Glovemakers unlikely to sell at lower prices

This is after most of them have run down their high inventory levels 

By ANIS HAZIM / Pic by TMR FILE PIX

TOP Glove Corp Bhd expects better average selling prices (ASPs) for its gloves in the upcoming quarter supported by less aggressive pricing competition and lower production. 

The intense competition in the glove market has also led management to scale down its expansion plans. 

Top Glove group ED ASP may have hit an inflection point as glovemakers are unlikely to sell their new glove productions at lower prices after running down their high inventory levels. 

“Some glovemakers have slowed down or stopped production which will help to improve the current imbalance in demand and supply,” Lim said at the virtual result briefing yesterday. 

Notably, he said Top Glove recently increased the natural rubber latex glove prices in March while foreseeing a steep decline for its nitrile gloves mainly due to a higher-than-normal increase in price. 

He added that Top Glove has increased sales of its gloves in the US market which has helped in increasing its production utilisation rates and sales volume. 

Lim said the group will monitor the situation and adjust the current ASPs level with the possible uptrend in prices of raw materials. 

“This may give pressure to some of the other players that are less consequential. We have to continue to improve to ensure we can produce gloves at more efficient costs and go through this challenging period,” he added. 

Top Glove’s net profit for the second quarter ended Feb 28, 2022 (2Q22), fell 97% year-on-year to RM87.55 million while revenue dropped by 72% to RM1.45 billion as raw material prices decreased at a slower pace than ASPs which resulted in margin compression. 

In a statement yesterday, Top Glove stated that the group had to contend with the increases in other operating costs including utility bills, manpower and chemical costs, as well as intensifying competition with the new glove suppliers that caused pricing pressure in light of the successful Covid-19 vaccine rollout globally. 

“The group has anticipated this adjustment and is well prepared for a more challenging period ahead as it transitions towards an ‘old normal’ scenario,” Top Glove said. 

Despite challenges encountered in 2Q22, Top Glove’s sales volume improved compared to 1Q22, following the resumption of regular glove restocking activity by custom- ers as ASPs approached pre-pandemic levels. 

“In light of the current supply situation, the group will remain cautious and scale back on its expansion plans for the interim. 

“The group will monitor the situation closely and stands ready to reinstate expan- sion plans as required when demand eventually picks up,” it noted. 

Top Glove MD Datuk Lee Kim Meow said the company will continue to focus on the quality and efficiency of its products. 

“Improve, innovate, invest in research and development, leverage advanced technology or digitalisation and recruit more good talents, while deepening our commitment to sustainability,” Lee said. 

He believes these key elements together with the group’s good balance sheet will enable Top Glove to navigate the challenges it faces and emerge stronger. 

Top Glove’s share price closed 10.16% or 19 sen lower to RM1.68 yesterday, valuing the group at RM13.79 billion. The share price is at a two-year low and back to pre-Covid-19 pandemic period levels. 

The down trend in its share price continues after Top Glove announced on Tuesday that it has decided to shelve its proposed listing of shares on the Hong Kong Stock Exchange.