KUALA LUMPUR: The overall operating environment for local glove makers is showing signs of improvement, with glove buyers’ excess inventories dropping significantly and the price gap between local and Chinese players narrowing, according to Hong Leong Investment Bank (HLIB) Research.
This has resulted in glove manufacturers experiencing an uptick in orders, it said.
“Notably, the manufacturers’ initiative to permanently and temporarily decommission less efficient plants is yielding positive results, leading to improved utilisation rates and lower fixed costs. This, in turn, translates to narrower losses and improved profitability,” the research house said in a note today.
HLIB Research has upgraded its rating for the gloves sector to “neutral” from “underweight” previously. It has also upgraded its rating on Hartalega to “hold” from “sell” while maintaining its “hold” recommendation for Top Glove and Kossan.
On average selling price, it said that after the unsuccessful attempt at a price hike in the first half of 2023, glove makers managed to implement smaller price increases in the year’s second half.
This subsequent price adjustment appears to be more sustainable, supported by several factors, HLIB Research said.
The factors include buyers having significantly drawn down their excess stockpile, support from higher raw material prices, and narrower pricing gap between local and Chinese players, amounting to about US$2-US$3 per 1,000 pieces.
“Despite the current more favourable circumstances, making negotiations for prices increases easier, we believe it remains unlikely for glove makers to pass on the entire cost increase. Instead, price hikes are expected to align with movements in raw material prices,” it added. – BERNAMA
