KUCHING: The outlook for the nation’s rubber sector remains cautious, in line with some softness seen recently in rubber prices.
Analysts at AmResearch Sdn Bhd (AmResearch) noted also that in line with this, recent share price activities in rubber glove manufacturers appeared to have been triggered as well.
“Rubber futures at the Tokyo Commodity Exchange (TOCOM) is trading six per cent below historical peak, which was in December last year. Similar trend has been observed at the Malaysian Rubber Board with the price of latex in bulk easing to a negative nine per cent month-to-date to RM9.84 to RM9.94 per kilogramme range,” observed the AmResearch team.
They analysed that the softening in current rubber prices was due to higher energy costs, as well as strengthening concerns that rising crude oil price on escalated fighting in Libya and the social unrest in the Middle East would dampen appetite for China car sales.
As an indication, West Texas Intermediate (WTI) — a form of global pricing reference for crude oil — crude oil had surged 17 per cent since the Libyan fighting; while butadiene — a crude oil by-product — had increased by 10 per cent over the same period.
“The automobile industry (in China) consumes approximately 70 per cent of global rubber supply, with the bulk coming from China. While this development is mildly positive for latex-based glove manufacturers, nitrile and synthetic glove makers are now subjected to higher cost structures.”
Given these factors, AmResearch maintained its ‘underweight’ stance on the sector.
“We reckon any potential latex price correction would be limited by its high correlation to crude oil prices, which is on the upward trend. Current latex price volatility is still at the early stage, and it remains to be seen if the momentum is sufficient to result in a meaningful correction in latex price.
“As we had postulated in our earlier report on January 24, a meaningful correction in latex price could trigger a rebound in orders. Depending on the extent of the correction, this could potentially reverse the pricing structure of latex and nitrile gloves,” the research house stated.
On companies under its watch, AmResearch retained its ‘sell’ call on glovemaker Top Glove Corporation Bhd with an unchanged fair value of RM4.30 per share, while putting a ‘hold’ recommendation on Kossan Rubber Industries Bhd with a fair value of RM3.75 per share.
“Top Glove is expected to release its second quarter results this March 16. We understand that it is likely to see flat earnings growth on a sequential basis, due to the absence of a rebound in orders. Based on the group’s first-half figures, we would be looking to trim our fiscal 2011 net profit forecast of RM196 million by some 18 to 23 per cent. Nevertheless, there will be no change for now pending release of results,” AmResearch’s analysts explained.
(Source: http://www.theborneopost.com/?p=102253)
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