Rubber glove shares rise as oil prices fall into a seemingly bottomless pit

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(report updated)

KUALA LUMPUR (April 22): The FBM KLCI closed up 0.16 point at 1,381.89 today after erasing losses with Asian share indices as investors weighed the economic impact of crude oil prices at below US$20 a barrel and as nations contend with the Covid-19 pandemic. Rubber glove manufacturers' share prices rose against such sentiment.

At 5pm, the KLCI closed up at 1,381.89 after falling to its intraday low at 1,359.54.

Across Bursa Malaysia, 5.1 billion shares worth RM2.85 billion were traded. Leading gainers included KLCI-linked rubber glove manufacturers Top Glove Corp Bhd and Hartalega Holdings Bhd.

Top Glove’s share price closed up 35 sen or 5.38% at RM6.85, while Hartalega rose 32 sen or 4.41% to RM7.57, as the Covid-19 pandemic leads to expectation of higher demand for rubber gloves.

Covid-19 has however led to demand destruction in other sectors including crude oil markets, as the outbreak prompted countries to impose movement restrictions to curb the pandemic.

Such crude oil sentiment does not bode well for global share markets. Reuters reported Asian share markets were on the defensive on Wednesday, as the floor fell out from under crude prices, sparking worries about further turmoil in the energy sector, already reeling from the heavy blow from global shutdowns.

It was reported the dizzying dive in oil has turned investors away from stocks to the safety of high-grade bonds, with short-term U.S. Treasuries yields edging down near record low levels.

Across crude oil markets, it was reported that oil prices slumped again on Wednesday, with Brent falling to the lowest since 1999 as the market struggled with a massive crude glut, amid a collapse in demand for everything from gasoline to jet fuel caused by the coronavirus outbreak.

It was reported that Brent crude, which fell 24% in the previous session, touched US$15.98 a barrel, its lowest since June 1999. It was reported Brent was trading down US$2.37, or 12%, at US$16.96 at 0511 GMT. It was reported that West Texas Intermediate (WTI) was down 51 cents or 4.4% at US$11.06 a barrel.

"The falls follow two of the wildest days in the history of oil trading, as worldwide supply looks set to overwhelm demand for months to come and current production cuts fall far short of offsetting that glut. The front-month U.S. contract fell into negative territory for the first time in history on Monday and set a record for the number of contracts traded on Tuesday,” Reuters said.

In Malaysia today, Hong Leong Investment Bank Bhd analyst Sheikh Abdullah wrote in a note that the price action is not entirely reflective of the supply — demand dynamics but rather due to settling mechanism of the WTI contract, compounded further by low open offers for the said contract. 

"We are monitoring the situation as prices for Brent has also started to parallel WTI’s moves in the market. The bottom-line is that this phenomenon spells out quite clearly that there are no takers for oil i.e. demand, in the global markets.

"As prices continue to head south, we reckon Petronas’ commitment to maintain its domestic capex (capital expenditure) could also be in jeopardy. For now, we are keeping our oil price assumption of US$47/bbl for 2020 on the premise of some recovery in demand in 2H20, against the backdrop of the announced production cuts,” Sheikh Abdullah said.

At the time of writing this report, Petronas had not issued a statement in response to Hong Leong’s opinion on Petronas’ capex.

Petronas has however indicated in its Covid-19 response statement that it will continue to drive operational efficiencies and commercial excellence, while maintaining fiscal discipline in facing the immediate impact and anticipated headwinds of the Covid-19 pandemic, as well as the steep drop in oil prices.  

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