Global glove prices on descent, but weakening rupee could mitigate impact on local producers

At a time when global commodities prices are on the climb, global medical glove prices are on a reverse path, plunging to half the levels from the 2021 first quarter, denting margins and thereby the profitability of local producers, but the weaker rupee could blunt the full financial impact, according to First Capital Research. 

Average selling price of global medical gloves measured per 1,000 pieces reached a peak and remained around US$ 80 during the first three months of 2021, as the demand soared due to pandemic induced demand from the health sector globally. 

However, as vaccinations gained pace around the world, particularly in the United States (US) and the Europe, the urgency for pre-booking supplies for medical gloves waned while the supply also started normalising when US suspended the ban on exports from Top Glove, the largest disposable rubber glove supplier in the world based in Malaysia with 26 percent market share. Further, the intensifying competition from Chinese manufacturers is also weighing in on the average glove prices. 

As a result, the average selling price of rubber gloves halved to US$ 40 by September putting damper on local manufactures such as Dipped Products PLC which also commands a sizeable global market share in the disposable rubber glove space. 

“The drop in global glove prices is likely to affect the hand protection segment of Hayleys PLC led by Dipped Products PLC, with lower margins”, wrote First Capital Research in a sector report released after observing global price trends. 

The research firm however does not expect this phenomenon to have a significant impact on the profitability of the company and the group as the rupee depreciation could still soften the impact stemming from the lowering prices, at least partially. First Capital Research estimates the rupee to end the year at Rs.218 to 224 to a dollar and further weaken to between Rs.225 to 240 by June 2022.  They forecast the company to record a growth in profitability in the forgoing quarter ended in September 2022, its fiscal second quarter from the same period last year though there could be some decline in the profitability trend on a quarter-on-quarter basis. 

In the three months ended in June, Dipped Products PLC saw its revenues surging by 80 percent to Rs.16.8 billion with the earnings doubling to Rs.1.25 billion from a year ago. September earnings season which is expected to be a mix score card among corporates will kick off in earnest, but the companies with export operations are largely expected to do far better. Despite the weaker rupee boding well on the glove maker, First Capital Research advised investors to remain cautious on further potential decline in average selling prices for rubber glove and the likely impact on the financial performance of Dipped Products and Hayleys in the 2H’22 as hand protection segment accounted for as much as 16 percent to the group earnings before interest and tax. 

“We expect negative impact to hand protection segment stemming from normalising average selling price to have an impact on Hayleys bottomline in the 2H’22”, the research firm added.