MALAYSIA: Latex price slump a boost for glove makers

"Both companies will benefit the most following the drop in the price of natural rubber latex,'' OSK Research analyst Jason Yap said.

It was estimated that natural rubber glove production accounted for 75% of the capacity at the country's top two glove makers. Both companies had reported weak earnings in the past few quarters due to high latex prices.

"There will be a boost in sales volume leading to higher earnings in the immediate term as customers may stock up on the belief that the drop is too steep and is unsustainable,'' Yap said.

The price of latex hit a record RM10.90 a kg in April, and had been declining steadily until last week when it fell off a cliff. A sharp 13.5% drop last week to RM6.56 a kg means the price had plunged 40% from its peak.

"We believe the longer term downtrend is likely to be sustained, but probably not at the same intensity as the recent retracement,'' Yap said.

The firm's long-term view is that latex would probably trade at between RM6 and RM7 a kg.

Natural rubber glove manufacturers had been losing customers to synthetic producers like Hartalega Holdings Bhd over the past one year because high latex cost made their product more expensive to make.

Some estimates put a pair of rubber glove as 20% more expensive than synthetics ones.

Top Glove told investors last month that latex accounted for 64% of its production cost when the average price was near RM9 a kg during the quarter ended 31 Aug.

Weaker latex price will enable producers to match prices and win back lost customers.

But the sharp drop in latex price had raised concerns in top rubber producers Thailand, Indonesia and Malaysia. Most of the rubber planters in the region are smallholders and farmers.

Reports from Thailand said the three exporting nations had agreed to set a minimum rubber export price of US$3 a kg and will meet this week to discuss further measures to stem the decline.

Source: "The Sun Daily", Petaling Jaya (Malaysia); 15 Nov 2011

(Syed Rashid Ali, Karachi, Pakistan)