Tags: Datuk Seri Stanley Thai | Hartalega Holdings Bhd | Kuan Mun Keng | Low Bok Tek | Supermax Corp Bhd
Written by Chong Jin Hun
Monday, 25 October 2010 11:45
TEFD: How is the company coping with the headwinds in the form of costlier latex and the weakening US dollar?
Hartalega executive director Kuan Mun Keng: Hartalega is primarily focused on nitrile gloves, so we are largely not affected by the impact of rising natural rubber costs. Nitrile material, which is purchased in US dollar, provides a natural hedge to our US dollar-denominated sales. Moreover, improving productivity allows us to provide better pricing support to our customers.
Latexx Partners executive chairman and chief executive Low Bok Tek:
Although not new to the glove industry, the sustained high level of latex prices is still the biggest challenge faced by glovemakers like Latexx. Thus, the company is focusing on the premium products segment that is relatively more resilient, for example the nitrile gloves segment. Through the advancing of in-house nitrile production technology and intensified marketing efforts, a thinner and more cost-effective high quality nitrile glove has been developed and introduced to the market.
The company also strategically positioned itself in the premium natural rubber (NR) gloves segment, with the launching of the first-in-the world NR powder-free gloves with unquantifiable protein level. This premium product range is currently the most effective solution to the threats of protein allergy for glove users.
In summary, we strongly believe that with the company’s ability to pass-on costs to customers, coupled with our strategies to focus on the premium segments in both nitrile and natural rubber, we are able to cope with the temporary headwinds and move on to advance our market presence.
Supermax Corps executive chairman and group managing director Datuk Seri Stanley Thai: Volatility in commodity prices and foreign exchange are not new to us. They are part of our ongoing day-to-day business that we need to monitor closely, especially when the volatility is high. All glove manufacturers adjust their product pricing. In fact, the higher the volatility, the more frequently glove manufacturers and exporters have to adjust glove prices upwards. With the current high volatility, glove makers are adjusting prices at least once or twice a month. We are also seeing that manufacturers are switching more production lines to produce synthetic nitrile gloves since the pace of price increases in nitrile latex is slower.
How has the demand for gloves been?
Kuan: During the H1N1 outbreak, every manufacturer was very bullish as demand was high and supply was tight. Recently, the World Health Organisation announced that H1N1 had moved into the post pandemic stage. However, the impact on Hartalega is reduced because users are still switching to nitrile gloves due to high natural rubber prices. Nitrile gloves are actually cheaper than natural rubber gloves now. In the absence of any health epidemic, demand will still grow due to healthcare reform, population growth and the expansion of the healthcare industry. But we are bracing ourselves for more competition as our peers are looking into or have started producing nitrile gloves.
Low: The demand growth for gloves has remained healthy although the concern for H1N1 has faded. Upon normalising, the demand for gloves still grows at 10% to 12% annually which indicates a remarkable upside for any industry. Over the years, growing hygiene awareness and increased healthcare spending have made gloves a necessity in the healthcare sector, especially, in developed economies, thus making the industry resilient even when economy is slowing down.
Thai: The demand for gloves remains strong particularly in the healthcare industry. I have found demand and consumption to be stable, as evidenced by the outbound sales of gloves from our customers’ distribution warehouses. However, due to the high volatility of foreign exchange and increasing glove prices, the majority of customers are ordering or replenishing their stocks on a just-in-time basis. There are no back orders problems now for regular glove products. We have also seen the delivery lead time reduced from 90 to 120 days at the height of the HIN1 outbreak to 45 to 60 days at present. That means it is now back to normal delivery lead time.
How will the price hike help to sustain the company’s earnings?
Kuan: Hartalega has already increased the prices of rubber gloves in accordance with the advice from The Malaysian Rubber Glove Manufacturers’ Association (Margma) and the rising costs of natural latex. As for nitrile, prices have remained the same over this period. Our earnings are sustainable because customers continue to switch from natural rubber to nitrile gloves.
Low: Latexx has increased its glove prices in accordance with rising raw material costs and the weak US dollar. Latexx has a mechanism to adjust its prices to pass on the higher latex costs and weakening exchange rates of US dollars to the customers, otherwise we would have to bear the cost. The customers understand the situation.
Thai: Supermax has increased glove prices in tandem with the increase in latex prices and the soft US dollar. However, margins will be squeezed due to the time lag in executing the orders. Supermax remains confident of meeting the FY10 profit guidance of at least RM168 million in profit after tax. We have taken into account of the strong ringgit and higher latex prices.
