What is happening in the Disposable Glove Market
Pretty much everybody who uses disposable gloves knows that they are hard to get these days, and the prices are much higher than they were just last year. Unfortunately, given the current new coronavirus and covid-19 pandemic, supplying is hitting demand. Hard.
I am posting this article to share with our customers a report that our glove supplier Ammex shared with us. This report, updated for August 2020, provides insight into the current supply and demand imbalance in the disposable glove market as a result of the coronavirus pandemic. It covers the economic turmoil, the surge in demand for disposable gloves, the manufacturing constraints that the industry faces, and the outlook for achieving a balance between supply and demand. In short, this report outlines what to expect in the glove marketplace in the next 12 to 18 months.
LIMITED SUPPLY The disposable glove industry is in the midst of dealing with the impacts of the pandemic. The need for gloves, along with other forms of personal protective equipment, is intense. This has caused disposable glove prices to rapidly rise, and in the coming months they are likely to continue to move higher. Glove manufacturers have faced and will continue to face challenges in trying to increase production. Constrained supply and high demand will take a long time to reconcile. Disposable glove markets have historically been relatively stable. Where in the past glove makers may have planned orders and production 3 to 4 months in advance, they are now planning 18 months out and have changed their terms, such as demanding payment upfront. Ninety percent of disposable gloves are produced in Thailand and Malaysia. Neither of those countries has the ability to scale production quickly to meet the demand that exceeds their planned capacity by several times. Major increases in production are costly, require lengthy ramp-up periods, and are just plain risky. When it comes to production challenges, the main factor distinguishing gloves from other PPE such as face masks and gowns is that disposable gloves are much more difficult to produce at scale. Unlike masks, it is not possible to produce gloves in small batches, repurpose factories quickly, or try to make them yourself in your shop or garage. One does not simply flip a switch and increase output; there are many factors involved. First is ensuring a sufficient supply of raw materials. Shortages and inconsistent supply of both natural rubber latex and nitrile butadiene rubber (NBR) have contributed to this year’s deficiency of gloves. Just as nobody planned to produce four to five times as many gloves, nobody planned to produce four to five times as much NBR. Many other chemicals involved in production have been in short supply as well. Second, export and transportation restrictions by some producing countries have caused shipping containers to be stuck in various ports due to quarantines. Disputes over alleged labor abuses have also prevented some gloves from entering the U.S. Third, this spring, movement control orders (MCOs) forced suppliers to shut down temporarily. Malaysia implemented its first MCO in March, which severely restricted the movement and availability of the labor force, and although it has since entered into a conditional MCO that allowed most businesses to reopen, production still lags. Similar to the U.S., Malaysia and Thailand are also monitoring local surges in COVID19 cases and MCOs may resume. Limits on what manufacturers can produce generated a shutdown that led manufacturers to warn that the global glove shortage would only get worse unless they were allowed to operate as needed. Those restrictions have eased somewhat, but the industry lost several months of production time. The limited workforce also brought about shortages of paper and packaging. Further, labor limits caused capacity reductions by as much as 50% at some glove factories. Major manufacturers in Malaysia are implementing a push to increase automation so they can reduce their dependence on human workers, but like any new initiative, it will take time and cost millions.
UNPRECEDENTED DEMAND AND CHALLENGES The reality is that the world needs hundreds of billions of additional gloves. Global consumption was projected to jump by more than 330 billion this year, but it ultimately will be substantially higher than that; demand at that level will carry over well into 2021. The lead time for deliveries of nitrile gloves is now stretched in many cases to 420 days. To spin up production to a scale that will meet those needs is not realistic due to the unique nature of glove manufacturing. To use an example, the demand is also driven by unprecedented awareness given to gloves in this pandemic. Every picture or video from coverage of the pandemic shows multiple images of gloves. Besides the first responders, the images show average citizens wearing gloves—everywhere. Like never before, the mainstream public is more aware of hand hygiene anywhere they go. Most disposable gloves today are made from NBR, a synthetic form of rubber more commonly known as nitrile. As a resource it is challenging to scale quickly, and the glove industry was not prepared for 2020’s sudden surge in demand. The industry is simply not designed to scale quickly: It is extremely fragmented, with thousands of small manufacturers. The biggest glove maker in the world has less than 10% market share. The investment would run into the tens of millions of dollars to increase production by even a small percentage. In attempts to scale production and mitigate supply shortages, there is some hope in hybrid gloves, which blend vinyl and nitrile to create a more affordable synthetic. Some manufacturers are already experimenting with such gloves, although expecting these products to make a big difference in the supply of gloves before 2021 would be unrealistic. The current situation is so unprecedented and volatile that glove experts with 30 to 40 years of experience in the industry have struggled to reconcile the incredible demand. Everyone has been forced to play catch-up since early 2020, when the pandemic first spread outside of Southeast Asia.
