Triple Challenges in the Tire Industry: 'Logistics Crisis, Rising Material Costs, and Vehicle Semiconductor Supply Shortage'

Major 3 Companies Expected to See 3Q Earnings Decline
Price Increases Also Not Easy

[Asia Economy Reporter Ki-min Lee] Domestic tire companies are expected to post their worst performance this year in the third quarter as they are caught in a triple crisis of logistics chaos, rising raw material prices, and a shortage of automotive semiconductors.

According to the tire industry and financial information firm FnGuide on the 28th, the third-quarter earnings of the three major domestic tire companies represented by Hankook Tire & Technology, Kumho Tire, and Nexen Tire are projected to sharply decline compared to the third quarter of last year and the pre-COVID-19 third quarter of 2019.

Hankook Tire's third-quarter sales and operating profit forecasts are estimated at KRW 1.8541 trillion and KRW 194.4 billion, down 1.7% and 13.48% respectively from the previous year. Kumho Tire's sales are expected to increase by 10.71% to KRW 659.7 billion, but operating profit is forecast to drop by 62.41% to only KRW 16.5 billion. Nexen Tire's third-quarter sales are expected to be similar to last year, and operating profit is projected to increase by 148.28% to KRW 14.4 billion, but this is still far below the KRW 55.8 billion operating profit in the third quarter of 2019 before COVID-19.

The rise in prices of key raw materials such as natural rubber, synthetic rubber, and carbon black feedstock has been a direct cause of poor performance. In the second quarter of last year, when the world was hit hard by COVID-19, the prices per ton of natural rubber, synthetic rubber, and carbon black feedstock were $1,107, $974, and $184 respectively, but in the second quarter of this year, they surged to $1,653, $1,988, and $421, nearly doubling.

To make matters worse, skyrocketing shipping freight rates and logistics chaos have compounded the difficulties. The Shanghai Containerized Freight Index (SCFI) reached an all-time high of $4,647.6 per 20ft container on the 8th of this month. This is more than five times the price of $890.37 on April 3rd in the second quarter of last year.

High freight rates are problematic, but the logistics chaos has made it difficult even to secure ships, so tire companies are conducting operations to find vessels while adjusting production volumes at domestic factories to endure the situation.

Moreover, domestic tire companies had hoped for performance improvement by securing original equipment (OE) tire supply contracts with major automakers such as Volkswagen, Mercedes-Benz, BMW, and Porsche, but the semiconductor shortage has led to reduced automobile production, delivering a severe blow.

An industry official said, "We are caught in a triple crisis, but it is not easy to raise selling prices. In cases like the anti-dumping tariffs imposed by the U.S. on the domestic tire industry in the second quarter, we could respond by establishing new overseas factories, but now there is little we can proactively do, so we are just waiting for the industry situation to stabilize."

This content was produced with the assistance of AI translation services.