ArrowArtboardCreated with Sketch.Title ChevronCrossEye IconFacebook IconIcon FacebookGoogle Plus IconLayer 1InstagramCreated with Sketch.Linkedin IconIcon LinkedinShapeCreated with Sketch.Icon Mail ContactPath LayerIcon MailMenu BurgerIcon Opinion QuotePositive ArrowIcon PrintRSS IconIcon SearchSite TitleTitle ChevronTwitter IconIcon TwitterYoutube Icon
Economy

Malaysian glove makers likely to shrug off gas price hike

KUALA LUMPUR (Nikkei Markets) - Malaysian glove makers are likely to shrug off a recent rise in natural gas price by partly on passing to customers the higher cost that sharply lagged their expectation, analysts said.

The muted government-sanctioned increase of natural gas price - a key input for glove manufacturers - helped limit sharp declines in share prices of top players despite risks of hurting potential earnings.

Gas Malaysia, partly owned by infrastructure company MMC Corp., is raising the average gas tariff by 0.6% to 26.46 ringgit per one million British thermal unit, the company said in an exchange filing. The higher rates, applicable only for the non-power sector, will be effective from July 1 to December 31.

"Based on our sensitivity analysis, a hike of 0.57% will only impact glove players' earnings by less than 1% if it is absorbed fully," said AllianceDBS Research analyst Siti Ruzanna Mohd Faruk, noting that glove manufacturers had earlier braced for an 7.0% increase.

Natural gas in Malaysia is largely regulated under the so-called Gas Cost Pass Through mechanism that calls for a review of prices every six months, helping to shield consumers from volatile fluctuations in global prices.

Natural gas typically accounts for about 10% of the total costs of rubber glove producers in Malaysia, home to the world's largest producers that collectively supply more than half of the global output of natural rubber and synthetic gloves.

Shares of Top Glove Corporation, the world's largest natural rubber glove producer, ended 0.18% higher at 5.67 ringgit after falling as much as 0.9% to 5.61 ringgit in Kuala Lumpur trading while synthetic glove maker Hartalega Holdings shed 1.58% at 6.87 ringgit apiece.

The glove manufacturers may raise selling prices by 0.1% following the gas price hike to partly cushion their earnings from the higher input cost, said TA Securities analyst Wilson Loo.

For Gas Malaysia, which mainly distributes natural gas and liquefied petroleum gas, the tariff revision is expected to "contribute positively" in 2017, the company said. Gas Malaysia is 31%-owned by Malakoff Corp, which in turn is 38% owned by MMC Corp.

Gas Malaysia shares ended 2.7% lower at 2.91 ringgit is while MMC Corp fell 1.3% at 2.37 ringgit.

--Jason Ng

You have {{numberReadArticles}} FREE ARTICLE{{numberReadArticles-plural}} left this month

Subscribe to get unlimited access to all articles.

Get unlimited access
NAR site on phone, device, tablet

You have {{numberReadArticles}} FREE ARTICLE{{numberReadArticles-plural}} left this month

Subscribe to get unlimited access to all articles.

3 months for $9

Get unlimited access
NAR site on phone, device, tablet

Your trial period has expired

You need a subscription to...

See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

See all offers
NAR on print phone, device, and tablet media