KUALA LUMPUR (July 10): Hong Leong Investment Bank (HLIB) research has maintained its “underweight” rating on the glove sector and said the business landscape is expected to remain challenging and competitive throughout the year, as glovemakers continue to face intense market competition and a demand-supply imbalance.

In a sector update on Monday (July 10), the research house said although it expects input costs to potentially reduce, it does not envision glove makers to reap substantial benefits from this, as it sees the savings to be shared with buyers in order to defend market share in this challenging environment.

“Overall, we believe that glove makers will not achieve profitability in the near future , and we project that demand-supply equilibrium will likely only be attained in 2HCY24f or CY25f.

“Therefore, our stance on the sector remains underweight,” it said.

The research house said that moving into 2H23, latex prices are expected to ease due to the end of wintering season, while nitrile butadiene prices will remain depressed due to excess supplies.

“All three glove makers under our coverage have undertaken capacity rationalisation measures like decommissioning of production lines, in an attempt to reduce market supply.

“Top Glove Corp Bhd has decommissioned two plants with combined capacity of five billion pieces per annum (pcs pa) and also temporarily suspended operations in another 16 plants with 35 billion pieces pa.

“This has reduced t heir overall capacity by 40% to 60 billion pieces pa currently.

“Similarly, Hartalega Holdings Bhd will also decommission its Bestari Jaya facility (13 billion pcs pa), effectively reducing its installed capacity by 30% to 31 billion pieces pa.

“As for Kossan Rubber Industries Bhd, it has closed down two plants with cumulative capacity of three billion pieces pa in 2022, and is planning to further remove six billion capacity from its system in 2023.

“We expect Kossan’s capacity will be reduced to 24.5 billion pieces pa, from 33.5 billion pieces pa previously. Beyond merely reducing fixed costs, the decision of glovemakers to decommission manufacturing plants also indicates their expectation of a prolonged recovery in demand,” it said.