Hankook Execs Predict Slow Tyre Market for 2006

Hankook Tire Co Ltd expects a difficult global market this year due to higher raw material costs and oversupply, a senior company executive told Reuters.

Hankook, which exports up to 70 per cent of what it produces, has also been under pressure from a softer euro against the dollar, which cuts profits for exporters to the region.

“Earnings will not look like last year’s,” Woo Young-soo, a vice president in charge of corporate strategy, said in an interview. “Oversupply, higher material costs and (weaker) euro won’t be positive to earnings,” he told the new agency.

Woo expected raw material costs to rise 10 per cent this year, steeper than last year’s increase. He did not say how much raw material prices rose in 2005 for the company.

Hankook’s sales are estimated to have risen 7.5 per cent to slightly more than 2 trillion won ($2 billion) in 2005 from the previous year, Woo said, matching Reuters Estimates. He did not give profit figures for 2005, but said the company had an operating margin of about 12 per cent, which was in line with analysts’ estimates and the same as in 2004.

Woo said the company may build a new plant in a country close to both the US and Latin America, where the automobile market is expected to grow quickly, but he did not elaborate.

“In 2008 or 2009, when our European plant is launched successfully, we will make another strategic decision,” he said. Financial difficulties at US car manufacturers such as GM boost prospect for South Korean companies like Hankook or Kumho Tire Co. Ltd as these businesses may be on the lookout for less expensive automotive parts, he noted.

However, as the prices that manufacturers pay for original equipment are understood to be significantly lower than most tyre manufacturers would like, the Korean tyre businesses are unlikely to notice any dramatic short-term improvements. Ford recently named Hankook Tire as one of its preferred suppliers.

Hankook produces 58 million tyres annually at its two South Korean and two Chinese facilities. Its new plant in Hungary, which is due to start production in the second half of 2007, is projected to roll out 10 million tyres annually, the company had said.

Michelin owns a 2.4 per cent stake in Hankook and has the option to buy a further 7.6 per cent under a contract signed in 2003.