Nexen Tire posted the lowest operating margin among South Korea's three tiremakers, a result analysts attribute to its smaller share of high-value products such as large-diameter and electric-vehicle tires, which left the company unable to fully pass on cost increases stemming from the Middle East war. With additional headwinds including the European Union's anti-dumping duties on Chinese-made tires, the company's annual operating margin target of 7% to 9% is seen as unattainable.
Nexen Tire (002350.KS) reported second-quarter revenue of 891.3 billion won and operating profit of 34.3 billion won, according to tire industry data released on the 25th. Revenue rose 10.8% from a year earlier, but operating profit plunged 19.5%.
The second-quarter operating margin fell to 3.9% from 5.3% a year earlier, a decline of 1.4 percentage points. It marks the lowest level since the fourth quarter of 2024, when the margin stood at 2.2%. For the first half, the operating margin was 5.1%.
Nexen Tire's failure to defend profitability widened the gap with domestic rivals Hankook Tire & Technology (161390.KS) and Kumho Tire (073240.KS). Hankook Tire's tire division posted a second-quarter operating margin of 17.2%, up 3.4 percentage points from 13.8% a year earlier. Kumho Tire recorded a margin of 13.7%, roughly in line with the 14.3% it posted last year.
Nexen Tire's biggest weakness lies in its product mix. In the first half, tires of 18 inches or larger accounted for 38.8% of its passenger car and light truck tire (PCLT) revenue, far below Hankook Tire's 49.3% and Kumho Tire's 46.1%. Electric-vehicle tires, which demand higher performance and greater technical capability than conventional products, made up 15% of sales, about half of Hankook Tire's 30.7%.
The weakness became more pronounced as the Middle East war sharply raised cost burdens. Large-diameter and EV tires sell at higher prices and are supplied mainly to premium automakers, making them more profitable while also giving tiremakers greater leverage to raise prices when raw material costs climb.
Hankook Tire raised prices in the Middle East by 5% in June to offset the higher costs and plans to lift prices region by region through September. Kumho Tire implemented price increases of 3% to 5% in Asia, including South Korea, during the second quarter and plans similar increases in Europe and the United States in the third quarter. Kumho Tire had earlier defended profitability by raising prices about 7% in response to U.S. tariffs.
Nexen Tire, by contrast, is structurally less able to reflect cost increases in its prices, raising the possibility that profitability will deteriorate further in the second half. Synthetic rubber prices averaged $2,615 per ton in the second quarter, up 36.5% from $1,916 in the first quarter. The Shanghai Containerized Freight Index (SCFI), a benchmark for ocean freight rates, has more than doubled from 1,500 points to hold in the 3,300-point range.
The EU's anti-dumping duties, imposed to curb inflows of Chinese-made tires, dealt another significant blow by levying a 24.4% tariff on Nexen Tire. The company plans to respond by raising utilization at its plant in the Czech Republic, but it now faces the task of finding new markets for products from its Qingdao plant, which had served as a forward base for exports to Europe.
"To defend the utilization rate at the Qingdao plant in China, the company needs to create new demand in markets outside the EU," an industry official said. "Securing new customers and expanding marketing will inevitably involve short-term costs, so achieving the annual operating margin target is expected to be difficult."
According to FnGuide, Nexen Tire is estimated to post full-year revenue of 3.47 trillion won and operating profit of 177.2 billion won, for an operating margin of 5.1%. The operating profit estimate has been steadily cut, from 222.6 billion won six months ago and 199 billion won three months ago.
