As the war among the United States, Israel, and Iran drags on, difficulties for Korea's auto industry are mounting. Shortages in naphtha, a basic feedstock for petrochemical products, have disrupted parts production, and the recent implementation of the five-day vehicle rotation system raises the possibility that demand will also decline.
On the 30th, according to the auto industry, the Korea Auto Industries Cooperative Association (KAICA) recently began surveying the raw material inventory status of about 700 first-tier parts suppliers to the five domestic finished carmakers. A KAICA official said, "Most companies have inventory on hand, so we do not expect immediate production disruptions," but added, "We are continuing to monitor the situation in case the war is prolonged."
KAICA moved to manage raw material inventories in the auto parts sector as concerns grew that production could face difficulties due to disruptions in naphtha supply stemming from the Middle East crisis. Numerous auto parts—including headlamps and bumpers, various switches, and floor mats—are made from plastics, synthetic rubber, and synthetic fibers produced by processing naphtha.
According to the Nikkei, in Japan, Mitsubishi Chemical Group, which supplies naphtha to the auto industry, has already begun raising plastic prices.
The tire industry is also closely watching raw material supplies. Tires use natural rubber, synthetic rubber, and carbon black as materials and supplies, with more than about 60% of their weight made up of components extracted from petroleum. A tire industry official said, "Even if the war between the United States and Iran ends immediately, it will inevitably take time for raw material supplies or prices to return to previous levels," adding, "We are securing as many alternative suppliers as possible."
Beyond the closure of the Strait of Hormuz, the possibility that the Red Sea route, a gateway for exports to Europe, could also be shut is cited as another factor increasing expense burdens for the auto industry. On the 28th (local time), the Houthi rebels, a pro-Iran armed group in Yemen, declared they would join the war against the United States and Israel in support of Iran. This has heightened concerns that the Red Sea chokepoint, their main base of operations, could be blocked.
The route through the Red Sea leading to the Suez Canal is the optimal logistics corridor linking Asia and Europe. In Nov. 2023, when the Houthi rebels blockaded the Red Sea, cargo bound for the Suez Canal had to detour around the Cape of Good Hope in Africa, and logistics costs surged by more than 20%.
Japan's auto industry has begun cutting production due to Middle East logistics disruptions. Nissan plans to reduce output by 1,200 units this month at its Kyushu Fukuoka plant, and Toyota will also cut production of about 40,000 vehicles for export to the Middle East through April.
An auto industry official said, "Other key export items such as mobile phones and semiconductors are small in volume and can be shipped by air, but cars and tires must be sent by sea," adding, "During the COVID-19 crisis, freight rates jumped about eightfold, causing heavy damage, so industry concerns are growing." The official added, "With U.S. tariff and rising logistics costs overlapping, operating profit could fall sharply this year."
There are also growing expectations that the five-day vehicle rotation system, being implemented under government leadership as oil prices rise, will be a headwind for the industry. The rotation system restricts driving on certain days based on the last digit of a license plate number.
Currently, only public agency official vehicles and employees' personal cars are subject to the five-day rotation, but the government says it could expand the system to the private sector if international oil prices rise to the $120–$130 per barrel range. On this day, Brent crude futures, the international oil benchmark, climbed to $115 per barrel.
For tire makers, original equipment tires for new cars account for about 30% of sales, and replacement tires about 70%. As more people opt for public transportation over private cars due to rising oil prices, some expect that if the five-day rotation is expanded, demand for tire replacements will decline further.
A tire industry official said, "Other auto parts must be replaced as soon as their replacement cycle comes due, but for tires, many people delay repurchasing if there is no wear," adding, "If private car use continues to fall due to a prolonged war, tire demand is also highly likely to decline."