Even under normal market conditions, manufacturing capacity across the industry can increase by only 10% to 15% per year. The easiest way to do that is to add production lines. A modern disposable glove line can produce up to 300 million gloves annually, which may sound like a lot. But adding even 1,000 lines would increase the overall yearly capacity by only 20% to 25% and cost multiple billions in infrastructure investment. The shortest lead time to add capacity is 6 to 12 months. Even though the industry has experience with previous epidemics such as SARS, MERS, and Ebola, all came and waned in relatively short order, causing only a sporadic surge in demand. That does not appear to be the case with COVID-19. Even if a manufacturer was to infinitely increase its capabilities today, it could be well into 2021 before glove sellers would have additional inventory to sell once the construction time, shortages of raw materials, challenges in labor, length of the supply chain, and other delays are factored in. It is important to note that manufacturers will likely increase output by producing thinner gloves, say 3 mil instead of 6 mil. Focusing on thinner gloves streamlines operations, but would have only a limited impact on the overall volume. Pivoting toward thinner gloves would also create a scarcity of heavier gloves over the next 12-18 months. There are limited places that have skilled personnel with the expertise to support a major increase in production. Malaysia and Thailand are forced to import a good deal of their workforces before training them extensively. Migration restrictions caused by COVID-19 further complicate matters. While restrictions have been eased as the number of cases has dropped, the Malaysian government recently announced it was suspending the intake of new foreign workers till the end of the year while encouraging companies to hire more Malaysians. But leading glove makers have said that expecting only locals to fill the vacancies was unrealistic, and would reduce Malaysia’s competitiveness. Expecting glove factories to spring up anywhere outside of Southeast Asia is impractical at best. In the U.S., production costs and environmental regulations make production nearly impossible. Even with the relaxed rules of the current Environmental Protection Agency, it is unlikely that permits for such facilities would be approved anywhere near population centers. Critically, gloves are much more regulated compared with face masks and other forms of PPE. Factories require ISO certifications and extensive testing protocols, all of which are expensive and time consuming. Due to added expenses from construction to labor, under average conditions it is safe to assume that most plans to produce gloves in the U.S. at scale would cost 5 to 10 times more and take 3 to 4 times longer than a comparable plan in Asia. Naturally, this makes it a very unattractive investment. To produce gloves at scale, it would require an effort similar to what the U.S. did with nitrile butadiene rubber production during World War II. After the American rubber industry became the largest and most technologically advanced in the world in the 1930s, the loss of access to latex caused by Japanese aggression in Southeast Asia forced the establishment of a synthetic rubber program unmatched before or since. In today’s splintered economy, such a coming together of government, industry, and academe would be highly unlikely, especially considering the uncertainties of the COVID19 pandemic.
FUTURE IMPLICATIONS With all of the volatility described above, the balancing of supply and demand will take time to play out. The market has to absorb the new realities at every step—from manufacturers and the supply chain to the smallest end user. We can’t predict the timing of when demand and supply will come into balance, but we do expect disposable glove prices to keep rising as long as demand remains high. With COVID-19 cases only accelerating, that demand is unlikely to drop anytime soon, at least not in the next 12 to 18 months. Even beyond COVID-19, it is likely that the new awareness of personal hygiene and safety has forever altered demand for gloves and set a new trajectory for worldwide glove consumption. We expect that long-term projections for glove usage across all applications will be revised higher. As a disposable glove company, AMMEX will continue to buy and sell gloves and do everything to accommodate our partners’ needs. We have substantial investments tied up in making sure that we maintain our inventory at high levels. With over 30 years in business, we are taking a long-term view of the impacts of this pandemic on the glove industry. We encourage you to do the same and exercise patience. We will get through this together.
A big Thank-You to Ammex for this useful report and for its continued efforts to help us meet our customers' needs for disposable gloves and other covid-19 related PPE.