THE prospects of the rubber products sector remain bleak, in our view, due to the unfavourable operating environment caused by a longer-than-expected period of inventory consolidation.
That said, competition remains intense in non-US markets due to the hostile pricing strategy adopted by Chinese manufacturers.
“We also expect the commissioning of new plants in Indonesia and Vietnam to pose a threat to Malaysia’s rubber product sales to the US by as early as Nov 2025,” said RHB.
According to the Department of Statistics Malaysia, the country’s glove exports saw month-on-month (MoM) declines of 22% and 6% in April and May.
This suggests that customer restocking activities remain sluggish as the industry experiences a longer-than-expected gestation period following the front-loading that occurred in quarter four 2024 (4Q24).
Continued weakness of the USD against the MYR has also further eroded glovemakers’ profitability, with the USD depreciating by 3% quarter-on-quarter (QoQ) and 5.4% year-to-date ( YTD)as of June.
The pricing power of Malaysian glove manufacturers has diminished since the entry of Chinese manufacturers, based on our observation.
We understand that cost pass-through is now more challenging than during the pre-COVID-19 period, as glovemakers are only able to pass on 50% of any cost increase to customers vs a full cost passthrough previously.
With no signs of competition easing, we expect glovemakers’ profitability to remain under pressure in the near future.
Mandatory EPF contribution for foreign labour is set to kick off by October. We expect this to raise glovemakers’ cost of production by 0.8-1% (USD0.15-0.20 per thousand pieces).
Meanwhile, the expanded sales & service tax (SST) of 5% applicable to imported natural rubber latex and nitrile butadiene rubber (NBR) latex is expected to raise production costs by USD0.25-0.30 (1.3-1.5%).
This confluence of factors come at a time when the industry is already grappling with intense competition and limited ability to pass through rising costs to customers.
Sector valuation looks attractive, hovering at 0.9x P/B, at 1.2SD below its historical average of 1.2x. However, given the lack of near-term re-rating catalysts, we would not recommend investors to accumulate at this level.
As the risk of earnings disappointment in the upcoming August reporting period is high, we think the share price could undergo another round of corrections.
The last time the sector was traded at such levels was during 1Q23, where the industry’s profit hit a trough level during a period of consolidation.
Persistent challenges in cost pass-through, coupled with a rising operating cost environment and a weaker USD are expected to weigh on glovemakers’ profitability moving forward.
We think cost pass-through will remain challenging, as Malaysia’s blended ASPs have hovered between USD19 and USD22 in 1H25, largely unchanged from 4Q24’s level.
Despite having a competitive edge over Chinese manufacturers – both before and after the announcement of the US reciprocal tariffs – Malaysian glovemakers have been unable to leverage this advantage to raise ASPs. In our view, several factors are at play: i)
The pricing formula for gloves primarily comprises raw material prices and FX movements, which means that any price adjustment must be substantiated by those elements (tariff advantages over competitors are not factored in) and ii) customers remain highly price-sensitive, particularly as they continue to manage elevated inventory levels that have yet to be consumed.
Natural latex prices last traded at USD1.40 per kg in June vs its average price of USD1.44 per kg in May (-3%).
Moving forward, natural latex prices are expected to normalise, thanks to stable supply post the winter season in Thailand (a major latex producing country).
Meanwhile, acrylonitrile prices eased 3% MoM in June, averaging at USD1.15 per kg from USD1.18 in May.
Moving forward, nitrile prices are expected to ease further due to uneven demand from downstream industries as well as the easing of feedstock prices (ie propylene).
The natural gas tariff also spiked 6% MoM in June, averaging at USD3.67 per mmBtu in conjunction with the surge in crude oil prices. Natural gas prices will remain elevated, in our view, primarily driven by the demand-supply mismatch, as supply remains tight.
Given the intensifying competition expected in late 4Q25, we hold the view that investor sentiment in the glove industry will remain weak throughout 2H25.
In addition, the persistent challenges in cost pass-through, coupled with a rising operating cost environment – due to factors such as the expanded SST and mandatory EPF contribution for foreign workers – and a weakening USD are expected to weigh on glovemakers’ profitability moving forward.—July 16, 2025
Main image: The Star
