KUALA LUMPUR (Jan 3): The Malaysian glove sector is expected to experience a strong demand recovery this year, driven by inventory rebuilding, increased demand from the US due to higher tariffs on Chinese glove makers, and rising average selling prices, according to Kenanga Research, which has maintained its "overweight" stance on the sector.
Kenanga Research projects a 12% rise in global glove demand to 368 billion pieces this year, lifted by improved hygiene awareness and restocking by distributors. This growth is expected to alleviate oversupply pressures faced by the sector.
“Indications are pointing to a strong demand recovery moving into 2025, underpinned by inventory rebuilding from distributors and faster-than-expected industry consolidation. Specifically, there has been an uptick in orders over the past three quarters.
“Glove players under our coverage have seen their ASPs (average selling prices) rising over the past two quarters, potentially implying demand is on the path to a recovery boosted by order replenishment,” the research house said in a research report on Friday.
Rising ASPs and net profit boost
Glove players anticipate gloves' ASPs will increase by US$1 to US$2 per 1,000 pieces to reach US$20 to US$22 due to the uptick in demand, mitigated by the ringgit's appreciation against the US dollar. A US$1 increase in gloves ASP could boost net profit for glove makers by 50% to 70%.
Malaysian glove makers are also poised to gain from higher US tariffs on Chinese rubber gloves, which are set to rise to 50% in 2025 and 100% in 2026. The higher US import tariffs on Chinese gloves, expected to push prices to US$25 per 1,000 pieces, will bolster the competitiveness of Malaysian manufacturers with current ASPs of US$18 to US$21.
"We believe that given the current geopolitical tensions between the US and China, and the tariff hike, American buyers are less likely to source most of their supplies from China," said Kenanga Research.
Positive impact on Malaysia
The net effect is positive for Malaysia as any volume loss in non-US markets can be offset by higher demand from the US. The US historically accounts for 35%-40% of Malaysia's total glove volume, according to Kenanga Research.
The oversupply situation, which has weighed on the sector since the pandemic-driven expansion, is easing as glove makers cut production capacity via the decommissioning of some plants and the exit of new entrants.
Based on the research house's estimates, the demand-supply situation will only start to head towards equilibrium in 2026, when there is virtually no more net new capacity coming onstream while the global demand for gloves continues to rise underpinned by rising hygiene awareness.
Kenanga Research projected the demand for gloves, which is expected to rise by 12% in 2025, will return to its organic growth of 9% thereafter.
Excess capacity is forecast to drop to 109 billion pieces, more than halved from 264 billion pieces in 2023. By 2026, the overcapacity is expected to shrink further, declining by 35% to 72 billion pieces.