RUBBER PRODUCTS BOUNCE TO 'OVERWEIGHT' ON EXPECTED GLOVE DEMAND RECOVERY, OPTIMISTIC OUTLOOK

RHB Investment Bank Bhd (RHB IB) said it "expects a meaningful demand recovery trend" for rubber gloves by the second half of 2024 (2H 2024).

The investment bank noted that recent export data suggested a positive demand recovery trend that aligns with a consistent average selling price performance. 

"Further normalisation in gas tariffs and various cost discipline measures in place could eventually boost profitability in 2024. (However), key downside risks include weaker-than-expected demand, the inability to pass on costs to customers, and higher-than-expected operating costs," it said in a research report, where it upgraded the sector to "overweight" from neutral.

RHB IB said the triggers for the upgrade were Malaysia's monthly glove exports, which had remained on a positive year-on-year (y-o-y) growth trend for two consecutive months following a 2% y-o-y increase in November 2023 (compared to 33% in October 2023).

"Despite export volumes contracting by 25% on a month-on-month (m-o-m) basis, the export value was 1% higher m-o-m in November 2023. 

"Our 2024 industry supply is now estimated at 376 billion pieces, compared to 2023's 373 billion, taking into account an additional one billion in new capacity from Thailand and Hartalega's progressive capacity transition plan," it said.

The investment bank has revised its 2024 demand assumptions to 397 billion pieces from the previous 386 billion pieces, indicating a 7% y-o-y growth, up from 4% growth previously, compared to the pre-Covid-19 five-year average growth of 14%.

"That said, we expect the industry to achieve equilibrium by 2H 2024, as the bulk of inventory stockpiled since 2020-2021 has been gradually consumed and is approaching its usual shelf life of three to five years," it added.