(Feb 20): On the face of it, it makes very little sense. As the 2019 novel coronavirus (Covid-19) has spread this year, prices for the key raw material used in latex medical gloves have been plummeting.
Rubber futures on the Tokyo commodity exchange have slumped. The 13% fall in the week through Jan 24 was the sharpest drop in nine years.
That’s despite the fact that companies in the business of selling sterile gloves have been doing rather well this year. Shares in the Malaysian companies that dominate the market — Top Glove Corp, Hartalega Holdings Bhd, Supermax Corp and Kossan Rubber Industries — are all up by more than 10%. Competitors in the U.S., Europe and Australia are also benefiting.
The best explanation for what’s happening comes from looking at the way the glove market itself is changing. While infection is a clear and present danger to healthcare workers, the latex gloves that prevent such exposure have problems of their own. Around one in 10 people working in healthcare suffer from latex allergies or sensitivities, twice the rate of the general population.
That’s meant a market once dominated by natural rubber from tree sap has been switching to synthetic alternatives that don’t cause such reactions. About 41% of Top Glove’s revenues in the 2019 fiscal year came from petroleum-derived nitrile gloves and another 10% from other synthetic materials, compared with 11% and 7% respectively in 2011. The share for latex gloves powdered with cornstarch to ease getting them on and off — a particularly allergenic design — has fallen by half.
Natural's Not In It
There’s a bigger issue. While synthetic rubber provides an attractive alternative to natural materials in the glove market, it’s failed to make inroads into the biggest end-market for natural rubber — tires. About three-quarters of all tree rubber goes into making automotive treads, where its hard-wearing qualities mean synthetic alternatives don’t work as substitutes.
That’s the best explanation for the way commodity prices have been struggling. Raw-materials demand in the natural-latex subset of the relatively small medical-gloves market will no doubt benefit from the current outbreak, but the biggest impact from Covid-19 is on the roads.
China’s car sales fell 22% from a year earlier and may slump 30% this month, the China Passenger Car Association said last week. This is bad news for the roughly one-third of tire sales that go into new cars. The distance they’re being driven in China appears to be falling too, thanks to epidemic-related travel restrictions. That means the much larger replacement tire market is in for a rough patch — and, with it, the natural rubber industry.
The biggest producer of the commodity, Thailand, is already struggling. As my colleague Clara Ferreira Marques has written, the Southeast Asian economy’s heavy dependence on trade and tourism with China has left it unusually vulnerable to coronavirus.
Rubber plantations there have been facing challenges for some time, with the government announcing plans last year to cut acreage by 21% over the next two decades in a bid to drive up prices. The small farmers and tappers who still dominate production rarely do much better than break even.
The drop-off as a result of coronavirus may be a one-time hit, but the wider issues for the natural rubber market aren’t going away. Global car production may already have peaked, according to Robert Bosch GmbH. Alternative sources of latex, such as a variety of dandelion, may take an increasing share of the market. It’s going to be a while, before this market bounces back.