Higher nitrile glove prices possible on costlier crude oil

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KUALA LUMPUR (June 26): Malaysian glove manufacturers may raise synthetic rubber or nitrile glove prices in anticipation of costlier raw materials, according to industry players and analysts.

This is because nitrile is a crude oil by-product. Nitrile, historically, tracked crude oil prices which had recently risen due to political concerns in major producer Iraq.

A glove industry source told theedgemalaysia.com over telephone today that manufacturers might raise nitrile glove prices as provided by a cost pass-through mechanism.

The mechanism allows manufacturers to adjust glove prices higher or lower depending on their cost structures.

"There is a possibility (that nitrile prices will increase)," the source said. But he indicated the decision to raise prices would also hinge on nitrile glove supply-demand dynamics.

Although a historical correlation exists between nitrile and crude oil prices, the trend has been less visible now following nitrile manufacturers increased supply of the material.

As a result, nitrile prices have fallen, along with that of natural rubber. As at June 1 this year, nitrile was traded at US$1.04 (RM3.35) a kg compared to US$2.13 on August 1, 2011, according to industry players.

Bloomberg data showed that Malaysian natural rubber latex prices had declined to RM4.68 a kg currently from a one-year high of RM5.67 seen on September 11, 2013.

Meanwhile, US crude oil futures have risen to RM106.62 from a one-year low of US$91.24 on January 9, 2014.

Earlier, MIDF Amanah Investment Bank Bhd analysts Syed Muhammed Kifni and Khairun Adila Khazali said in a note, a further rise in crude oil prices might increase nitrile prices.

The analysts believed this was an opportune time for glove manufacturers to stock nitrile before prices go up.

They said the rise in crude oil prices had not been reflected in nitrile yet.

They said since 2012, there was an "apparent oversupply" of nitrile, and natural rubber latex, hence, downward price pressure on both raw materials.

"We are reiterating our "positive" stance on the glove sector. We expect the raw material prices to soon increase slightly with the increase in crude oil prices.

"Hence this is an opportunity for glove manufacturers to stock up on cheap raw material and later increase ASPs (average selling price)," they said.

Notable rubber glove manufacturers in Malaysia include Top Glove Corp Bhd,Supermax Corp Bhd, Kossan Rubber Industries Bhd and Hartalega Holdings Bhd.

Collectively, Malaysia is the world's largest rubber glove producer, accounting for more than half of global output.