KUALA LUMPUR (April 10): Kenanga Investment Bank Research has maintained its “underweight” rating on the glove sector and said it expects the sector to continue to face a challenging and competitive business landscape ahead, due to elevated costs, subdued average selling price and massive capacity leading to suppressed industry utilisation rate.

In a note on Monday (April 10), the research house said it begs to differ from the view of Malaysian Rubber Glove Manufacturers Association (Margma) that the industry will turn the corner in 2023, as its demand-supply forecast shows that it will take at least another two years of consistent demand growth to fully fill the current excess capacity in the industry.

“We believe the pivot is more likely to happen in 2024 and [we] do not have any top pick for the sector,” it said.

Kenanga projected the demand for gloves to rise by 15% in 2023, which is consistent with Margma’s forecast.

However, it said this will do little to ease the overcapacity situation, as the global glove production capacity will grow another 16% to 595 billlion pieces during the year, as more capacity planned by incumbent and new players during the pandemic years — enticed by super-fat margins that had evaporated — finally come on-line.

“This will result in the excess capacity rising by 22% to 137 billion pieces, from 112 billlion pieces in 2022.

“The expanded overcapacity means low prices and depressed plant utilisation will likely persist in 2023.

“Not helping the already dire situation is the reluctance of customers to commit to sizeable orders and hold substantial stocks, on expectations of further decline in prices,” it said.