The Glove Market Just Got Crazier, Buyers Must Adapt
The market for gloves needed to slow the spread of Covid-19 just got crazier this week, as new demand emptied glove factories (see above video of one Malaysia factory). The good news is my Malaysia based trading company can help. Here is the inside story.
As previously reported several months ago, the nitrile and latex glove market was close to sold out with factories operating at almost of 100% capacity and future production sold out for 2 years or more in the few countries able to produce such gloves. Hard to increase capacity in less than a year. Malaysia, the Big Dog with 70% of global output of medical gloves, was the one country with a little extra bandwidth operating at say 90% capacity.
The re-acceleration of Covid-19 cases globally and the coming of winter (which many public health officials say will further the spread the deadly virus) has caused panic buying in the glove market.
What ready stock (gloves already manufactured and waiting for shipping) there was for sale in Malaysia flew off the factory shelves. For example, the more than 3 billion boxes of gloves Seagate Global Trading Malaysia had on it sales sheet all traded in the past 10 days. All gone. Malaysia’s pre-order is now sold out for almost 2 years like most other glove producing countries.
However, to Seagate Malaysia’s elite group of buyers, fear not! We can access gloves for you in this most difficult of markets while increasingly, most others will not be able to. Using our local Team, offices, relationships, and experience of successfully completing scores of trade deals worth millions of dollars over 10 years, Seagate Global Trading Sdn Bhd is well positioned to protect you while helping you to obtain the gloves you need at the best possible prices.
A fundamental problem in the market is that the glove manufacturers require 100% payment at the time of delivery at the factory in Malaysia (we will talk about Malaysia, our area of expertise for gloves, but it applies to other countries). I call this the FOB/CIF problem, meaning most buyers want the gloves delivered to their country before they will pay while the sellers have no need to sell CIF. There are a limited number of gloves available in Malaysia, but the imbalance is made worse by the FOB/CIF conundrum. If you want gloves at wholesale prices you will have to buy FOB Malaysia.
On the demand side, China has been perhaps the biggest buyer of gloves. Other large sovereign buyers are in as well. If they find stock, they buy it. They have ready cash to buy FOB in Malaysia and are comfortable dealing there. (One China buyer showed $4 billion of funding.) If you want gloves you must compete against them. Hard to do, but that is the reality. (Parenthetically, the US government is trying to adapt its buying protocols to meet the new market conditions, but it is slow going. The US and is now way behind in getting gloves. Do not expect China to release some of their gloves to bail Uncle Sam out. Unless bold changes are made urgently, expect the US government to start to run out of gloves while paying higher and higher prices.)
Next you have a group of very well capitalized hedge funds and other speculators in the market. They now own large amounts of ready stock and pre-order positions. As traders, they may sell now and then if they can get a good price, but they are still net big buyers. They have relatively straightforward standard operating procedures “SOP's” to buy and sell gloves, but are in for a rude shock when they try to force local sellers to use their SOP's.
Finally, key to your success going forward, is finding the large diverse group of local Malaysian players that saw the glove market train wreck coming and went all-in on buying ready stock and pre-order glove positions. These locals now are selling some of their positions to foreigners, but the challenge is distinguishing the legitimate sellers from the many players. Not easy if you are not a well-connected local.
On the demand side, anecdotally we can confirm firsthand that demand for gloves has skyrocketed from around the world. There are a handful of savvy buyers that had the foresight to buy ahead, but with those few exceptions, many are short on nitrile and latex gloves, including the US government and many other governments. We had a request from one European sovereign buyer looking for six billion boxes of gloves. We cannot quantify the demand other than to say it greatly outstrips supply, and we expect that imbalance to last for at least the next 12 months with prices continuing to rise.
This fundamental supply/demand imbalance has created a “wild west” gold rush type environment.
In Malaysia, fraud is rampant as all manner of brokers have emerged as “glove experts” with “exclusive access” to glove supply. Many buyers report being scammed out of money by such brokers. One frustrated buyer said they have had over 50 failed transactions dealing with local Malaysians.
