Is there any steam left in Glove Manufacturers stocks?

Year 2020 was so special for glove manufacturing counters. We witnessed unprecedented surge in stock prices of medical or surgical glove manufacturing companies –

  • Top Glove’s share price (SGX & KLSE listed) shot up 6-times its pre-COVID19 stock price. Though, after US sanctions on forced labor, it pared most of the gains in its stock price. But this was stock specific affair, not a sector specific affair.
  • Supermax share price (Listed at KLSE) went up almost 4-times its pre-COVID19 price.
  • Sri Trang-Agro’s share price (Thai Company Listed at SGX) shot up 4-times its pre-COVID19 stock price level.

Glove manufacturing counters got thrashed when the news about vaccine effectiveness came out.   But Covid19 is far from over. We have third wave of infection in most of the countries even after vaccination drive is on. The demand for the rubber gloves does not seem to fade away anytime soon.

Let’s try to understand the rubber industry – different variety of medical gloves, Natural rubber Vs synthetic rubber as raw material, its relative usages, its demand pattern, expected trends in the industry and expected ASPs in the next few years.

Natural Rubber (NR) Vs Synthetic Rubber (SR)

Natural Rubber dominated the market Since its invention till 1950. There was an intense market competition between NR and SR during 1950-70.  By 1979, an improved type of SR began to dominate industrial consumption, holding almost 71% of market share. 

But after technological changes, including the development of radial tyres and the increasing use of NR latex products, SR’s share started to drop quite rapidly since then.  SR market share is currently estimated to be just under 60%.

Rubber gloves are of two main types – natural or latex rubber gloves and synthetic or nitrile rubber gloves. Natural or latex rubber gloves are traditional gloves made up of the natural rubber, whereas synthetic gloves (nitrile gloves, vinyl gloves, etc.) are produced from synthetic rubber and are used as an alternative to natural gloves.

Raw Material Cost

Raw material accounts for almost 50% of total manufacturing cost of gloves. The price of raw materials is dependent on natural rubber price and nitrile price for synthetics gloves.

Fuel and labour contribute ~10% each in the overall cost. Natural gas is used as a fuel in Malaysia and its price is directly dependent on the prevailing prices of natural gas in the local market. The rubber glove industry is hugely dependent on foreign workers due to the low-cost of labour. In addition, fluctuating natural rubber and natural gas prices, increasing cost of packaging material owing to shortage of recyclable material, weakening US dollar, annual incremental cost relating to wages due to imposition of employee insurance scheme and revision of minimum wage policy by the government are certain inevitable factors which mostly keep margins under pressure for the glove producers. 

Gloves demand pattern

In the last few years, the global demand for synthetic rubber gloves has surpassed the demand for natural rubber (or latex) gloves. The principal reason behind this was the latex allergy. Although, latex gloves have excellent fit and feel, these are potentially allergic in nature.

According to American Latex Allergy Association, at least 8% of the healthcare workers and 1% of general population in the US were exposed to the latex allergy. Further, mostly the professionals in healthcare and food industry were affected as these primarily use rubber gloves for their work. Hence, the percentage of people vulnerable to the allergy drove the demand for synthetic rubber gloves. Additionally, the US FDA (Food and Drug Administration) recently announced a proposed ban on the powdered medical gloves owing to its harmful side effects. The powdered medical gloves provide ease of wearing due to powder, but instead of benefiting this tended to adversely affect users with allergy.

Global medical gloves industry is dominated by the manufacturers based in Malaysia such as Top Glove and Supermax. These companies account for around 65% of total gloves production across the globe.

Before Pandemic, glove industry was expected to register a CAGR of 8.8% from 2020-2027. But in 2020 alone (thanks to Covid19), revenue topped all the estimates. Revenue of glove manufacturing companies increased by up to 40-50% YoY and Net profit increased by up to 300-400% YoY.

End users

Healthcare and pharmaceuticals industry are the largest end user of rubber gloves.  

Asia pacific is largest user of nitrile rubber.

Future Ahead

Glove demand is going to be robust at least till the end of 2021. But, citing the production capacity expansion plan of major gloves players and ongoing vaccination drive, the ASP of the end product may fall down gradually over next few years.

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Disclaimer

Our content is for informational purpose only. We don’t recommend the stocks by such analysis. You must do your own research before undertaking any investment making decision.

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http://www.sginvestbloggers.com/

Published by Amit

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