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South Korean Tire Industry Update: Status Quo Performance in a Declining Global Tire Market

South Korean tire industry and domestic producers have been one of the best success stories in the global tire industry. However, declining demand in the domestic and export markets in last two years have dented its performance to some extent.

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The South Korean tire industry and domestic producers have been one of the best success stories in the global tire industry. However, declining demand in the domestic and export markets in last two years have dented the performance of South Korean tire producers to some extent. 

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Overview of South Korean Tire Industry

Dominated by three domestic tire producers – Hankook, Kumho and Nexen – the South Korean tire industry has achieved very steady growth rates in the last two decades. Riding on the country’s automotive industry, South Korean tire producers have become one of the most recognized names in the global tire industry in recent years. In addition to these three producers, two smaller producers – Shin Hun Company Limited (two-wheelers and bicycle tires) and Tiron Hung A Company Limited (OTR tires and two-wheeler tires) – are the other notable tire producers in the country. 

As mentioned at the outset of this article, 2018 did not bring much cheer to the South Korean tire producers in the domestic market, but their manufacturing presence in some of the key tire-consuming markets and exports from the South Korean market enabled them to hold on to their position in a declining global tire market. 

The most notable event in the South Korean tire industry in 2018 was Kumho’s acquisition by Chinese tire producer, Qingdao Doublestar Co. Ltd. The Chinese company has finally acquired a 45% stake in the second-largest South Korean tire producer after a two-year-long exercise. 

Declining Automotive Production – A Cause of Concern for Korean Tiremakers

Automotive production and sales data in 2018 in the domestic market has given a big jolt to South Korean tire producers. According to the data from the Korea Automobile Manufacturers Association (KAMA), seven domestic carmakers – Hyundai Motor, Kia Motors, GM Korea, SsangYong Motor, Renault Samsung, Zyle Daewoo Commercial Vehicle and Tata Daewoo – sold 3.64 million vehicles in 2018 between January and November, down 3.6% from 3.78 million during the same period a year earlier. 

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Along with the sales, their manufacturing volume also declined by 4.1% from 3.67 million to 3.83 million during the cited period. Korea has produced more than 4 million vehicles in the past eight years, but it failed to reach that target in 2018.

The most notable event in the South Korean tire industry in 2018 was Kumho’s acquisition by Chinese tire producer, Doublestar Group.

Exports also dropped, with the aggregated car export volume from January to November last year shrinking to 2.23 million, down 5.2% from a year earlier. It was the first time in eight years that the country’s yearly car exports stood below 2.5 million. 

The automotive industry has affected the entire automotive parts industry in South Korea. According to the Ministry of Trade, Industry and Energy, 31 out of 90 listed auto parts makers posted losses in the third quarter of 2018, up from only six in 2015.

Hankook Tire

From its humble beginnings in 1941 as Korea’s first tire company, Hankook Tire has grown into one of the largest tire companies in the world. Currently, the company has an installed capacity to produce 102 million tires per year spread across eight plants. Two of these plants are in South Korea, three are in China, and the U.S., Hungary and Indonesia have one plant each. In South Korea, the company’s production facilities are located at Daejeon and Geumsan. 

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Hankook achieved total sales revenue of USD $5.77 billion in 2018. Sales revenue in 2018 declined by a marginal 0.3%, as compared to sales revenue of USD $5.79 billion in 2017. Hankook’s global tire sales by region in 2018 was: 11% in South Korea, 20% in China, 24% in the Americas, 35% in Europe and 10% in Asia Pacific and the Middle East & Africa.

In its latest expansion in 2017, Hankook Tire America, a unit of Hankook Tire Co., built its first U.S. plant in Clarksville, Tennessee. The company has since won contracts to supply Ford, Volkswagen, Honda, Toyota and Nissan in the United States. 

Kumho Tire

If Hankook is the largest and most successful South Korean tire producer, then its rival Kumho Tire has been the most talked about tire producer in last two years. The company’s stake acquisition by the Doublestar Group has been one of the top corporate news stories in South Korea and the global tire industry for the last two years. 

Besides two production plants in South Korea, Kumho operates three plants in China in Nanjing, Tianjin and Changchun. In 2017, the company completed a USD $500 million project to relocate and upgrade separate passenger and truck tire plants at the Nanjing site.

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Kumho Tire has been incurring losses for past few years. Total sales revenues for 2018 stood at USD $2.167 billion. The company’s net losses for 2018 was at USD $182 million. Net losses for 2018 almost doubled from the net losses suffered by the company in 2017, when it incurred losses of USD $98 million.

Kumho Tire accounted for 40.6% of locally produced tires sold in the country in 2018, followed by Hankook Tire and Nexen Tire at 35.3% and 24.1%, respectively.

Last year, China’s Doublestar Group became the largest shareholder of the tiremaker, investing USD $597.4 million ($646.3 billion Won) to take a 45% stake in the firm.

Despite the poor financial results, Kumho Tire has maintained its top position in South Korea’s replacement tire market for two years in a row, according to the data from the Korea Tire Manufacturers Association. According to the association data, Kumho Tire ranked No. 1 with sales of 6.52 million tires in 2018, accounting for 40.6% of locally produced tires sold in the country. It was followed by Hankook Tire and Nexen Tire with 35.3% and 24.1%, respectively.

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Nexen Tire

The third largest tire producer in South Korea, Nexen Tire operates a total of four manufacturing plants — two in South Korea, one in Qingdao, China and recently commissioned a greenfield plant in Zatec, Czech Republic. The $1 billion plant would have an installed capacity of 12 million car and light truck tires a year at full capacity.

Read more on Tire Review’s 2019 State of the Industry here.

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