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Tiremakers stingy with price cuts despite plunging costs

All Headlines 09:50 August 25, 2016

SEOUL, Aug. 25 (Yonhap) -- South Korea's three tiremakers have been reluctant to conduct big price cuts despite a recent tumble in the cost of rubber and other raw materials, data showed Thursday.

The tire companies -- industry leader Hankook Tire Co., No. 2 Kumho Tire Co. and Nexen Tire Corp. -- reduced their tire prices by 0.9 percent to 2.5 percent in 2015 from the previous year, according to the companies' 2015 business reports. The prices of their tires ranged from 50,000 won (US$44.60) to 70,000 won last year.

In contrast, the tiremakers saw their purchase prices of natural and synthetic rubber tumbling up to 20 percent and 17.5 percent each last year from 2014.

Kumho Tire paid the highest amount at 1.82 million won for a ton of natural rubber, while the largest purchase price of synthetic rubber stood at 2.32 million won.

Industry watchers said the three tiremakers are not active in reflecting falling materials costs in product prices because they dominate the domestic market with a combined 90-percent share. In light of their recently improved performances, the tire companies have enough room for further price cuts, they argued.

In the first half of this year, Hankuk's ratio of operating profit to sales came to a stellar 16.7 percent, with the comparable figure for Nexen reaching 13.4 percent.

Refuting the argument, tiremakers claimed that on top of materials costs, several other factors such as product lineups and foreign exchange rates have an impact on tire prices.

"It is not so easy to reduce product prices as much as the falls in materials costs, because of wage increases, depreciation expenses and other costs," said a Kumho official.

Kumho cited its worsening performance as the reason. In the first half of this year, Kumho posted a net loss of 22.9 billion won, with sales falling 6 percent on-year to 1.45 trillion won.

The Fair Trade Commission, the country's antitrust watchdog, started an investigation Monday into suspicions that the companies have been trying to control prices of tires sold online.
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