dawchok

I got an insight that ASP has truly dropped from the highest $130/kpcs months ago to $70/kpcs as at last week. The sustained export value in Apr21 should be supported by the increased volume sold.

2021-06-04 14:59

dawchok

Besides gloves, do you have any article on other industry ?

2021-06-04 15:06

Ben Tan

dawchok, thank you for your comment.

Could you let me know what the $130 per 1,000 pieces price represents? Is that the price for spot orders?

At present I have focused my writings on macroeconomics, and in terms of industry - on gloves. I am finding very few other suitable investment assets, in particular in Malaysia.

2021-06-04 15:13

CharlesT

Posted by dawchok > Jun 4, 2021 2:59 PM | Report Abuse

I got an insight that ASP has truly dropped from the highest $130/kpcs months ago to $70/kpcs as at last week. The sustained export value in Apr21 should be supported by the increased volume sold.

If so its a sharp plunge of 40%+!!!!!!???????

Unless export vol increase by the same 40%+.....even so might not able to compensate the drops in ASP

How on earth u got the figure???

2021-06-04 15:17

Ben Tan

CharlesT, thank you for your comment.

My assumption is dawchok is referring to peak spot order prices. As explained in my post with analysis of Supermax's quarterly results, this does not affect the big glove companies as they are servicing standard delivery orders mostly, not spot orders. However, this does very likely affect newcomers, which predominantly rely on spot orders at present.

Just to illustrate why a drop of 45% (from $130 to $70) in ASP is impossible:

- The average rubber glove export value for Q1 2021 (if that's the period dawchok is referring to) was slightly below RM6 billion per month. This means the increase in April is by 12%.

- To compensate for a drop in average selling price of 45%, the export volume would have to had increased by 2.1 times, which is obviously impossible.

The only companies that have reported increased production volumes so far have been Top Glove - by 4 billion pieces, which is about 2.5% increase of total volume for Malaysia. Mah Sing, the only one of the newcomers that keep posting weekly updates on its new production, hasn't shipped a single order yet as far as I understand.

2021-06-04 15:37

pjseow

Ben Tan, thanks for your data collection again . The 4.75 % MOM increase in shipment value from March 2021 to April 2021 proved that the ASP is either tapering or a slight increase . The ASP for both Supermx , Kossan and Harta can be estimated from their last qtr revenue and estimated shipment . There are in the range of US 78 to 89 per 1000 pcs . In Supermx last QR briefing , the management clearly told the Analaysts that the ASP for JAN/Feb/ March were US 84.6/87.65/89.2 respectively . This is the normal shipment prices from its contractual agreements . The management also explicitly mentioned that the ASP for this qtr ( April, May June ) will be between US 80 to 110 . It also mentioned that the spot price has came down to US 70 to 80 . The shipment for April could be slightly higher but not a lot because the production shutdowns for both Harta and Supermx were in Feb not March . Topglove shutdown was in DEC last year .

It is very unlikely that the shipment qty grew more than 40 % from March to April to comnpensate for the assumed ASP drop of 40 % drop in April from March.

2021-06-04 16:56

CharlesT

Seems only one direction for glove...Hollanding

2021-06-04 16:59

Ben Tan

dawchok, in this case your information is most certainly wrong, as explained above.

pjseow, thank you for your comment. Note that exports have to double (not merely increase by 40%) to compensate for a 45% drop in ASP (as suggested by dawchok). This is obviously impossible.

2021-06-04 17:10

George Leong

Thanks Ben Tan for the analysis and sharing of info.

2021-06-04 17:52

dawchok

Ben : 6.7 bil is value of Apr, +4.75% comparing to value of March, not comparing to the month with asp 130(monthS ago, plural= many months). Thus 40% or 45% are out of the context.

The sustained export value in Apr21 vs. those of Mar should be supported by the increased volume sold in Apr vs. those of Mar with the asp dropping month after month particularly from Mar to Apr for this context.

2021-06-04 18:20

Ben Tan

dawchok, thank you for the clarification. However, the math doesn't work. No matter how many months ago, volume of exports cannot have increased more than twice by April (or by today, for instance) to justify a difference of 45% in average selling price, because there simply hasn't been that much capacity expansion.

