Korean Tire Manufacturers Remain in Slump in Q1

Chinese tire manufacturers are overtaking industry leaders such as Pirelli so as to enter the high-end market. Korean manufacturers, in the meantime, recorded less-than-expected performances in the first quarter of this year.

According to industry sources, Hankook Tire’s operating profits for the quarter dropped 22 percent from a year earlier to 203.2 billion won (US$184.8 million). Its sales declined by 11.3 percent during the same period, while its business profit rate fell by 1.9 percentage points to 13.7 percent. Nexen Tire’s sales and profits fell by 2 percent and 4.7 percent to 443.9 billion won (US$403.8 million) and 51.3 billion won (US$46.7 million), respectively. The company recorded a profit rate of 11.55 percent in that quarter, 0.32 percentage points lower than that of the first quarter of 2014. Kumho Tires has yet to announce its earnings, but negative estimates prevail.

Their performances are unlikely to improve in the near future, either. Although the raw material prices went down last year, Chinese manufacturers also marked down the prices of their products. The Korean companies had to cut prices, which led to a decline in profitability.

The depreciation of the euro is another concern. From 15 to 30 percent of the Korean tire manufactures’ overseas sales come from Europe. The depreciation of the currency is compelling them to sell more to maintain their profits.

Besides, the global tire market is estimated to show a growth rate of as low as 3 percent this year. Still, Chinese tire manufacturers are showing no signs of braking. ChemChina recently announced that it would acquire Pirelli shares for business in the high-end tire market.