There is a lot of un-substantiated fear that glove supply, based on the announced capacity expansions, will exceed demand from 2021 onwards.  No one has offered any figures, calculations, or rational explanation why this will be so.  A lot of the projections and reports given by analysts are based on pluck-from-the-air estimates and gut feel assumptions. 

In this paper, the writer has diligently adhered to information and figures from authoritative sources, such as the Big Four manufacturers and MARGMA.  And there is no oversupply up to 2023 and possibly beyond that.  Reports of oversupply of gloves, without concrete evidence, is just fear mongering and fake news.

Here are a summary of my findings:

1. Based on 25% increase in global demand for gloves in 2021 and 15% growth post pandemic (which is assumed to be 2022), and assuming capacity expansion of 20% per year, there will still be a shortage of 55 billion gloves till 2023 and possibly beyond
2. If we factor in staggered restocking from 2022 onwards (up to a maximum stock level of 30%), the shortage will be greater amounting to 129 billion gloves in 2023. 
3. The assumption of 20% annual increase in glove production is higher than JP Morgan’s estimate of 13.3%
4. The table below summarises the demand and supply of gloves from 2020 to2023

5. The assumption of 20% growth in glove capacity is based on Top Glove’s stated expansion plans, which is the highest among the Big Four manufacturers
6. If the largest company, Top Glove, with plants in multi countries, can only plan for 20% expansion, it is unlikely that the other established companies can do more
7. It is not just about having the money or technology to build plants.  There are many unavoidable steps and inherent obstacles to capacity expansion:
   1. The lead time, even for an established company to build a new plant, is 1 year or more. 
   2. Getting skilled labour
   3. Getting the large number of workers in a pandemic
   4. Time required to train the new workers
   5. Shortage of the nitrile butadiene raw material
   6. Plant and equipment suppliers would also have capacity constrains
   7. Beside the afore-mentioned hurdles, getting FDA and EN certification and building the sales and distribution network would be additional barriers for new entrants to overcome
8. New entrants are unlikely to contribute to oversupply as there won’t be many such companies owing to the reasons given in the aforementioned item 7.
9. It goes against all logic and sanity to postulate that the established glove manufacturers would shoot themselves in the foot by intentionally creating an oversupply situation
10. Given how widespread the pandemic has become, the likelihood of shortage persisting is greater than the possibility of oversupply.

You can read the complete analysis below if you have the time and wish to delve more deeply into the numbers.

COMPUTATION OF WORLD DEMAND FOR GLOVES

1. According to the Malaysian Rubber Glove Manufacturers Association (MARGMA), the world consumption of gloves in 2019 is about 296 billion pieces.
2. Top Glove, in its Q1FY21 report, projects growth in world glove demand to be 20% in CY2020, 25% in CY2021 and 15% post pandemic, which is assumed to be 2022.  These growth rates, in the opinion of the writer, are reasonable for the following reasons:
   1. The 20% growth rate in world demand for CY2020 must be based on visible figures as we are near the end of the year now
   2. If the growth in world demand in 2020 is 20%, it is not unreasonable to assume that the growth in demand in 2021 will be higher by 5% given a larger infection base in 2020
   3. The average growth rate in sales for the Big Four, pre-pandemic, was already around 13.5%.  Hence the assumed growth rate of 15% post pandemic is reasonable given the heightened consciousness of hand hygiene
3. Restocking of depleted supplies of glove will add to this demand and restocking is assumed to commence in 2021. It is assumed that the level of restocking as a percentage of demand will be 15% in 2021, 20% in 2022 and 30% in 2023. The stock level is assumed to be maintained at 30% of demand.
4. The world demand for gloves without restocking will be 444 billion in 2021, 511 billion in 2022 and 587 billion in 2023
5. With restocking, the world demand for gloves will be 511 billion in 2021, 546 billion in 2022 and 662 billion in 2023.

COMPUTATION OF WORLD PRODUCTION OF GLOVE

1. The expansion of capacities of the Big Four (Top Glove, Hartalega, Supermax, Kossan) are as follows:

2. Between end 2020 and 2022, glove output by the Big Four will increase by 38% or 68 billion pieces.  This gives an annual compounded growth rate of 17.5%.
3. Of the Big Four, TG’s capacity expansion, at 108 billion in CY2021 and 129 billion in CY2022, is the greatest representing a 20% growth in each those years. 

4. Therefore, it is safe to assume that world production of glove will not exceed 20% p.a.
5. The world production of glove in 2020 (which will serve as a base for projection into future years), is calculated based on TG’s claim that its production represents a 26% share of world market. 
6. Top Glove’s (TG) capacity was increased from 73 billion at the beginning of the CY2020 to the present 90 billion. Based on my calculations, TG’s actual output for the year will be around 80 billion pieces.  Therefore, total world production of gloves in CY2020 should be about 308 billion pieces.
7. As demand for gloves in 2020 is estimated at 355 billion, there is a shortage of 47 billion gloves or 13% of demand for the year.  This explains the escalation of ASPs.

Projection of World Glove Production 2020-2023

8. From 2020 to 2023, world production will only add about 224 billion gloves to the market or an increase of 72%. 
9. At 20% annual growth in world production, supply will still not be able to meet demand up to 2023 and possibly beyond, with or without restocking
10. Shortages will be greatest in 2021.  Without restocking, there will be a shortage of 74 billion gloves and with restocking, it will be 141 billion gloves in that year.
11. At the assumed restocking levels, world production output needs to grow by 66% 2021, 48% in 2022 and 49% in 2023
12. Even without restocking, world production output will have to grow by 44% in 2021, 38% in 2022, and 32% in 2023

COCLUSION

1. If the largest company, Top Glove, with plants in multi countries, can only plan for 20% expansion, what is the probability that the other established companies can do more than that? 
2. It is not just about having the money or technology to build plants.  There are many unavoidable steps and inherent obstacles to capacity expansion:
   1. The lead time, even for an established company to build a new plant, is 1 year or more. 
   2. Getting skilled labour
   3. Getting the large number of workers in a pandemic
   4. Time required to train the new workers
   5. Shortage of the nitrile butadiene raw material
   6. Plant and equipment suppliers would also have capacity constrains
   7. Beside the afore-mentioned hurdles, getting FDA and EN certification and building the sales and distribution network would be additional barriers for new entrants to overcome
3. The fact that the other 3 of the Top Four glove makers are only planning for less than 17.5% capacity expansion shows the difficulty of rapid expansion
4. JP Morgan claimed there will be oversupply as they expected glove production capacity to grow by 87% over 5 years.  This translates into an annual compounded growth of only 13.3%.  This study assumes a 20% annual compounded growth and there is no oversupply.
5. A lot of speculations about the oversupply of gloves have come from parties that have insidious motives to see that happen.  New entrants are unlikely to contribute to oversupply as there won’t be many such companies owing to the reasons given in item 2 of this section.  And why would the established players shoot themselves in the foot by intentionally creating an oversupply situation?
6. Given how widespread the pandemic has become, the likelihood of shortage persisting is greater than the possibility of oversupply.