This sector could benefit from the latest round of proposed US tariffs

Malaysia ringgit notesMalaysia ringgit notes

Malaysia’s rubber glove makers could benefit from the latest round of proposed U.S. tariffs against China, Daiwa said in a note this week.

U.S. President Trump took his trade war up a notch late on Tuesday U.S. time, identifying a list of US$200 billion in Chinese products to impose tariffs on in retaliation for China’s retaliation against his initial round of tariffs on US$34 million in Chinese products. The fresh round of tariffs won’t be imposed until after a public comment period.

Daiwa noted that rubber/plastic gloves are on the list of Chinese goods on which the U.S. wants to impose a 10 percent tariff, with China the second largest medical glove exporter to the U.S., with around 28 percent market share. The U.S. consumes around 30-35 percent of the global production of medical gloves, it noted.

“The 10 percent tariff on medical gloves (rubber/synthetic and plastic) will certainly hamper China manufacturers’ competitiveness, as gross profit margins for the efficient Malaysia manufacturers are only at 15-20 percent, in our view,” it said. “We believe that Malaysia exporters will be able to benefit from it, building on their 60 percent market-share base.”

It added that the proposed tariff could also derail Chinese manufacturers’ expansion plans into nitrile gloves in the near term.

Daiwa kept an Overweight call on the Malaysian rubber products sector, despite the glove-makers’ market capitalization rising more than 23 percent so far this year.

“There could be further upside risk to the sector, if the U.S. does go ahead with the 10 percent tariff on rubber gloves from China,” it said.

It tipped its top picks as Kossan and Supermax.

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