Monday, April 21st, 2014
SEOUL, KOREA - Tire stocks that led the market in the latter half of last year are performing badly this year. Even though the natural rubber prices have declined 19 percent from the last year's average, the share prices have been in doldrums. Stock analysts said this is largely because the low-cost advantage has been offset by a dumping competition initiated by the world's leading tire makers such as Michelin.
According to the Korea Exchange on April 20, the price of Hankook Tire, Korea's largest tire manufacturer, fell 3.29 percent this year to date. During the same period, Nexen Tire suffered a setback of 5.84 percent. The share price of Kumho Tire began declining in early February, losing as much as 12.32 percent for seven trading days from February 10 to 18 after peaking at 14,600 won on the 10th.
Kim Jin-woo, analyst with Korea Investment & Securities, said, "Given the price competition going on in the world market, the whole-year sales revenue of Korea's tire makers in 2014 would be 4-9 percentage points lower than consensus figures. In addition, one must take into account the mounting marketing cost for the companies. Especially for smaller companies like Nexen, they need to increase the selling and administrative expenses in order to keep their market share."
Stock analysts advised that it is prudent to wait out until May when major rubber producing countries complete their harvesting before deciding on whether to invest in rubber stocks. That's when the rubber prices may fall further down, with an additional demand for tires ahead of the summer driving season.
