Hartalega ‘aligning’ rubber glove expansion project amid oversupply

Kuala Lumpur – Malaysian gloves manufacturer Hartalega Holdings Bhd is slowing down its ‘next generation’ gloves production project due to oversupply and amid weak financial performance over the first six months of 2023 financial year.

“The group has taken a strategic approach to align our NGC 1.5 pipeline expansion project with the prevailing market supply and demand dynamics while monitoring the market development closely,” said Hartalega in its second quarter results, published last month.

Earlier in September, the Malaysian group announced that it did not intend to “commission and push up the lines” because of the oversupply situation.

Launched last year, the €32-million Next Generation Integrated Glove Manufacturing Complex (NGC) 1.5 sits between two NGC1 and NGC2 projects in Sepang, Selangor.

The investment includes the installation of four plants with 48 production lines and a total capacity to produce 19 billion pieces of gloves annually.

The decision to “phase down” the project follows a weak performance by the gloves manufacturer in the first six months of its financial year, started 1 April.

For the quarter ended 30 Sept, the group registered a 71% decrease in revenue to RM584.6 million (€125 million), due mainly to the lower average selling price (ASP) caused by oversupply and “intense market competition”.

In addition, sales volume fell by 27% as compared to the second quarter of pervious year.

As a result of lower revenue, profit before tax has decreased by 96.9% to RM37.3 million, said Hartalega.

Higher energy costs were partially offset by lower raw material costs.

For the six-month period, revenue fell 76% to RM1.43 billion, as a result of “intense market competition, normalising of the ASP as well as the decrease in sales volume”.

Half-year profit before tax fell just under 96% to RM 171.5 million, as revenue fell ‘significantly’.

Results were also impacted by higher operating costs due to the increase in natural gas tariffs and new minimum wage implementation.

On the market outlook, Hartalega said it expected external uncertainties to continue to influence the overall post-pandemic economic recovery.

“Global headwinds persist amid the unresolved geopolitical conflict between Russia and Ukraine… and the worsening global inflation,” it added.

Furthermore, the group noted that the glove sector has experienced rising operating costs due to inflationary pressure of higher energy costs and the introduction of a new minimum wage policy in Malaysia.

At the same time, Hartalega noted that the sector is faced with "a continuous global oversupply situation”, which has resulted in the industry operating at suboptimal utilisation levels.

“The overcapacity from aggressive expansions as well as buyers’ excessive stockpiling during the pandemic have led to market supply-demand imbalances and the ongoing intensified market competition,” it said.

Despite seeing a certain degree of capacity rationalisation during the year, Hartalega said the conundrum facing the sector "was likely to continue for the time being before the market can revert towards an equilibrium level."