Malaysian rubber glove industry, an update

• Rising global demand for gloves
• Impact of USP 800’s implementation and the US-China trade war on Malaysia’s rubber gloves industry
• Key challenges for the Malaysian rubber gloves companies
• Future outlook

The global demand for gloves maintained an ~8% CAGR in the last decade and as per the initial estimates from the MARGMA (Malaysian Rubber Glove Manufacturers Association), the overall global demand for rubber gloves stood ~268 billion pieces in 2018.

Rubber gloves suppliers of Malaysia supplied ~168.8 billion pieces or met 63% of the global demand, amounting to ~MYR18.8 billion in 2018 (Source: MARGMA). Moreover, rubber gloves make up more than 70% of all the rubber good exports for Malaysia.

In Televisory’s previous blog on an analysis of Malaysian rubber glove industry, it was analysed that the growth in the healthcare industry worldwide is one of the key drivers for the rubber gloves industry. Further, the anticipated implementation of USP 800, which will be effective from 1^st Dec. 2019 (as per the recent guidelines from the US Pharmacopeia Convention), is seen resulting in a healthy demand from the US, which already accounts for more than a third of the global demand for gloves. Malaysia hold ~65% of the global market and will continue its leading position in coming years based on the fact that the US hold ~35% export value for Malaysian gloves and the local government is also taking steps to support rubber gloves industry like Entry Point Project of the promotion to increase Malaysia’s share on the global map. Malaysia’s rubber glove players could also benefit from the latest US-China trade spat as medical gloves from China are on the US$ 200 billion lists for Chinese goods, subject to a 10% import tax and this will certainly hamper China’s rubber gloves manufacturers’ competitiveness.

Internally for Malaysia, the major producers have either increased their capacity or are increasing it gradually, for the next 1 to 3 years, in order to fulfil the rising global demand. The growth in the top line of the top five companies in Malaysia; Top Glove, Hartalega, Kossan, CarePlus and Riverstone is in line with the rising global demand for gloves.

Over the near term, a marginal appreciation in the MYR against the USD will aid Malaysian players on raw material costs (Latex), which is mainly imported from Thailand, however, cost rationalizations are seen getting negated by modestly lower realizations as a major part of sales are export driven.

One point which could affect industry margins moderately in Malaysia is the oversupply as key players expanded capacity which is likely to enhance supply in double digits, while demand continues to remain stable around 8-10% levels particularly in 2019.  

Key challenges

• Raw Material Cost: raw material i.e. natural rubber or synthetic rubber consumption is a major part, which is almost half of the overall operating cost and the price of the same depends upon natural rubber prices prevailing in the market for natural rubber glove production and nitrile price (derivative of crude oil) to produce synthetic rubber gloves. Malaysia is the net importer of rubber since 2015. In case of any change in the export of latex from Thailand (being the major exporter of latex to Malaysia) will directly affect rubber gloves producers apart from fluctuations in the natural rubber and natural gas prices.
• Labour: manpower contributes ~10% to the overall operating cost. A revision in minimum wage policy by the government could put some pressure on earnings, but rubber glove players earlier used to adopt the cost pass-through the mechanism as well and Televisory anticipate that this will continue as an industry practice. A majority of labourers in the industry are foreigners, whereas glove manufacturers have also been adopting automation and innovations during the past years to counter the rising labour cost and reduce dependency on external labourers. While these aspects did enhance productivity as the number of workers required for producing one million pieces of gloves reduced to ~2 in 2018 from ~9.7 in 2009 (Source: MREPC [Malaysian Rubber Export Promotion Council]). Nevertheless, with an increase in the overall demand and supply, the labour continues to be an important and integral part of the industry.
• Currency movement: Malaysia remains heavily dependent on raw material imports while almost all of the produce is moving out in terms of exports. Moreover, any major movement in the currency can have a significant effect on the profitability and operations of the local players.

Future outlook

Malaysia continues to hold the dominant position in the global market with Thailand standing a distant second and China holds a marginal market share of ~5%. Malaysia is backed by some of the largest players in the world and support from the government is expected to continue with its leading position in the near future. Furthermore, as per mid-year estimates from the MARGMA, the annual growth in demand is expected to be 15% for the next few years. Televisory feel that the industry demand would see an increase from the broader average of ~8 to 10-12% over the next two years, with 15% looking a bit high on expectations. This strong increase is anticipated by a high percentage growth from India and China (despite a lower base) and implementation of the USP 800 as stated above in case that takes place.