CEO Morning Brief

US Tariff Hike on Chinese Products May Augur Well for Malaysian Glovemakers

edgeinvest
Publish date: Wed, 15 May 2024, 10:25 AM
edgeinvest
0 22,950
TheEdge CEO Morning Brief

KUALA LUMPUR (May 14): Malaysian rubber glove manufacturers, which have suffered from lower average selling prices caused by intensive competition, may be able to export more to the US as its president Joe Biden raises the tariffs on Chinese rubber medical and surgical gloves from 7.5% to 25% in 2026, among others.

With the tariff hike, Chinese gloves will be more expensive in about two years compared to now.

While Malaysia has some of the world’s largest glovemakers, their pricing power has been diminishing due to competition from Chinese players who make cheaper gloves, hurting the margins of Malaysian glove manufacturers.

Consequently the Malaysian glove industry has been operating at a low utilisation rate below 50% due to an enduring oversupply of gloves, while the overall sales volume has declined year-on-year. In contrast, Chinese glove players are still running at near full capacity, according to a note by PublicInvest Research in February.

Based on the research firm's channel checks, Chinese players are currently selling about US$2 (RM9.47) per 1,000 pieces cheaper than their Malaysian counterparts, pricing their products at US$16-US$18 per 1,000 pieces.

In September 2021, the US lifted a year-long ban imposed on imports from Top Glove Corp Bhd (KL:TOPGLOV) for alleged forced labour, after a thorough review of evidence that showed the company had addressed all indicators of forced labour.

The US is a major export market for Top Glove, accounting for 25% of its sales volume.

Supermax Corp Bhd (KL:SUPERMX) was also hit with a similar import ban in the US in 2021 but was later lifted in 2023, following the "successful remediation of forced labour indicators".

The US historically contributes around 20% to 30% of its earnings.

Supermax has set aside a budget of US$350 million (RM1.7 billion) for the first phase of its expansion to set up a plant in the US. Installation of machinery is expected to start this year when civil and structural works are completed.

Supermax’s US expansion is on the grounds that there would be increasing barriers to entry and higher import duties imposed in the future. Hence, domestic manufacturers would have an edge in the US against Chinese competitors.

With the announcement on the tariff hikes on Chinese imports, the big investment by Supermax may well be worth it after all.

Meanwhile, Hartalega Holdings Bhd (KL:HARTA) commands about 18% of the market share in the US for their nitrile glove industry, according to the Malaysia External Trade Development Corp (Matrade). The company exports 100% of its products internationally, including the Americas, Europe, the Asia-Pacific, Africa, and the Middle East.

Source: TheEdge - 15 May 2024

Related Stocks
Discussions
Be the first to like this. Showing 1 of 1 comments

stevenckheng

KUALA LUMPUR (May 14): Malaysian rubber glove manufacturers, which have suffered from lower average selling prices caused by intensive competition, may be able to export more to the US as its president Joe Biden raises the tariffs on Chinese rubber medical and surgical gloves from 7.5% to 25% in 2026, among others.

With the tariff hike, Chinese gloves will be more expensive in about two years compared to now.


i dont get the point there raise gradually or after 2 years ?

1 month ago

Post a Comment