• The proliferation of Mpox has raised global health concerns, prompting questions about whether this will result in increased demand for rubber glove products, similar to the impact seen during the COVID-19 pandemic.

• Mpox, with a basic reproduction number (R0) of 1.0 to 2.0, Mpox spreads more slowly than COVID-19, SARS, and H1N1. Unlike the rapid transmission of COVID-19, Mpox primarily spreads through close contact, making it less contagious than these other outbreaks.

• Unlike previous outbreaks such as SARS, H1N1, and COVID-19 which saw significant growth in rubber glove demand, the Mpox outbreak has not led to a similar increase due to its lower transmission rates and severity resulting in limited impact on the market.

• Besides, the current overcapacity in the rubber glove industry coupled with the characteristics of Mpox, suggests that recent increases in demand are primarily for restocking supplies rather than indicative of sustained growth.

• We upgrade our sector call to NEUTRAL from UNDERWEIGHT, indicating potential recovery for Malaysian glove players due to a possible shift in customer demand towards Malaysian manufacturers, despite the persistent downside risks.

History of Mpox

Mpox, formerly known as monkeypox is a zoonotic viral disease that can be transmitted from animals to humans, caused by the Mpox virus, a member of the Orthopoxvirus family. It started in 2017 in Southern Nigeria and five years later, monkeypox escalated into a global epidemic. This disease primarily affects men in same-sex relationships. The World Health Organization (WHO) subsequently declared it a Public Health Emergency of International Concern (PHEIC) and renamed the disease 'Mpox'. The PHEIC was lifted in May 2023 after cases dropped sharply. Nonetheless, for the second time, the WHO rang its loudest alarm bell about Mpox on 14 August 2024. Since 1 January 2022, cases of Mpox have been reported to WHO from 123 Member States across all 6 WHO regions. As of 30 September 2024, a total of 109 699 laboratory confirmed cases, including 236 deaths according to the WHO.

Type of Mpox

Mpox is caused by two genetic clades of the virus, Clade I and Clade II. Clade I, primarily found in the Democratic Republic of the Congo (DRC), tends to cause more severe illness and has a higher mortality rate compared to Clade II, which generally leads to milder cases. While Clade I is endemic to Central Africa, Clade II, associated with West Africa spreads less easily between humans and results in fewer complications. Both clades however pose significant public health concerns in affected regions.

Symptom Range and Clinical Impact of Mpox

The virus enters the human body through broken skin or via the airways. It then spreads through the blood causing a person to experience flu-like symptoms and develop lesions on the skin. The clinical severity of Mpox can vary significantly. In mild cases, symptoms are typically limited to fever, headache, muscle aches, and a rash that often starts on the face before spreading. These cases generally resolve within 2-4 weeks without the need for substantial medical intervention. Conversely, severe cases can present more extensive complications, including widespread rash, secondary bacterial infections, and respiratory issues. In some instances, encephalitis, an inflammation of the active tissues of the brain caused by an infection or an autoimmune response may occur. Individuals who are immunocompromised, pregnant women, and children are particularly susceptible to severe outcomes.

How Much Will a Disease Spread?

The reproduction number is a crucial metric for understanding how infectious diseases spread, representing the average number of new infections caused by one infected individual. If the reproduction number is above 1, the disease is actively spreading; if below 1, the spread is slowing. This value can fluctuate based on factors such as human interaction, immunity levels, and geographic location, meaning the effective reproduction number (Rt) evolves over time to reflect more realistic conditions within the population. When a disease enters a population with no immunity, it is measured by the basic reproduction number (R0). In comparing the spread of diseases like Mpox, COVID-19, H1N1, and SARS, R0 is the most reliable measure.

