WITH US President Joe Biden possibly cutting import tariffs on Chinese goods as soon as this week, the decision may further dent prospects of Malaysian glove makers to rebound from their lowest ebb.

This is because if the import tariff on gloves (7.5%) is being removed, average selling price (ASP) is expected to fall further, as Chinese glove makers would have more room to adjust their ASP in order to capture market share in the US, according to Maybank IB Research.

“Price war could escalate further and this reinforces our ‘negative’ stance on the gloves sector,” cautioned analyst Wong Wei Sum in a glove sector update. “We are ‘SELL’ers of Top Glove Corp Bhd, Hartalega Holdings Bhd and Kossan Rubber Industries Bhd.”

Bloomberg and The Wall Street Journal have reported that Biden may announce a roll-back of some US tariffs on Chinese consumer goods as soon as this week to counter accelerating inflation in the US (source: CNN Business).

Being one of the essential items (amid COVID-19 pandemic and rising monkeypox cases) and given the insignificant involvement of US companies in glove manufacturing, Maybank IB Research noted that there is a high chance that there will be a removal of import tariffs on China-made gloves.

“We were told that the Chinese glove makers are currently selling below US$20/1,000 pieces compared to (the pricing of) Malaysian makers of around US$22-US$24/1,000 pieces,” revealed the research house.

Moving forward, Maybank IB Research expects Malaysia’s Big-Four glove makers to endure painful structural change amid the challenging ASP/earnings outlook.

“There is high chance that the cost-plus model that was widely used pre-COVID may no longer be relevant amid stiff competition,” it suggests.

“Losses are likely if the price war is seen to be escalating, we believe. We do not think that this is the time to bottom fish glove stocks just yet and hence, we maintain our ‘negative’ stance on the sector.”

Despite the bleak outlook, there are some upside risks for the sector, namely (i) raw material prices to decline faster than ASP; (ii) demand-supply disequilibrium takes shorter time to re-balance; (iii) higher demand/consumption for gloves from non-healthcare industries post pandemic; (iv) industry consolidation that reduce oversupply risk; and (v) higher-than-expected ASP. – July 6, 2022