Friday 02 Jun 2023
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This article first appeared in The Edge Malaysia Weekly on November 7, 2022 - November 13, 2022

Nobody knows when the low demand and overcapacity in the glove industry is likely to improve. While the optimists say it will take a few quarters before the industry finds an equilibrium, the naysayers think it will take a few years.

Manufacturers such as Supermax Corp Bhd tend to take the optimistic view. The company, which is sitting on a RM3 billion cash pile, sees the challenging market conditions persisting for several more quarters.

On that score, it has slowed down on its expansion in Malaysia but is proceeding with its new plant in the US. Supermax, which has set aside RM1.3 billion for its Malaysian expansion, had stated in its latest annual report that it would continue with building the factory and other infrastructure locally but hold off on the installation of production lines.

Supermax is going ahead, however, with the US$550 million (RM2.6 billion) expansion of its plants in the US and expects to start production next year.

The company is among the top four glove manufacturers in Malaysia, where it already has a capacity of 26 billion pieces. The expansion would increase its capacity by 22 billion pieces, or 84% of its current capacity.

The new plants in Malaysia were slated to be ready this year but the pandemic disrupted their progress. In hindsight, it has turned out to be a blessing in disguise, as Supermax would otherwise have been saddled with excessive spare capacity in a challenging industry.

Given the capacity glut and softer-than-expected demand for gloves, would it make better sense for cash-rich Supermax to declare bumper dividends and reward shareholders rather than spend the money on capacity expansion in the US?

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