Malaysian rubber glove sector to gain from US-China trade war

The Malaysian rubber glove industry is expected to be a key potential beneficiary of the US-China trade war, said CGS-CIMB.

The tariff hike on glove exports from China to the US could see a shift in US glove demand to Malaysian glove manufacturers.“We believe the tariff hike will increase the prices of all China glove exports of both nitrile and vinyl to the US.

“Besides resulting in China-made nitrile gloves to be uncompetitive in terms of pricing, this will also narrow the price gap between vinyl and rubber gloves, as the price discount between the two currently stands at 75% to 130%.“This will likely result in more US-based importers choosing rubber gloves over vinyl gloves, given the latter’s lower price competitiveness,” said CGS-CIMB.

As at the first half of 2018, 44% of US glove imports were vinyl gloves (plastic-based).

China is one of the world’s largest exporters of gloves, mainly vinyl, which makes up 80% of total export volume to the US. Vinyl gloves are commonly used in non-medical fields.

As such, there could be potentially higher demand for rubber gloves, which will benefit Malaysian glove makers. Malaysia supplies an estimated 63% of gloves globally.

Additionally, the demand for rubber gloves should mitigate the stiff pricing competition that is currently impacting local glove manufacturers due to growing capacities.

The recent weakening of the ringgit to the US dollar will also further increase the competitiveness of Malaysian glove exports.

CGS-CIMB said back-of-envelope calculations showed that for every 1% that the ringgit weakened, the earnings per share of glove manufacturers would increase by 0.4% to 0.5%, assuming that no forex cost savings are passed on to customers.

The US government recently announced that it will be increasing the tariff rate on imports from China, from 10% to 25%, on an estimated US$200bil worth of annual imports.

The 25% tariff rate could potentially be further expanded to cover up to US$300bil worth of Chinese imports.

“We gather that gloves are among the items that will be affected,” said CGS-CIMB.