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Focus Malaysia
04-08-2025
- Business
- Focus Malaysia
Glove industry faces long-term margin squeeze as global oversupply persists
THE White House said that Malaysia's exports to the US will be subject to a 19% tariff. Meanwhile, all goods that are considered to have been transshipped to avoid applicable duties will be subject to 40% tariff. To recap, the estimated annual consumption of medical gloves in the US is approximately 113 bil to 132 bil gloves in 2025, accounting for 30-35% of global glove demand. 'Based on our channel checks, Malaysia's estimated market share of medical gloves in the US has increased to approximately 60% in the first half of 2025 (1H25), compared to 44% in Dec-24,' said TA Securities. This is driven by the US tariffs on Chinese-made medical gloves. For glove manufacturers under our coverage, Hartalega's exposure to the US market is the highest at 57%, followed by Kossan (52%), Supermax (28%) and Top Glove (26%). We are mildly negative on the latest tariff updates as Malaysia's pricing advantage has reduced significantly against other neighbouring Southeast Asian countries. Currently, Thailand, Indonesia and Cambodia match Malaysia rate at 19%, while Vietnam is subject to a 20% duty. On the flip side, we expect Malaysia's market share to remain at 60% in 2025 as the tariff rates for competing nations are very similar. However, we expect customers to continue to push back in terms of cost sharing as oversupply remains. Currently, Malaysia companies' utilisation rates are still well below the optimum levels. For instance, Hartalega is running at 69% while Top Glove is at 61%, based on the latest quarterly numbers. Besides that, big China glove manufacturers like Intco and BlueSail will continue to expand into Vietnam, Indonesia and Cambodia, which will result in a higher supply. We note that Intco's Vietnam pricing is expected to be at least 15% higher than their Chinese manufacturing plants. All in all, we believe the trade uncertainty is not over yet as tariff rates/negotiations between China and US are on-going. We would not discount the possibility of further target price cut for stocks under coverage if China is able to get a good tariff deal. Note that China is Malaysia's largest competitor in the glove industry. Maintain our Underweight stance on the glove sector as the global oversupply is expected to persist for at least the next three years amid increasing competition from Thailand, Indonesia and Vietnam. We believe that the margins for the glove industry would not revert to pre-pandemic for the foreseeable future. Furthermore, Malaysian glove players are likely to continue losing market share in the non-US markets to the Chinese manufacturers. —Aug 4, 2025 Main image: The Star
Focus Malaysia
21-07-2025
- Business
- Focus Malaysia
Glove sector plunges down to 59% amid weak demand, tariff fears
Glove makers under Hong Leong Investment Bank (HLIB)'s coverage have declined significantly in the first half of 2025 (1H2025), with share prices down between -47% to -59%. The sector was first weighed down by growing investor risk aversion towards export-oriented sectors in early-2025 in view of the potential unfavourable reciprocal tariffs to be imposed on Malaysia imports by US President Trump post his inauguration. Sentiment was further dampened by earnings disappointments from Hartalega and Kossan in Feb 2025, which missed both our and consensus estimates. This was accompanied by a weak forward guidance from Hartalega, which flagged the possibility of returning to losses in upcoming quarters and raised concerns over Chinese peers' expansion into Southeast Asia (SEA). 'Based on our checks, sales orders for generic medical examination rubber gloves remain subdued since Feb 2025, with the US replenishment cycle guidance continuing to be pushed back,' said HLIB. According to the glove makers, the softness was primarily attributed to US distributors still sitting on the front-loaded inventories, while ex-US markets are facing fierce competition from Chinese players. We believe that the muted US demand faced by Malaysian manufacturers may also be linked to transhipment activities by Chinese peers, who rerouted shipments through Thailand, Indonesia, and Vietnam, before exporting to the US. This is evidenced by the rising market share and imported customs values from these countries, even as total US customs values for imported medical and surgical rubber gloves during March-April 2025 remained comparable to the front-loading period in October-November 2024. For pricing, glove makers have indicated the average selling point (ASP) for generic medical examination rubber gloves will remain in a downtrend due to lower raw material prices and ongoing fierce competition domestically and regionally. Based on our channel checks, there will be about 5-8 bil pcs/annum coming online in Vietnam and c.5bn pcs/annum in Indonesia by end-2025. In addition, we estimated that Intco will add 10 bil pcs/annum from China itself in 2025. On a positive note, there remains potential for a gradual demand shift among US buyers from vinyl gloves to nitrile rubber gloves should the ongoing 90-day tariff negotiations between the US and China end unfavourably. This substitution effect, estimated at an additional 28-38 bil pcs/annum, could help absorb the incoming supply from Intco's expanded capacity, thereby supporting the path toward restoring supply-demand equilibrium by 2026, based on our view. —July 21, 2025 Main image: Reuters
BusinessToday
13-05-2025
- Business
- BusinessToday
Glove Sector Recovery Dashed After US-China Tariff Pause
Hong Leong Investment Bank Bhd (HLIB) Research has downgraded the glove sector to NEUTRAL from Overweight, citing rising uncertainty in the global supply-demand balance following tariff adjustments between the United States and China. The research house maintained a BUY call on Kossan with a lower target price of RM2.30, kept HOLD on Hartalega at RM2.16 and downgraded Top Glove to SELL with a revised target price of RM0.76. HLIB said the recent agreement between the US and China to temporarily reduce tariffs for 90 days from 14 May 2025 could disrupt the ongoing demand recovery for nitrile gloves. The tariff on most Chinese imports, including medical and surgical rubber gloves and vinyl gloves, will be lowered from 145% to 30%. This could weaken the shift from vinyl to nitrile gloves which had supported Malaysian players in absorbing excess supply. Despite the tariff reduction, Chinese nitrile gloves remain less cost-competitive than Malaysian and Thai alternatives. The estimated landed price of Chinese nitrile gloves in the US is expected to drop to US$27 per 1,000 pieces, still above Malaysia's US$17.6 to US$18.7 range. Vinyl gloves from China, however, will see a sharper drop in landed prices to US$11.7 to US$13 per 1,000 pieces, making them significantly more competitive. HLIB also flagged structural concerns from China's largest glove maker, Intco Medical. Intco recorded a core profit of RMB1.08 billion in 2024 and increased its production capacity by 8 billion pieces per year. Its capex on glove manufacturing rose to 70% of total growth capex, backed by a strong net cash position of RMB5.8 billion or RM3.6 billion. These developments signal that Intco is likely to continue expanding despite earlier expectations of a more conservative approach due to geopolitical risks. The analysts added that Intco has also gained a competitive edge through automation. Its operations reportedly use 50% less labour than Hartalega, one of Malaysia's most efficient producers. With labour costs accounting for up to 15% of cost of goods sold for Malaysian glove makers, this gives Intco an estimated cost advantage of US$1 to US$1.7 per 1,000 pieces even before accounting for lower costs in Southeast Asian countries like Vietnam and Indonesia. While there remains some hope for Malaysian players if the tariff negotiations between the US and China end unfavourably, HLIB noted that Hartalega has indicated the market may only reach equilibrium beyond 2026. A potential shift in demand from vinyl to nitrile gloves could support this recovery, but the situation remains fluid. Among the stocks under its coverage, HLIB continues to favour Kossan for its customised product strategy, strong automation and healthy balance sheet with RM1.6 billion in net cash. Meanwhile, the downgrade on Top Glove follows a recent share price rally with analysts adjusting the valuation multiple to reflect the rising risks. Related
