Nexen Aiming to Produce 20 million Tyres in Qingdao by 2017

Nexen’s Qingdao, China tyre production plant, which started manufacturing tyres in 2008, will soon enter the black and could be producing as many as 20 million tyres a year by 2017. Korean tyre manufacturer Nexen Tire published the latest details in a recent internal newsletter emailed to staff and customers, where the factory’s management also gave details of Nexen’s plans for the plant.

Based on a site one hour’s drive north of Qingdao Airport in Shandong Province, China, Nexen representatives describe their most modern plant to date (the firm broke ground on a further plant in Gyeongnam Province, South Korea on 24 June 2010) as the company’s “ambitious masterpiece.” With output currently reported to be 6 million truck, bus and car radials a year and bearing in the mind the fact that it already occupies a 530,000 square metre area with further expansion still to come, it is clearly a significant operation.

Nexen Tire originally began renting the land the Qingdao site now sit on back in 2002. Five years of preparation followed and the management held the groundbreaking of the plant in 2006 before starting production in January 2008. Now four years after breaking ground, the company has announced the project is “expected to turn black on the third year” – presumably the third full year after production started – which is this year.

Back to black

The fact that the site is entering the black is significant milestone for Nexen because – apart from the obvious benefits of running a production operation that is profitable in and of itself – the strategic value of the Chinese operation is significant for both the manufacturer’s management and its investors.

According to data published by analysts at Korea Investment and Securities Ltd. in July 2009, Nexen’s China production development appears to be right on schedule. In 2008 tyre production reportedly reached 1.5 million units per annum rising to 4 million tyres a year in 2009. The quoted production target for this year was the same 6 million unit figure Nexen have since published. And, as in 2009, this plant has been running at full capacity without a break throughout the year.

However, output is not everything. What interests the analysts and the investors they represent is the strategic position of the Nexen plant in terms of China’s “lucrative domestic sales” market. In 2008 the analysts report that the company was selling just 10 per cent of its tyre output back into the Chinese domestic market, however, by the first quarter of 2009 this had reportedly surged to 20.2 per cent. Since then domestic demand has continued to grow and Nexen now reports that 30 per cent of the 6 million tyres a year the factory makes are now sold in China. The remaining 70 per cent are exported to 130 countries around the world.

In addition Nexen representatives report that their China plant features special fast inventory turnover systems. This means tyres are consumed every 15 days according to a “thorough first in first out” system and the tyres demanded by customers in Europe and Chian are sold as soon as they are produced.

Lee Jae-Soo general manager (managing director) of Nexen Tire Qingdao Plant, commented: “Domestic demands are ever so increasing. Now we are sorry that our capacity is not even bigger. We are preparing for expansion and we do have enough land for it.”

After this next phase of expansion, the plant will have the capacity of 8 million units per year. And with the continuous investment planned, the plan is to be able to produce 20 million tyres a year by 2017. And with Changnyeong plant due to be completed by 2017, plus the existing capacity of the Yangsan operation, Nexen Tire says it aims to be producing 60 million tyres a year.

OE contract on the way

“Qingdao Plant is mostly producing export tyres at this moment but it will become the base for Chinese domestic market in the future,” says the General Manager, Lee Jae-Soo. “We are also about to conclude a contract with a Chinese vehicle manufacturing company to supply OE tyres.” No further details of which segment, which customer and how many tyres are associated with this deal have been released.

Despite the global recession last year, Nexen Tire reportedly achieved an operating profit percentage of 16.8 per cent last year. “The decision was made in June last year to invest the large sum of 1 trillion and 200 billion won to build a plant in Changnyeong,” Nexen Tire representatives said, concluding: “By 2017, we will be producing more than 60 million tyres every year and become one of the top 10 global tyre manufacturers.”