The price of latex-in-bulk, currently trading at RM7.50 per kg and reaching new historical highs, is not likely to sustain at these levels.

Rubber futures reached new highs in Tokyo, where it settled at 332.5 yen per kg and 29,335 yuan per tonne in Shanghai on 12 Oct. 2010 following fears that heavy rains in Hainan could have damaged plantations on that island. In Indonesia, rubber prices also surged to a record US$3.85 per kg.

Malaysia's Top Glove Corp Bhd chairman Tan Sri Lim Wee-Chai said there was more than an 80% chance that latex prices would come down as they did in the previous commodity price cycles.

“The fair value of latex is RM5 per kg. The RM7.50 per kg price is temporary and cannot last too long,” he said at a press briefing in Kuala Lumpur.

Top Glove, like other glove manufacturers, have felt the impact of lower margins as latex-in-bulk prices rose by more than 65% compared with a year earlier and the ringgit strengthened against the greenback.

Lim said based on previous price cycle movements, latex prices fell by as much as 50% within six months after peaking.

He said this price cycle was longer than normal due to adverse weather conditions in producer countries over the last six months.

Lim added that currency fluctuations were normal and although the company had hedged against the volatility of the currency markets, some losses would still be incurred due to the different cycles of the payables and receivables.

He said it was more difficult to pass the higher costs to customers due to lower demand for gloves (which stood at 150 billion pieces to the end of the year) compared to during the height of the H1N1 pandemic.

However, Lim said if latex prices were to go up another 10%, the company would adjust glove prices upwards by 5.9% proportionate to the 59% of production costs coming from latex.

He said the company was committed to a dividend payout ratio of 40% although the new financial year (ending 31 Aug 2011) looked more challenging. “We’re confident that demand for gloves will continue to grow at the rate of 10% every year,” Lim said, adding that the company might produce more nitrile gloves (where margins were higher) to stabilise the profit margins.

Sources of growth for the industry included the necessity of using medical gloves for protection, increasing healthcare and hygiene awareness, health regulations, ageing populations and emergence of health threats.

“We’re targeting 10% growth in sales revenue and net profit for the new financial year and targeting to have a 30% market share in the global glove market by the end of this year,” Lim said.

He said the company was speaking to manufacturers in Malaysia, Indonesia and Thailand as part of plans to expand via mergers or acquisitions.

(Syed Rashid Ali, Karachi, Pakistan)