The International Rubber Study Group predicts a fourth consecutive year of protective glove surplus as world production outpaces demand by more than 241k tons in 2014. In the first half of 2014 alone, material prices have been traditionally stronger due to the effects of the wintering season, discussed in a previous article I’ve written here. Consequently, we expect raw material prices of both nitrile and latex to remain subdued for the foreseeable future.
External Factors Affecting Glove Production and Pricing
Glove manufacturers will continue to face challenges from a tough operating environment. Strong headwinds include:
Increased Competition – Many glove manufacturers (notably Hartalenga, Supermax, Top Glove and Kossan) have announced expansion plans and will continue to add capacity over the next few years, predominantly for nitrile.
In addition, Malaysia is the largest supplier of US synthetic rubber gloves. According to CIMB, Malaysia’s top four glove manufacturers will increase production capacity by a 14.3% compounded annual growth rate (CAGR) over the next four years in an attempt to preserve/gain market share.
Natural Gas Tariff Revision – Although natural gas makes up roughly 6% of the cost base of rubber gloves, the natural gas tariff revision will increase approximately 18%. The net effect of this tariff increases production costs around 1.1% (18% x 6%).
Currency Ex – The Malaysian Ringgit currency (MYR) has recently strengthened against the USD.
Fracking - Due to the discovery of shale oil and the attendant increase in fracking, nitrile prices could increase. Nitrile rubber is composed of Butadiene and Acrylonitrile. Butadiene is produced mainly by naphtha-based crackers. According to IHS Chemical World Analysis (HIS), net ethylene capacity rose by 4.3m metric tons in 2013. With sufficient butadiene capacity available, it appears that butadiene pricing will remain soft near-term.
That said, increased shale oil fracking has made the cheaper ethane feedstock more readily available which will squeeze out the naphtha-based producers. This in turn may lead to the reduction of butadiene production.
Future Concerns – The continued appreciation of the Malaysian Ringgit against the U.S. Dollar, a possible flu pandemic and a pivot from nitrile back to natural rubber gloves all could affect the glove pricing market in the near future.