Look past Omicron

As we learn to live from pandemic to endemic, the emergence of new COVID-19 variant, Omicron brought up a short-lived buying interest in the market for glovemakers following the resurgence of infection rate and warnings from health professionals that this super-mutant virus could be more contagious than the Delta variant. The good old days for the hottest traded sector in 2020 are not coming back. What are the underlying potentials that we can look for going forward?

Long term demand

In view of mass rollout of vaccination programmes in major glove consuming countries and alleviated urgency for stocking up high-cost inventories, the ASP trend is now approaching the bottom and sliding slowly towards the pre-COVID-19 level. Positive side? While ASP normalises, raw material prices including natural and nitrile latex are also moving closer to pre-COVID-19 times. Analyst believes that the risk of intensified price war has toned down, at least for the immediate term, given the capacity restrictions and energy crunch that are going on in China. The US Trade Representative has announced the expiry of tariff exemption on China-made examination gloves (HS Code: 4015.19) effective 30 November 2021. This enables the local players to have a slightly more competitive edge in the game.

Several industry analysts projected that demand for gloves will remain buoyant beyond 2021 as the world continues to fight Covid-19. Omicron variant or the prolonged virus evolution cycle likely gives a boost to sales volume rather than ASP. This is in line with the forecasts made by Margma (Malaysian Rubber Glove Manufacturers Association). From 2020 to 2023, higher demand and supply is expected with growth rate averaging between 15-20% per annum compared to pre-COVID-19 of 8-10%. Key drivers include better healthcare and hygiene awareness especially from emerging economies that increase the glove usage per capita as well as wider applications by unconventional consumers for stricter safety practices, like people in airlines, hospitality, retailing, food processing and services, household, electronics clean room, janitorial or mechanical, tattooing procedures, other than the common ones from medical and dental, pharmaceutical and laboratory lines.

More capacities and bigger markets

To tap into this demand-supply gap, one of the stocks that fall under our monitoring list – AT Systematization, recently gets nod to market the nitrile gloves it produced in the US after meeting the Food and Drug Administration’s (FDA) procedural requirements. The FDA 510(k) Medical Product Licence clearance is needed for glove manufacturers who wants to export their products to broaden the international markets. AT started its gloves production in 2020 and the maiden contribution kicked in since the fourth quarter of financial year 2021 (financing year ending 31 March). AT is currently running six lines with an annual capacity of 1.2 billion pieces in its factory in Chemor, Perak. Additional four lines will be commissioned in the same factory soon and begin the commercial run by the fourth quarter of financial year 2022. This will increase the production capacity to two billion pieces per year for US market expansion.

Automation is a plus

Coupled with AT’s background in designing and manufacturing of industrial automation systems and precision engineering solutions, this well-positions AT to benefit from the demand growth of gloves in more timely manner compared to newly setup companies without the readily available technical capabilities. With everyone heading towards smarter ways of doing things and advancing technology applications, we also hope to hear good news from its Fabrication and Automation segment. Looking forward to the potential excitements from both core business segments.

Happy New Year Everyone!