Three tiremakers’ operating profits seen shrinking as raw material and freight costs take a toll

[Financial News] Operating profit at South Korea’s three tiremakers—Hankook Tire, Kumho Tire and Nexen Tire Corporation—is forecast to fall in the third quarter of this year. Revenue is expected to rise, but higher prices for natural and synthetic rubber have increased manufacturing costs, while rising ocean freight rates have added to the pressure, making it difficult to defend profitability, analysts say.
Consensus estimates compiled by financial data provider FnGuide on the 12th show the three tiremakers’ combined consolidated revenue for the third quarter is expected to reach 7.9166 trillion won, up 8.3% from a year earlier. Their combined operating profit is forecast at 731.9 billion won, down 1.2%.
The combined operating margin is expected to fall by about 0.9 percentage points, from 10.1% in the third quarter of last year to 9.2% this year. Compared with the previous quarter, the second quarter, revenue is forecast to rise 0.1%, while operating profit is expected to decline 5.6%.
By company, Hankook Tire is forecast to post revenue of 5.7641 trillion won, up 6.5%, and operating profit of 546.4 billion won, down 6.7%. Nexen Tire Corporation is expected to see revenue rise 11.8% to 873.1 billion won, while operating profit falls 12.5% to 40.7 billion won.
Kumho Tire is forecast to post revenue of 1.2793 trillion won, up 14.9%, and operating profit of 144.7 billion won, up 33.4%, making it the only one of the three companies expected to record double-digit growth in operating profit. However, this is due to a base effect: production fell after a fire at its Gwangju plant in May last year, leaving a lower figure for comparison.
Korea Investment & Securities estimated Kumho Tire’s third-quarter operating profit at 113 billion won. That would be up 4.5% from a year earlier but down 37.8% from the previous quarter. Kim Chang-ho, a researcher at Korea Investment & Securities, said, “The environment in the third quarter was unfavorable for defending profitability, particularly through exchange rates, and higher costs are also expected to have weighed on the quarter’s results.”
The first factor weighing on profitability is the price of raw materials, which account for more than half of costs. According to Trading Economics data, natural rubber was priced at 255.4 cents per kilogram at the end of last month, up 49.4% from 170.9 cents a year earlier. Over the same period, synthetic rubber rose 36.2% to 16,175 yuan per ton.
Heavy rains in Thailand, the world’s largest natural-rubber producer, significantly disrupted rubber-latex tapping. Synthetic rubber prices surged in the first half of the year as the war in the Middle East, which began in February, disrupted supplies of petrochemical feedstocks. Prices have fallen in the second half, but raw materials bought earlier at higher prices are now being used in production, meaning changes in synthetic rubber prices are reflected in tiremakers’ costs about one quarter later.
Ocean freight rates also remain high. The Shanghai Containerized Freight Index (SCFI) rose 14.2%, from 3,205.97 at the end of July to 3,662.30 at the end of last month. The United States and Iran agreed to end the war in June, but military clashes between the two countries continued near the Strait of Hormuz. Yemen’s Houthi rebels, backed by Iran, took control of part of the Bab el-Mandeb Strait. Uncertainty over passage through the two straits, compounded by disruptions to port operations, has increased logistics costs.
For Kumho Tire, anti-dumping duties in Europe are a key variable. The European Union (EU) has imposed anti-dumping duties on passenger-car and light-truck tires made in China since July 8. A 24.4% rate applies to Kumho Tire’s exports to Europe of tires made in China, higher than the rates faced by competitors.
Kim forecast, “Even if some of the tariff burden is passed on, an annual burden of 100 billion to 120 billion won is unavoidable. Profitability is expected to continue to deteriorate because of the anti-dumping duties until the company’s plant in Poland is completed in the second half of 2028.”
Nexen Tire Corporation is facing a particularly heavy materials-cost burden. Jeon Yu-na, a researcher at Korea Investment & Securities, explained, “The materials-cost ratio was about 33.8% in the second quarter, and is expected to rise to around 35% in the third quarter as oil prices and the prices of synthetic-rubber feedstocks such as butadiene increase. Sharp exchange-rate fluctuations are also expected to widen the lag between exchange-rate movements in selling prices and materials costs.”

[email protected] Kim Dong-chan Reporter