Hankook Tire headquarters in Pangyo, Gyeonggi Province / Courtesy of Hankook Tire
Korea’s three major tire makers — Hankook Tire, Kumho Tire and Nexen Tire — are feared to suffer sharp earnings declines in the second quarter, as the prolonged armed conflict in the Middle East has raised raw material and transportation costs by a huge margin.
The surge in raw material prices — driven by higher crude oil costs — comes as a particular concern for the tire makers. For instance, the naphtha price hike is highly likely to push up the cost of butadiene — a critical feedstock for synthetic rubber used for tires. Prices for other essential materials, including carbon black and natural rubber, are also expected to rise.
Increased air and sea freight rates add to the cost burden to the major tire firms, as roughly 80 percent of their sales come from exports.
In response, the tire makers are focusing on improving their product mix by expanding sales of premium offerings with high profitability.
Nexen Tire is strengthening its distribution network and technological capabilities to navigate external uncertainties.
Against this backdrop, the company is seeking to diversify its product portfolio by launching high-performance and all-weather tires with higher margin in key markets, along with fuel-efficient summer tires in Latin America and the Asia-Pacific region.
Kumho Tire's ECSTA high-performance tire / Courtesy of Kumho Tire
Meanwhile, Kumho Tire is pursuing a qualitative growth strategy to offset rising prime costs, focusing on high-margin products and global sales expansion, as the company seeks to tackle not only the geopolitical risks in the Middle East, but also the tariffs imposed by the United States.
The company is also working to strengthen its global production network by building new plants both in Korea and Europe to build a tighter supply chain.
Source: Korea Times News