It is possible that $130 has been a momentary spike, for instance at the time Top Glove's factories were closed. That is not ASP though. Over the past several months, ASPs for Supermax and Top Glove, the companies that raised their selling prices the most, have been in the range of $80 to $100, with ASPs of Kossan and Hartalega slightly lower than that and gradually increasing to the March/April level of ~$80.

With all that being said, it is possible that in March/April selling prices across all Malaysian exporters have peaked, at a little over $80 (average), and they will start gradually going down hereon after. It is possible that ASPs in June will be in the range of US$70+.

2021-06-04 21:35

dawchok

Ben : Do not take my info too seriously and sorry for the confusion.

I called up to tease him that he made tonne of profit from this pandemic. He answered that "no lah, the asp has dropped to 70. The earlier highest 130 was great but it had come down."
Then I said " you still make tonne of profit at 70 after factoring the incremental cost of NBR latex."
He said " no lah, when asp at 130, NBR latex was >5000/tonne. Although it has now dropped to ~3000/tonne."
I asked " is 70 a spot price or for normal customer?"
He answered: "normal customer."
I did not ask if 130 was a spot price or for normal customer as I just want to dig info of the latest asp.

2021-06-04 22:16

Ben Tan

dawchok, thank you for the additional details. Anecdotal information is dangerous to use in situations like these. I remember for instance rumours were spread before last quarter results announcement by Top Glove that the results were going to be very bad. Overall, we can trust the actual financial reports of companies, information they provide during post-report briefings, and information from official related bodies (such as MARGMA for instance).

The economics of each of the players in an industry are different. Manufacturing is almost inevitably a size business, so smaller players struggle more in volatile environment, especially with added competition for limited market share and supplies. That would be my read of the story your friend has told you. I trust that the price has spiked to $130 at some point, which is very likely to have been in December when half of Top Glove's factories were closed, but that has been very temporary and overall inconsequential.

2021-06-05 10:49

Brutus

@Ben Tan, thank you for the analysis. Too many just focuses on the ASP without taking into accounts the increased in capacity by all the manufacturers. Two ways to increase revenue/profit, ie higher price or more pcs or better still both!
Guess we do not have to wait for long to see as TG is releasing the QR this coming 9th June. SMX and Harta QR to many was disappointing but Kossan surprises many as with Careplus and Rubberex.

2021-06-05 10:50

Ben Tan

Post removed.Why?

2021-06-05 15:55

Brutus

Ben Tan, the big boys will always be ready to capitalize on the "demand" situation. Just look at TG additional capacity announced recently. I personally do not worry much about Intco (not to say look down on them) but our established big 4 will definitely take some beating to dethrone them.
Case in point, Kossan recently acquired land in Bidor is the same size as Bandar Sunway. With the amount of profits all glove manufacturers are pocketing, they need not worry about insufficient funds. In comparison, land size alone Kossan's land in Bidor is about 6-7x larger than Hartalega's NGC. Best thing is nobody mentioned about this piece of land and everyone thought is build a plant new door approach will do!

2021-06-05 20:38

Supermax2020

No wonder EPF keeps on buying gloves shares like topglove, kossan and harta! ePF already have the data!

2021-06-06 13:51

ks5S

epf going to sell serba and put into glove stock to recover its loss

2021-06-06 15:36

Ben Tan

Brutus, Supermax2020, ks5S, thank you for your comments.

Brutus, a sign of how misinformed the market is, is the fact that these expansions are actually seen as a negative thing. This is the first time I see manufacturing capacity (not raw material production) expansion seen as a negative. It appears that the market thinks literally every business owner investing into medical glove production capacity has no idea what he is doing.

Supermax2020, EPF has been doing that for a while now. Unfortunately, when the price rises just a little bit, they start selling. It is a smart move, because it helps them dampen expectations even as the overall market interest is rather muted. It's a well-executed move to increase their shareholdings of gloves at cheaper price than they should be able to.

2021-06-07 11:54

farisfx54

MR BenTan yang terbaik

2021-06-07 23:11

Foker

Definitely negative

2021-06-09 01:25

Foker

They are starting to project an oversupply of around 40% by 2023.

2021-06-09 01:29

Foker

It will take years to get back to a favourable demand supply balance

2021-06-09 01:30

Foker

Meanwhile they will have to sell substantially below cost to reduce the loss from fixed cost.

2021-06-09 01:31