Mpox has a relatively low R0, estimated between 1.0 and 2.0, meaning that each infected person may spread the disease to one or two others. It primarily spreads through close contact with infected bodily fluids, lesions, or respiratory droplets, making it less contagious than some respiratory diseases. In contrast, the initial strain of COVID-19 had an R0 between 2.5 and 3.0, but more transmissible variants like Delta and Omicron significantly increased R0 to between 6 and 10, or even higher. COVID-19 spreads quickly through respiratory droplets and aerosols, especially in crowded environments, which contributes to its high transmission rate. H1N1, the 2009 swine flu strain, had an R0 of 1.4 to 1.6, meaning it was moderately transmissible. Like COVID-19, it spread via respiratory droplets, but its lower R0 indicates a slower spread. SARS, with an R0 ranging from 2.0 to 4.0, had a high transmission rate, but effective containment measures and limited asymptomatic spread made it easier to control compared to COVID-19.

In conclusion, COVID-19 particularly with variants like Delta and Omicron exhibited the highest R0 among these diseases, making it the most rapidly spreading pandemic. Besides, SARS and Mpox were having slower transmission rates, posed different levels of risk, with SARS associated with more severe disease. Meanwhile, H1N1 had a lower R0 and was generally less transmissible than both SARS and COVID-19 but its widespread transmission was facilitated by global movement and flu season.

Global Geographical Proliferation of Mpox

As of September 2024, WHO regional data on Mpox cases reveals significant variations across regions. The Americas and the European Region experienced declines, with cases in the Americas decreasing from 632 in August to 427 in September, and in Europe from 285 to 211. In contrast, the African Region saw a notable increase, rising from 1,302 to 1,756 cases. The Western Pacific Region experienced a smaller change, with cases rising to 352, while South-East Asia and the Eastern Mediterranean remained largely stable. In terms of fatalities, the Americas continue to lead in both total cases and deaths, underscoring the region’s ongoing public health challenge.

In terms of glove consumption, per capita usage varies significantly across regions, primarily due to economic factors and health sector demands. Developed regions, particularly North America and Europe, have notably higher per capita consumption due to stringent healthcare and food safety standards. The U.S., for example, is one of the largest consumers of gloves globally, especially in healthcare and food industries, which drive demand. In contrast, glove consumption per capita remains low in emerging markets across Asia and Africa, where healthcare infrastructure and awareness of disposable glove benefits are still developing. To illustrate, Top Glove’s latest sales distribution by region indicates strong demand across diverse markets. Asia leads with 23% of sales, followed by Eastern Europe at 22% and Western Europe at 21%. North America contributes 17%, while Latin America accounts for 10%. Smaller shares come from the Middle East (5%) and Africa (2%), suggesting that demand in Africa remains low despite the increase in Mpox cases.

We are of the view that the low demand can be attributed to several factors including inadequate healthcare infrastructure, limited access to medical supplies, and economic challenges that restrict purchasing capacity. Overall, considering that Mpox cases are not severe and are decreasing in developed regions, we believe a significant spike in demand and panic-driven restocking activities is unlikely to materialize.

Rubber Glove Supply and Demand Dynamics during Disease Outbreaks

Looking into the demand for rubber glove products during various disease outbreaks, it is noteworthy that while outbreaks such as SARS, H1N1, and COVID-19 significantly boosted global demand, where growth rates between 13% and 24% where noted. Nonetheless, the recent Mpox outbreak did not exhibit a similar effect. Our research indicates that despite the heightened awareness and health precautions taken associated with the Mpox outbreak, the global rubber glove market did not experience an immediate surge in demand. This lack of response can be attributed to the prevailing conditions of overcapacity within the industry which has been struggling to align production levels with fluctuating market needs. Furthermore, this phenomenon correlate with the R0 of Mpox which indicates lower transmission rates compared to previous outbreaks ultimately leading to a diminished impact on demand for rubber glove products in the global market.

At the beginning of the SARS outbreak, all of the major glove manufacturers were already listed on Bursa Malaysia, with the exception of Hartalega which went public in 2006. During the SARS outbreak, Kossan outperformed both Supermax and Top Glove, achieving an impressive over 400% YoY growth in net profit compared to 87% YoY for Supermax and 13% for Top Glove. Meanwhile, during the H1N1 outbreak, Hartalega led the glove industry player with a 90% YoY increase in net profit.

