THE Government is unlikely to impose windfall tax on the rubber glove sector in the upcoming Budget 2022 (to be tabled on Oct 29) as the Finance Ministry has acknowledged the positive contribution of the sector to Malaysia’s economy in terms of tax revenue and job opportunities.

According to TA Securities Research, the Big-Four glove makers have together contributed circa-RM1.6 bil in taxes in 2020 while the industry is estimated to have paid about RM2.6 bil in corporate tax.

“We believe that glove manufacturers can better use their additional profit to reinvest and upgrade their ESG (environmental, social and governance) standards in coming years which may be a strong selling point for Malaysian glove manufacturers,” opined analyst Tan Kong Jin in a sector update.

“This would help Malaysian glove manufactures to remain competitive while increasing the Government’s export revenue in the long run.”

However, the research house does not discount the possibility of industry players making another donation to the Government as evident in Budget 2020 with the Big-Four glove makers contributing RM400 mil to the COVID-19 fund.

In another development, TA Securities Research retained its “neutral” outlook on the rubber glove sector on the back of normalisation of average selling price (ASP) and margin by 1H 2022.

The research house noted that the ASP of nitrile glove has declined to US$40-45 per 1,000 pieces of gloves in September from US$45-50/1,000 gloves in August.

Similarly, latex gloves saw their ASP dropped to US$30-35/1,000 pieces in September versus USD35-40/1,000 gloves in August.

“Going into October, we expect the nitrile and latex gloves ASP to be at US$35-40/1,000 pieces and US$25-30/1,000 pieces respectively, representing about 8-12% month-on-month (mom) decline,” projected TA Securities Research.

“Thereafter, we expect the nitrile glove ASP to drop at a slower pace once it touches the US$30/1,000 pieces mark.

“At this level, we believe major customers who have been waiting for glove prices to stabilise to gradually come back to the market.”

Based on the current ASP trend, the research house expects ASP normalisation to happen in 1Q 2022 or early-2Q 2022 which its believes would be higher than the pre-pandemic levels due to higher cost of production emanating from additional cost for SOP (standard operating procedure) compliance and higher nitrile raw material price. – Oct 7, 2021