Wary of government intervention

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Datuk Seri Stanley Thai – Malaysia’s Ernst & Young Entrepreneur Of The Year in 2010 – is the founder and CEO of Supermax Bhd, the world’s second largest latex gloves maker by volume. In the Q&A below, he shares with Business Circle why he disagrees with the Minimum Wage policy and government intervention by Malaysia, Thailand and Indonesia to keep the price of natural rubber at US$2.70 per kg.

What is your short to medium term outlook for the natural rubber industry in Malaysia?

The medium and long term outlook for the natural rubber industry in Malaysia could be appropriately termed as bleak. The recent intervention by the governments of Thailand, Indonesia and Malaysia will only assist the upstream natural industry in the short term but in the medium to long term, it would be more damaging and not sustainable to maintain the raw material prices to the US$2.70 level per kg. I believe the intervention will do more harm than good in the long term.

For the medical glove industry, we have seen all the major players expanding their capacity in synthetic nitrile gloves and we have not seen any glove manufacturers expanding their natural latex gloves capacity. This is very bad news for natural rubber latex suppliers as glove manufacturers will consume much less latex material going forward.

Starting from 2013, the natural rubber latex industry will be flooded with excess capacity of raw material as demand and consumption continues to switch from natural rubber latex to synthetic nitrile gloves.

This will be the result of government intervention to prop-up market prices artificially effective from October, 2012.

 

How does that outlook affect your planning for Supermax?

Similar to other glove players, Supermax ‘s capacity expansion is solely focusing on synthetic nitrile gloves. In line with the demand and consumption growth, Supermax will be doubling its capacity of nitrile gloves from the current 5.2 billion pieces to 12 billion nitrile glove pieces by year 2013.

 

On a macro level, what are the demand side risks you see, other than from softening tyre demand from Japan and Europe.

We think that the demand and consumption of natural rubber latex materials will continue to decline across the entire rubber industry. This is because synthetic latex will be replacing natural rubber latex at a fast rate. The technology of processing synthetic latex has become highly advanced and the prices of synthetic latex have been far more stable.

 

In the long term, do you see any impact to your industry from global warming. What are you doing to prepare for this?

Most people do not know this but the glove industry is highly environmental and ecological friendly. Biofuels are widely used in the glove industry.

 

In terms of Supermax, is the impending Minimum Wage the biggest cost side issue you will face next year?

The minimum wage, especially applying to foreign labour is one of the most ridiculous policies any government would implement.

The minimum wage, if it is fully implemented will see a chain reaction of cost increase in all sectors resuing in inflation and rising costs of doing business in Malaysia.

As the cost of goods and services rise as a result of this chain reaction, all low income earners and retirees will be the hardest hit as spending power weakens and inflation soars.

 

You have spoken about automation to mitigate the impact of higher wages. Can you elaborate on what exactly this automation entails?

In the glove manufacturing industry, most of the manufacturing processes are already highly automated except the packing, layering and packaging of gloves which is manually packed.

To mitigate the rising wages especially applying to foreign labour, the industry as well as Supermax is fast tracking the implementation of automation in the packing process of each glove into the dispenser box and into the shipping carton.

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