Hartalega executive director Kuan Mun Keng: Hartalega is primarily focused on nitrile gloves, so we are largely not affected by the impact of rising natural rubber costs. Nitrile material, which is purchased in US dollar, provides a natural hedge to our US dollar-denominated sales. Moreover, improving productivity allows us to provide better pricing support to our customers.
Latexx Partners executive chairman and chief executive Low Bok Tek:
Although not new to the glove industry, the sustained high level of latex prices is still the biggest challenge faced by glovemakers like Latexx. Thus, the company is focusing on the premium products segment that is relatively more resilient, for example the nitrile gloves segment. Through the advancing of in-house nitrile production technology and intensified marketing efforts, a thinner and more cost-effective high quality nitrile glove has been developed and introduced to the market.
The company also strategically positioned itself in the premium natural rubber (NR) gloves segment, with the launching of the first-in-the world NR powder-free gloves with unquantifiable protein level. This premium product range is currently the most effective solution to the threats of protein allergy for glove users.
In summary, we strongly believe that with the company’s ability to pass-on costs to customers, coupled with our strategies to focus on the premium segments in both nitrile and natural rubber, we are able to cope with the temporary headwinds and move on to advance our market presence.
Supermax Corps executive chairman and group managing director Datuk Seri Stanley Thai: Volatility in commodity prices and foreign exchange are not new to us. They are part of our ongoing day-to-day business that we need to monitor closely, especially when the volatility is high. All glove manufacturers adjust their product pricing. In fact, the higher the volatility, the more frequently glove manufacturers and exporters have to adjust glove prices upwards. With the current high volatility, glove makers are adjusting prices at least once or twice a month. We are also seeing that manufacturers are switching more production lines to produce synthetic nitrile gloves since the pace of price increases in nitrile latex is slower.
How has the demand for gloves been?
Kuan: During the H1N1 outbreak, every manufacturer was very bullish as demand was high and supply was tight. Recently, the World Health Organisation announced that H1N1 had moved into the post pandemic stage. However, the impact on Hartalega is reduced because users are still switching to nitrile gloves due to high natural rubber prices. Nitrile gloves are actually cheaper than natural rubber gloves now. In the absence of any health epidemic, demand will still grow due to healthcare reform, population growth and the expansion of the healthcare industry. But we are bracing ourselves for more competition as our peers are looking into or have started producing nitrile gloves.
Low: The demand growth for gloves has remained healthy although the concern for H1N1 has faded. Upon normalising, the demand for gloves still grows at 10% to 12% annually which indicates a remarkable upside for any industry. Over the years, growing hygiene awareness and increased healthcare spending have made gloves a necessity in the healthcare sector, especially, in developed economies, thus making the industry resilient even when economy is slowing down.
Thai: The demand for gloves remains strong particularly in the healthcare industry. I have found demand and consumption to be stable, as evidenced by the outbound sales of gloves from our customers’ distribution warehouses. However, due to the high volatility of foreign exchange and increasing glove prices, the majority of customers are ordering or replenishing their stocks on a just-in-time basis. There are no back orders problems now for regular glove products. We have also seen the delivery lead time reduced from 90 to 120 days at the height of the HIN1 outbreak to 45 to 60 days at present. That means it is now back to normal delivery lead time.
How will the price hike help to sustain the company’s earnings?
Kuan: Hartalega has already increased the prices of rubber gloves in accordance with the advice from The Malaysian Rubber Glove Manufacturers’ Association (Margma) and the rising costs of natural latex. As for nitrile, prices have remained the same over this period. Our earnings are sustainable because customers continue to switch from natural rubber to nitrile gloves.
Low: Latexx has increased its glove prices in accordance with rising raw material costs and the weak US dollar. Latexx has a mechanism to adjust its prices to pass on the higher latex costs and weakening exchange rates of US dollars to the customers, otherwise we would have to bear the cost. The customers understand the situation.
Thai: Supermax has increased glove prices in tandem with the increase in latex prices and the soft US dollar. However, margins will be squeezed due to the time lag in executing the orders. Supermax remains confident of meeting the FY10 profit guidance of at least RM168 million in profit after tax. We have taken into account of the strong ringgit and higher latex prices.
This article appeared in The Edge Financial Daily, October 25, 2010.
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