Despite grappling with logistical hurdles and surging raw material prices during the Covid-19 pandemic, the South Korean tire industry has successfully navigated cost pressures, leading to improved profitability.

Influenced by factors such as lower raw material prices, stabilized maritime freight rates, and increased sales of high-value-added products, the combined operating profits of the three major Korean tire companies are expected to hit the 1.7 trillion won ($1.27 billion) range.

On Tuesday, Kumho Tire reported a substantial increase in its full-year consolidated revenue, rising by 13.5 percent to 4.04 trillion won from a year ago. The operating profit skyrocketed by 1,578.5 percent to hit 388.3 billion won. The company recorded sales of 1.06 trillion won and an operating profit of 149.5 billion won, up 11.8 percent and 710 percent respectively, in the fourth quarter of 2023 alone.

Although Nexen Tire and Hankook Tire & Technology are yet to release their fourth-quarter results, it is estimated that they also achieved remarkable performances in 2023. Combining Kumho Tire’s preliminary results with the performance consensus for Nexen Tire and Hankook Tire & Technology, the three Korean tire companies are projected to record sales of 15.78 trillion won and an operating profit of 1.75 trillion won. Compared to 2022, this represents an 8.5 percent increase in sales and a 159.8 percent surge in operating profit.

The primary reason for the nearly twofold increase in operating profit within a year is attributed to the stabilization of maritime freight rates. The Shanghai Containerized Freight Index (SCFI), which measures short-term freight levels, surpassed 5,000 points in early 2022. However, with logistics bottlenecks easing in major ports, the SCFI remained near the 1,000-mark from January to mid-December 2023.

The decline in raw material prices also had a favorable impact on the tire industry’s financial performance. Synthetic rubber, natural rubber, and carbon black, comprising about 60 percent of tire raw material costs, saw reductions in prices. According to Kumho Tire, the price of synthetic rubber fell by 8 percent from 2.78 million won per ton at the end of 2022 to 2.55 million won per ton by September 2023. During the same period, natural rubber decreased by 12.9 percent, and carbon black by 14.4 percent.

Tire prices have also been on an upward trend. Global tire manufacturer Michelin, responding to increased freight and raw material costs during the Covid-19 pandemic, raised tire prices multiple times from 2020 to 2023. The price increases for Michelin’s tire products ranged from 20 percent to 30 percent over this period and joining the trend, the three major Korean tire companies also participated in price hikes.

The expansion of the market share for large-sized tires, specifically those exceeding 18 inches, has also had a positive impact. These tires are predominantly used in high-end models such as Sports Utility Vehicles (SUVs) and luxury sedans, signaling increased profitability for the tire industry.

Kumho Tire set its sales target for this year at 4.56 trillion won, up 13.5 percent from a year ago.

By Moon Gwang-min and Minu Kim

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]