KUALA LUMPUR (Nikkei Markets) - Malaysia's Top Glove Corporation, the world's largest glove maker by capacity, expects sales volume of natural latex gloves and nitrile gloves to decline 1% this year as supplies of vinyl gloves resume, its chairman said.
Still, the company will push ahead with planned capacity expansion despite concerns of a supply overhang in the market, Lim Wee Chai told Nikkei Markets in an interview. About 80% of the planned capacity expansion will come on stream by end of this year, he said.
"We will continue expanding," he said. "If the capacity is not absorbed this year, it would be absorbed next year."
China's push for tougher environmental regulations since 2017 have resulted in tens of thousands of businesses being penalized and closures of many. The crackdown also resulted in a sharp drop in supply of low-margin vinyl gloves that are typically manufactured in China.
For fiscal year ending Aug. 31, Top Glove plans to add 4.6 billion pieces of gloves to its current annual capacity of 60.5 billion units. By 2020, the company aims to raise total production to 80.1 billion pieces per year in a bid to control 30% world market share.
"The global demand for gloves is still healthy, growing at about 10%-15% per year," Lim said.
However, analysts, including Maybank Investment Bank's Lee Yen Ling, have been flagging potential oversupply in the market that may weaken producers' ability to pass on incremental cost to the buyers, pressuring average selling price and margins.
Investors, weighed under such concern, have dumped glove-makers' shares, which have fallen between 13% and 19% so far this year. Further, a recent weakening of the U.S. dollar risks eroding prospects of hefty export earnings.
To cushion a rising input cost arising from costlier rubber and higher minimum wage rule, Top Glove is planning to raise its selling price by 3%-5% as soon as in February, Lim said.
"Normally we will adjust the selling price every two months depending on exchange rate and raw material cost," Lim said. The upcoming price adjustment will be enough to offset the incremental costs as well as the losses in sales volume of nitrile and latex gloves, he said.
He expects natural latex rubber to climb to 4.50 ringgit per kilogram-5 ringgit a kilogram this year.
Bulk latex was trading at 3.94 ringgit per kilogram as compared to last month's average price of 3.77 ringgit per kilogram, according to Malaysian Rubber Board. Year-to-date, the ringgit has climbed 0.45% against the U.S. dollar, while ringgit lost 2.2% against U.S. dollar in 2018.