Glove companies' earnings set to slip in Q3
KUALA LUMPUR: Glove makers’ earnings are likely to decline in the third quarter (Q3) weighed down by average selling price (ASP) normalisation in Q2 and higher natural gas tariffs, said CIMB Securities Sdn Bhd.
Glove manufacturers are expected to experience a decline in earnings in the third quarter, as reported by CIMB Securities Sdn Bhd. This decline is attributed to a normalization of average selling price (ASP) in the second quarter and increased natural gas tariffs. The ASP dipped to approximately US$22 per 1,000 pieces, down from the June quarter's range of US$25 to US$28.
The higher natural gas tariff of RM59/MMBtu, which will take effect in Q3, is set to be 10–15% higher than the average RM49.9/MMBtu in Q3. Natural gas consumption typically accounts for 10–15% of total glove production costs.
CIMB Securities anticipates a potential rise in ASP by US$1/1,000 pieces due to the recent surge in key input costs, which could bring the effective ASP to US$23. However, this improvement in Q4 earnings is not likely to replicate the peak core earnings from the June quarter, as ASPs have normalized significantly from their peak levels of around US$28/1,000 pieces.
The firm also anticipates that the implementation of a minimum wage increase to RM2,000 from RM1,700, effective June 2027, will negatively impact glove manufacturers' margins due to the industry's labor-intensive nature and reliance on a significant blue-collar workforce. The increase in minimum wages could reduce earnings in the financial years 2027 and 2028 by about four percent and seven percent, respectively.
The global glove industry is expected to remain oversupplied until 2027, driven by newly commissioned facilities in Southeast Asia adding between 10 and 15 billion pieces of annual capacity. Global glove demand growth is estimated to be around three percent in 2026, accelerating to 10 percent in 2027 and seven percent in 2028, in line with the pre-Covid-19 five-year historical average of between 10 percent and 12 percent.
With industry capacity expansion anticipated to outpace demand growth, glove manufacturers are expected to face ongoing pricing pressure amid a still-unfavorable supply-demand environment.
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