Outside of Malaysia, buyers are desperately seeking gloves but failing to analyze the changes in the market. They are insisting on practices that worked six months ago, and not listening to what the new local sellers are demanding.
Thousands of neophyte agents have jumped into the mix looking to match buyers and sellers in hopes of lucrative commissions. Many have limited access to the new local sellers of gloves, and simply find another broker that says they have access to gloves, creating “daisy chains” of brokers, each adding their commissions, but none actually being able to find actual glove sellers today, while maybe in the past they could.
Last week things kind of snapped as even more buyer demand emerged in the already tight market. The few real local sellers in Malaysia have been over-run with offers from agents, but the buyers do not want to provide NCNDA’s, LOI’s and POF prior to seeing proof of glove stock.
So, what is a buyer to do? First of all, step back and look at your position vis a vis this market. The factories are sold out. China, the US government and other sovereign entities, corporates and hedge funds, net on balance, are still big buyers. The new reality is that the local players that previously purchased capacity are the most likely sellers, and they are very hard to find amongst the many players. These sellers are in charge, and you must work with them if you want gloves.
That being the case, you must recognize that the locals have their own SOP’s that are more onerous than dealing with the factories or international sellers. They are being inundated from brokers around the world that say they have legitimate buyers, but often they cannot perform. So, the locals are requiring NCNDA’a, Letters of Intent and Proof of Funds even before showing their SOP’s. Pretty unpleasant from a buyer’s point of view, especially when they have been disappointed so many times already. But remember, the sellers have 10 buyers behind you.
This is the new crazy market, and it will become more evident in the weeks ahead. It has implications on how you must adapt if you are to be a successful broker or end buyer.
If Malaysia’s borders were not on hard lock down you could get on a plane and fly to Malaysia and try to find the real local sellers. Once there you would be confronted with trying to separate the legitimate players from the unethical. This is no easy task. The parties there exercise Malaysian business practices which most Westerners are unfamiliar with. The Wall Street Journal reported that many brokers there are scam artists. While that may be harsh, many uninitiated have been taken advantage of there.
I am not casting aspersions on the Malaysians. It is a wonderful country with a refined culture, that works for Malaysians. But imagine an uninitiated Malaysian going to Wall Street looking for a deal. The NY traders will be happy to “rip their eyeballs out” taking verbiage from taped conversations of NY traders scamming investors. People pretty much the same everywhere. If you go to their house, you must know and follow their rules.
Even if you are clever enough to find those few honest players, you would have to negotiate with them. And negotiating with local Malaysians is an art that requires years to master, not days. Local skilled Malaysians like Seagate’s local team will get a better deal every time than even a skilled foreigner like myself who pre-COVID-19 spent half my time there, or my son who lives in Malaysia and speaks the language. Attempting to operate on your own is not something I would recommend. Anyway, the border is locked down, so you cannot get into the country right now even if you were foolish enough to try DIY glove buying.
So, what can you do? Find a reliable international partner with a seasoned team on the ground in Malaysia to act as your Buyer’s Agent, or Buyer’s Mandate, that will help identify the legitimate deals, ethical counterparties, have local Malaysians to negotiate on your behalf, work directly with SGS to insure legitimate stock, introduce you to qualified local legal representation, arrange fraud proof methods of payment, and then assist you in the logistics to get your gloves safely to your port of choice. For analogy, in a tight real estate market in the US you would hire a buyer’s agent to find those hidden deals and negotiate the best price. Same in the tight glove market in Malaysia.
We recommend five simple criteria for your Buyer’s Mandate:
1) A five year or longer track record in the supply business in Malaysia (fully licensed);
2) Relationships at the international standard glove manufacturers, wholesalers and with local sellers to identify and negotiate deals on your behalf;
3) Official Supplier to the Government of Malaysia;
4) Endorsed by the Government of Malaysia;
5) Associated with a reputable US or European consortium that insists on international standards of good governance that can provide references.
There is only one such Malaysian company we know of that meets these criteria: Seagate Global Trading Sdn Bhd. Visit www.SeaGloves.com for more information on their Disposable Glove Buyer's Program.