- Yesterday, we attended the International Rubber Glove Conference and Exhibition (IRGCE 2014) which was organised by the Malaysian Rubber Glove Manufacturers Association (MARGMA).

- The biennial exhibition, which is on its 7th edition this year, presents a platform for the rubber glove industry players and experts to interact and network with one another, and be updated on the latest developments (i.e. technology and regulations).

- The conference this year featured more than 230 booths, a 77% increase from the 6^th IRGCE held in 2012.

- Besides the 8 major rubber glove players in Malaysia, we were able to meet with participants from the supporting industries such as the raw material suppliers (Synthomer, Nantex Industry), chemical specialists and suppliers (LG Chem), machinery and engineering companies, packaging companies as well as producers of other latex dipped goods (eg. condoms and catheters).

- From our discussions with the nitrile producers, we understand that butadiene, a key component, is under pricing pressure due to an oversupply situation. This had resulted in low nitrile prices of late (~USD1,000/tonne). Natural rubber prices have also been trending downwards, closing at RM4.09/kg wet yesterday.

- While low raw material prices are a boon to the rubber glove manufacturers given that it consists ~50% of their production costs, the manufacturers will likely pass on the savings to their customers through lower ASP. This puts pressure on their sales volumes which will need to grow at a much higher rate to maintain a decent topline growth.

- Further down the production line, we learnt that the Malaysian rubber glove industry may be constrained by capacity limitations at packaging companies. The rapid capacity expansions by the rubber glove players over the past two years have not been matched by that of the packaging companies. This may result in slower sales.

- With regard to the Ebola outbreak, we gather that there has not been any significant uptick in demand although the need for personal protective equipment (PPE) has been highlighted by healthcare workers. Glove consumption is expected to rise by the usual 8%-10% p.a. That said, we are still hopeful for higher demand from Africa (which has a relatively low glove usage) as WHO has anticipated that it will take 6-9 months to stop the ongoing spread of Ebola.

- Our NEUTRAL call on the sector remains. No change to our earnings forecasts and recommendations at this juncture.

Source: AmeSecurities