Malaysia: Resurgent demand for gloves

RUBBER gloves, the darling of investors a couple of years ago, fell out of favour last year when a combination of high costs, oversupply and a weak US dollar left a damaging impact on the sector.

However, the negative environment has changed for the better and there’s been renewed interest.

A sharp drop in natural rubber prices and a stronger US dollar have helped disperse some of the clouds hovering over the sector.

Supermax Corp Bhd, which is the country’s second-largest player by installed capacity, says throughout such changing times, its business model has been consistent.

“Producing glove products, distributing and marketing under Supermax’s own brand in the strategic markets and countries where we have a direct presence and using independent distributors in markets elsewhere have been our strategy,” says Supermax executive chairman and groupmanaging director Datuk Seri Stanley Thai.

Expansions plans are aplenty for this company and the issue of oversupply in the market does not seem to be of particular concern. At least not for now.

For starters, Supermax is “fast-tracking” the construction and installation of its two new manufacturing plants in Klang to double its nitrile capacity by 5.2 billion to 10.5 billion gloves.

When the plants, which will be able to facilitate the production of both rubber and nitrile gloves, are completed sometime next year, Supermax will have 11 plants with a total installed production capacity of 21.6 billion gloves per annum.

“Our capacity growth for the next two years will be at least 23% to 25% per year and thereafter, the capacity expansion will be in line with demand and market growth,” Thai tells StarBizWeek via e-mail.

Thai says Supermax will speed up the construction and inst allation of its two new manufacturing plants in Klang to double its nitr ile capacity by 5.2 billion to 10 . 5 billion gloves.

Malaysian glove makers, which supply more than half of the world’s demand, had switched to producing more nitrile gloves from rubber gloves last year in line with stronger natural rubber prices.

Rubber prices account for more than 60% of the cost of making rubber gloves.

During the same period, the price of nitrile, which is a by-product of crude oil, had been on a downtrend.

Latex rubber prices have come down significantly since peaking at RM10.90 per kg last April.

But nitrile gloves continue to dominate the market.

With the additional capacity of nitrile gloves available from glove manufacturers in Malaysia, China, Thailand and Indonesia, the industry is already feeling the pinch in terms of margins, according to Thai.

“We will continue to see strong pressure on the manufacturers’ margins which could potentially reach lower than the competitive level of 11% to 15% going forward,” says Thai.

Comparatively, manufacturing margins of natural rubber are between 9% and 11%.

Supermax’s current capacity mix comprises 60% natural rubber gloves, with the balance consisting of nitrile gloves.

Glut beyond 2013

Currently, Supermax does not see any signs of a serious supply glut for nitrile gloves as demand for gloves continues to absorb capacity even as hygiene levels continue to rise in tandem with living standards in developing countries.

Its current production of nitrile gloves is mostly to cater for current orders while its production capacity for the near-term is largely premised on market demand projections.

The market for nitrile gloves is expected to grow some 20% this year while demand for rubber gloves generally expands by 5% to 15% each year, according to industry players.

Beyond 2013, Thai says that a supply glut for nitrile gloves will be unavoidable. There is one caveat though. Demand for rubber gloves is expected to improve by then.

One contributing factor to that is the price of natural rubber.

The price has eased from the peak of RM10.90 per kg to RM7.20 in November and as of Aug 13, latex prices had fallen to the RM5 level.

It was recently reported that the Malaysian Rubber Export Promotion Council expected the price of this commodity to hover at a lower range for the rest of the year as global economic weaknesses continue to crimp on demand for commodities.

“Supermax is ready to face this nitrile supply glut situation in the future as it comes as we will continue to invest and focus on capturing more market share via wholesale and distribution in the strategic markets where Supermax has long established its distribution facility and infrastructure.

“We anticipate and continue to see that nitrile manufacturing margins will be squeezed from the highs of more than 20% to eventually between 11% and 15% or lower, but we remain comfortable with that,” he says.

Currently, most local manufacturing plants in the industry including Supermax’s are automated.

However, certain manufacturing processes such as the stripping of gloves, stacking, counting and packing still require manual labour.

“This will become history by 2013 as these processes will be automated at Supermax’s plants,” Thai says.

Supermax started its automation in 2010 and a total of RM65.8mil has been budgeted for the entire process.

Effective next year, when the RM900 minimum wage policy takes effect, Supermax will put in place, manufacturing and automation processes that should overcome any labour-related issues.

Distribution headquarters

Supermax’s largest market currently is North America which accounts for about 40% of its sales.

It is premised on this that the company has set up a new 14-acre distribution headquarters at Aurora, Chicago which will enable the group to have additional capacity to accommodate its business growth in the Americas.

Collectively, the Americas make up 55% of Supermax’s current business.

According to a press release by the company, the new headquarters will also consolidate the current two distribution units in the United States under one roof for efficiency.

With the increased capacity, Supermax will be able to carry new product lines to cater for the dental, pharmaceutical, scientific laboratories and medical markets besides having the opportunity to enter new segments like the hospitality and beauty industries.

The headquarters will be constructed in two phases with its first phase expected to be completed by the second quarter ofnext year.

It is envisioned to be an “upscale” green building project whereby the design team is pursuing to secure a LEED Gold Certification from the United States Green Building Council.

Besides the United States, Thai says Supermax is anticipating strong demand growth from the Middle East and Africa as well as Asia where consumption continues to grow in tandem with the population.

Supermax reported net profit of RM30mil for its second quarter ended June 30, up 32% from the RM22.65mil recorded in the same period a year ago due largely to higher operating efficiency.

Compared with the corresponding quarter last year, the glove maker also sold about 18% more rubber gloves.

However, revenue for the period was lower by 2.4% to RM232.10mil due to lower average selling prices of its products, given the fall in raw material prices.

For the first half of its current financial year, its earnings totalled RM57.98mil. Revenue rose a marginal 0.3% to reach RM480.62mil from RM479.29mil last year.

Thai says Supermax is aiming to achieve 20% growth in earnings this financial year amid high volatility of rubber prices, foreign exchange currencies and lower nitrile glove margins.

Source: http://biz.thestar.com.my/news/story.asp?file=/2012/8/18/business/11870759&sec=business

Incoming search terms:

• demand for rubber gloves in india
• thai on demand rubber glove
• 2012 glove demand