The COVID-19 pandemic however was a game-changer for the entire Malaysian rubber glove industry. As the virus spread rapidly and caused global panic due to its severe health impact and high fatality rate, there was a surge in emergency demand for personal protective equipment especially rubber gloves. All the major Malaysian glove manufacturers reported extraordinary financial results driven by this unprecedented demand. To capitalize on the surge, glove companies significantly ramped up their production capacities. Even non-traditional players from other industries entered the glove manufacturing space to ride the wave of demand. Furthermore, Chinese glove manufacturers aggressively expanded their capacity, increasing their global market share from around 10% pre-COVID to more than 20% post-pandemic.

However, as vaccinations were rolled out globally, immunity to COVID-19 began to build across populations. This shift led to a decrease in demand for rubber gloves as the outbreak became more manageable worldwide. As a result, the market experienced overcapacity, causing companies to face losses due to reduced demand and lower average selling prices. Although Mpox emerged in 2022 and was declared a Public Health Emergency of International Concern (PHEIC) twice since May 2023, it has had little impact on the demand for rubber gloves.

In summary, while Mpox can be uncomfortable and potentially severe in some cases especially for high-risk individuals, most people experience a mild to moderate illness and recover fully within a few weeks. Given the lower severity of Mpox, we do not anticipate a spike in demand for rubber gloves, nor a significant impact on the financial performance of glove manufacturers. Despite efforts by rubber glove producers to reduce capacity and address the overcapacity issue, the new outbreak has not triggered a surge in glove demand. The slight increase in recent orders appears to be driven by routine stock replenishment, typically covering about one month's supply, rather than any sustained demand growth.

Upgraded to NEUTRAL for Rubber Glove Sector

On the other development, the announcement by the United States Trade Representative (USTR) in September 2024 to raise tariffs on Chinese medical and surgical gloves from the current 7.5% to 50% in January 2025, with a further increase to 100% by January 2026, is expected to benefit Malaysian rubber glove manufacturers. These new tariffs surpass the initial May 2024 announcement, which proposed raising the tariff to 25% by 2026. The sharp tariff hike aims to maintain US competitiveness in key sectors, protecting against unfair competition from low-cost Chinese imports. We view this development positively, as it presents an opportunity for Malaysian exporters to increase their market share in the US. Once the new tariffs are in place for 2025, we estimate that Chinese glove prices will range around USD25.5/1k pieces, approximately 15-27% higher than the current Malaysian pricing of USD20-22/1k pieces.

Recall that the first US tariff on rubber gloves occurred on 1 September 2019, when the US imposed a 15% tariff on imports of certain rubber gloves from China as part of the trade war between the US and China. This tariff was applied to various categories of goods including medical and non-medical rubber gloves, which were among the thousands of products targeted. However, due to the COVID-19 pandemic and the critical role of rubber gloves in healthcare, there were certain exemptions and tariff exclusions granted for medical-grade gloves to ensure supply for U. healthcare needs. By mid-2020, some of these tariffs were temporarily lifted for certain types of medical gloves though non-medical gloves from China still faced tariffs. The situation reflected the US's efforts to balance trade pressures with the need to maintain essential medical supplies during the pandemic. Given the current situation, we are of the view that it is very likely that new tariffs announcement will take place due to the growing trade war and the oversupply in the market which is impacting the industry. However, we do not rule out the possibility that China may shift its focus to non-US markets to sustain its production levels and mitigate the impact of these tariffs. This is because the Chinese manufacturers are already trying to grow their market share, even if it means selling at lower prices to stay competitive. Signs of potential recovery for Malaysian glove players have led us to upgrade our sector call to NEUTRAL from UNDERWEIGHT reflecting a potential shift in customer demand toward Malaysian manufacturers, despite ongoing downside risks. While challenges such as pricing pressure and oversupply persist, the potential reallocation of orders from other markets presents an opportunity for recovery, which may support the sector's outlook. We have a HOLD call for Top Glove (TP: RM1.14), Kossan (RM2.03) and Hartalega (TP: RM2.60) while Supermax remains NON-RATED.

Source: BIMB Securities Research - 28 Oct 2024