The number of companies to be reduced to 10 from 40 now
By Hanim Adnan
THE highly competitive rubber gloves industry in Malaysia is set for consolidation following a trend in the region for such a move, particularly in Indonesia and Thailand.
Industry observers contacted by StarBiz believe that the number of players would be reduced to between 10 and 15 strong companies in Malaysia from 40 currently.
They concur that manufacturers with capacity of less than one billion gloves per year would either close down or be acquired by the larger and stronger players.
Smaller manufacturers are facing stiff competition and higher operational costs given the volatile latex prices over the past two years, which had surged by almost 30%.
Lim Kuang SiaIn the first six months of this year, latex prices were traded within the RM3.70 to RM5.90 per kg range. Last year, the average latex price was RM5.50 per kg from RM3.30 in 2005.
“There will be more mergers and acquisitions (M&As) within the industry this year. Even after the last consolidation in the mid-2000, there are many smaller players in the region that are willing to sell their businesses to cut losses,” said a prominent industry player.
Malaysian Rubber Glove Manufacturers' Association said local rubber glove makers registered with the association has been reduced to about 40 members from 50 a year ago.
The boom in the local rubber glove industry started in the early 1990s with over 350 manufacturers in operation after the world was spooked by the outbreak of the Acquired Immune Deficiency Syndrome in the late 1980s.
The number of players had been reduced to 130 in the mid-1990s. The industry consolidated further after the Asian financial crisis in mid-1997 to 1998.
To-date, three of the world's largest rubber glove manufacturers are home-grown, namely Top Glove Corp Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd.
Supermax group managing director Datuk Seri Stanley Thai told StarBiz that the conditions in the market would remain competitive despite the overall bullish outlook for the rubber glove industry.
“The survivors will continue to benefit from the increase in the demand for rubber gloves,” he added.
Despite the shrinking number of players in Malaysia and regionally, analysts forecast that the global demand for rubber gloves would register growth of about 10% to 12% annually.
Stanley ThaiThe global demand for rubber gloves this year is estimated at 120 billion pieces, which is a far cry from the 12 billion pieces per annum in 1989.
Malaysia is the world's largest rubber glove producer supplying about 60% to the global market, followed by Thailand 25%, Indonesia 10% and others 5%.
Thai said: “Glove prices are determined by the supply and demand factor, volatility in latex concentrate prices as well as the fluctuation of the ringgit against the US dollar.”
On M&As, Thai said: “We are reaping the fruit of our labour and hard work on M&As.”
He said the group took a big leap in 2005 by acquiring two listed glove companies - APL Industries Bhd and Seal Polymer Industries Bhd - and that had helped to transform Supermax into a stronger and earnings accretive company.
Supermax is believed to be the first company which started the industry's M&As in 2003 through its acquisition of a US-based company operating in Malacca.
Thai noted that competition was “not so much from the overseas players but rather from the domestic players.”
He claims that low quality products and massive adulteration of NR latex glove formulation churned out by mass players was a major concern to the industry.
“This will tarnish the reputation of Made-In-Malaysia rubber gloves in the global market,” Thai added.
Kossan Rubber Industries Bhd managing director Lim Kuang Sia concur that more M&As would be in the offing within the industry both in Malaysia and regionally.
“We are looking at M&As as our new growth strategy. We know of at least two small players in Malaysia as well as some in Thailand and Indonesia that are preparing to exit,” he said.
Despite the consolidation, Lim said local glove manufacturers would continue to have a competitive edge and advantage over their regional counterparts in Thailand and Indonesia.
Rubber gloves undergoing inspection in a factory in Sungei BulohMalaysia has managed to gain competitive advantage due to greater labour productivity.
Each worker in the rubber gloves industry in Malaysia is estimated to be nearly three times more productive compared to Thailand and twice to Indonesian workers.
In addition, proximity to ports and raw material - latex - also translate into lower transportation costs compared to the neighbouring countries.
Malaysia also still has lower energy costs at 23.8 sen per kilowatt (kWh).
On the impact of the ringgit strengthening against the US dollar, Lim said: “Malaysian rubber glove makers must view the strengthening of ringgit in comparison to the baht since Thai glove makers are the major competitors for Malaysia.”
While the Malaysian ringgit has appreciated by 9.5% since end-2005, baht has appreciated by a stronger 21.1%.
On a relative basis, he said Malaysian rubber glove makers would remain competitive.
Singapore-based Riverstone Holdings Ltd executive chairman and chief executive officer Wong Tek Son said: “We believe a number of smaller manufacturers are prepared to exit the business due to tough competition. Latex examination glove manufacturers depend on volume to sustain.”
The company would not compete in the standard examination glove market as it specialises in the high-tech clean room glove business.
“We are looking to acquire high-quality glove manufacturers. We do not intend to compete in the volume game but rather in value added glove that can provide the competitive edge,” Wong said.
He said competitions would be among the local players and not abroad. “Every manufacturer is facing the same problem, therefore it is a fair platform,” he said.
Source : http://biz.thestar.com.my/news/story.asp?file=/2007/6/25/business/18112938&sec=business
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