increase in rubber gloves prices as the industry follows the ’cost pass through‘ practice.

Conclusion

WHO has now declared the novel Covid-19 outbreak pandemic and a public health emergency which has spread globally. People are in dire need of protective medical supplies such as mask, suits, gloves and respiratory equipment, and supplies are running low. In early February, Malaysian rubber glove manufacturers had pledged to donate 18 million pieces of gloves to Wuhan city and the world needs other manufacturers also to come up to offer help. The health care industry in any case has been attracting sustainable demand for protective medical supplies. Ramping up production for current demand surge may help the industry to sustain rising demand in the long term.