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An analysis of Malaysian rubber glove industry

  • How big is the international rubber gloves market?
  • Reasons behind the healthy and steady growth
  • Malaysia’s role in the industry
  • Why are companies struggling for stable margins?

 

Rubber gloves are used by several industries, ranging from healthcare to food processing and services, automotive to construction and chemical industries, these are mainly used for protective purposes while performing different tasks. In the past decade, there has been an increase in the use of these gloves primarily for the ageing population, change in healthcare reforms, the emergence of new healthcare threats and clean room manufacturing, which has led to a steady growth in the industry.

According to the Malaysian Rubber Gloves Manufacturers Association (MARGMA) and Malaysian Rubber Export Promotion Council (MREPC), the global demand for rubber gloves is anticipated to rise 287 billion pieces by 2020 from 228 billion pieces in 2017 at a CAGR of 7.79%. Similarly, the global rubber gloves market is expected to reach a total market size of USD 3.714 billion by 2023 from the USD 2.347 billion in 2017 with a CAGR of 7.95%. (Source: Research and Markets).

The worldwide growth in the healthcare industry is one of the key drivers for the rubber gloves industry. A rising consciousness and standard for hygiene, progressively stringent health regulations, prevention of chemical infections, etc. in the healthcare industry are some of the latest major factors contributing for an increased demand for gloves worldwide. 

Rubber gloves can be categorised into two main types with their advantages and disadvantages, which is natural or latex rubber gloves and synthetic or nitrile rubber gloves. Natural or latex rubber gloves are traditional gloves made out of the natural rubber, whereas synthetic gloves (nitrile gloves, vinyl gloves, etc.) are produced from synthetic rubber and are used as an alternative to natural gloves. 

In the last few years, the global demand for synthetic rubber gloves has increased steadily. The principal reason behind this was the latex allergy. Although, latex gloves have excellent fit and feel, these are potentially allergic in nature. For instance, according to American Latex Allergy Association, at least 8% of the healthcare workers and ~1% of general population in the U.S. (~3 million people) were exposed to the latex allergy. Further, mostly the professionals in healthcare and food industry were affected as these primarily use rubber gloves for their work. Hence, the percentage of people vulnerable to the allergy drove the demand for synthetic rubber gloves. Additionally, the US FDA (Food and Drug Administration) recently announced a proposed ban on the powdered medical gloves owing to its harmful side effects. The powdered medical gloves provide ease of wearing due to powder, but instead of benefiting this tended to adversely affect users with allergy.

Malaysia, which is the world leader in the manufacturing of rubber gloves at presently cater to more than 65% of the total global demand and exports around 152 billion pieces internationally (Source: MARGMA, 2018). The country has rich natural rubber resources (3rd largest producer of natural rubber in the world). Moreover, the government’s support for the industry in the form of Entry Point Project of the promotion, which aims to increase Malaysia’s market share in the latex gloves through tax benefits, incentives like investment tax allowance; pioneer status and 100% foreign equity investment allowance are few factors for the growth of the industry in the nation. Further, rubber gloves account for ~85% of Malaysia’s total rubber product exports (Source: MREPC). 

There are companies like Top Glove Corporation Berhad (Top Glove), Hartalega Holdings (Hartalega), Kossan Rubber Industries Bhd (Kossan), Riverstone Holdings Limited (Riverstone), Careplus Group Berhad (Careplus), Supermax Corp., etc. in Malaysia, which have made the nation the biggest supplier of rubber gloves. Top Glove is the biggest rubber glove manufacturer in the world. But in the past few years, the manufacturing companies in Malaysia are struggling to retain their profit margins despite an increase in demand for gloves.

Televisory analysed the top 5 companies; Top Glove, Hartalega, Kossan, Careplus and Riverstone to explore the reasons for the diminishing margins.  

In the last five years, all the 5 companies increased their capacity in order to meet the rising global demand. The firms pushed back capacity expansion plans to bring in capacity at a more gradual pace. This was done for a better tracking of demand growth, avoidance of oversupply situation and price competition. An increase in global demand, especially for synthetic rubber gloves triggered a structural shift in production mix from natural gloves to synthetic rubber gloves. The average production mix for non-latex gloves for all the 5 companies reached ~70% LTM Sept. 2017 from ~45% in 2013.

All these firms reported a growth in their revenues, this was in line with the increased production and sales volume owing to the global demand. However, intense competition among glove players played a significant role in average selling price (ASP). Furthermore, fluctuation and temporary increase in costs impacted earnings on a short-term basis and due to this glove makers practised cost pass-through (a mechanism which often helps to mitigate increased operating costs) to pass increased cost in the form of a periodic adjustment to ASP. The companies tweaked their prices to match with the rising production cost. However, the pass-through lags for a month or two as orders are normally placed three months prior to the delivery. The raw material such as natural rubber or synthetic rubber consumption is a major part of the overall operating cost. The production cost for natural rubber gloves depends upon natural rubber’s prevailing prices in the market and nitrile prices (derivative of crude oil) for manufacturing of synthetic rubber gloves.

Likewise, other crucial factors that contribute to the cost are fuel and labour, each of these contributed ~10% in the overall cost. Significantly, natural gas is used as a fuel in Malaysia and its price is directly dependent on the prevailing prices of natural gas in the local market. The nation’s rubber glove industry is extremely reliant on foreign workers due to the low-cost of labour. In addition, fluctuating natural rubber and natural gas prices, increasing cost of packaging material owing to shortage of recyclable material, weakening US dollar, annual incremental cost relating to wages due to imposition of employee insurance scheme and revision of minimum wage policy by the government are certain inevitable factors which mostly keep margins under pressure for the glove producers. 

The Top Glove Corporation Bhd, which is a global industry leader was in a position to maintain the highest EBITDA margin among the players. In the same way, Hartalega Holdings is the producer of premier nitrile gloves in the world. The examined companies had a difference in their margins due to operational efficiency, automation and other controlling factors.

The firms struggled to keep their EBITDA margins on track despite an increase in sales volume and overall revenue owing to unpredictable macro factors which controlled the cost of production and ultimate selling price. The EBITDA margins in the companies varied over the period of evaluation and the major component was the change in the cost of production. The natural rubber and gas prices directly impacted the margins over the period (2013-15) when prices came down, apart from other factors which were discussed above. However, margins started shrinking from 2016 onwards when prices of natural rubber and gas rose. Hence, as companies do not have a control over these factors, the entities found different ways to minimize the cost and increase the profit margins. Thus, distinct means were used to raise the operational efficiency and automation was vigorously adopted. Further, large companies increased their productivity by raising their production capacity. Lastly, automation will be the next big step to control the rising labour cost, reliance on foreign manpower and to improve the efficiency for steadier margins.