PETALING JAYA: Glove manufacturers have been experiencing significant challenges due to an excessive supply in the market, which was evident in their disappointing first quarter (Q1 2023) earnings for the year.
The sector’s report card shows that broadly all glove makers are still deep in the red, although Hartalega surprised observers by successfully narrowing its net loss.
Kenanga Investment Bank Bhd analyst Raymond Choo noted that the Q1 2023 results exhibited a marginal improvement, although it marked the sector’s second consecutive quarterly loss.
“We believe the market is witnessing its first sign of the glove industry transitioning into a rationalisation and consolidation phase amidst the massive industry over-capacity,” he said.
“Players (are taking) the opportunity to shut down older plants or production lines that are no longer efficient and speed up the industry consolidation,” he added.
Specifically, Hartalega Holdings Bhd is decommissioning its Bestari Jaya production facility, and consolidating operations at its Next Generation Integrated Glove Manufacturing Complex in Sepang.
This transition would see its production capacity drop by 30% to 31 billion pieces per annum by the end of 2023.
Top Glove Corporation Bhd is also decommissioning two of its plants with an estimated capacity of 5 billion pieces or 4% of its total installed capacity.
Not to be left out, Supermax Corporation Bhd will also decommission three of its older plants and cut total capacity by three billion pieces per annum.
“Players are likely to continue to face a challenging and competitive business landscape due to elevated costs, subdued average selling price and massive capacity leading to suppressed industry utilisation rate,” said Choo.
Most players have struggled to raise average selling prices, and steep competition from China means any substantial increase could see sales volume fall.
“Nevertheless, we expect the oversupply situation to be less acute and gradually improve following signs of players culling production capacity,” concluded Choo.