The European Union (EU) on the 7th (local time) finalized tariff rates on passenger car and light truck tires from China, giving Korea's tire industry some breathing room for now. The tariff rates for Kumho Tire and Nexen Tire were lowered from what the EU initially signaled. Still, with the tariffs now a reality, domestic tire makers plan to gradually push ahead with supply chain restructuring.
The European Commission that day released the final anti-dumping tariff regulation on passenger car and light truck tires produced in China and exported to Europe. All procedures, including objections that followed notification of the provisional tariff rate in April, have been completed. The Commission said, "We lowered some of the tariff rates after correcting and adjusting certain calculation errors in areas such as import prices and cost estimation during the final feedback process."
Hankook Tire & Technology's final tariff rate was 4.3%, a slight increase from the provisional 3.4%. Including the existing import tariff (4.5%), the total comes to about 8.8%. By contrast, the final tariff rate notified to Kumho Tire and Nexen Tire was 24.4%. It is eased from the initially signaled "tariff bomb" of 29.9%. Chinese companies' tariff rates were reduced from as high as 52% to 45.3%.
The Commission's regulation takes effect the day after publication in the official journal. Accordingly, starting on the 8th, it will apply to imports of passenger car and light truck tires from China.
Although the tariff rates were adjusted, the industry sees an even greater need to restructure supply chains. The burden has eased, but how much they can reduce the share of China-based production is expected to determine profitability going forward. Europe is a core market that accounts for about 40% of total sales at the three Korean tire makers.
Nexen Tire is steadily reducing its dependence on China-made products. It cut the share of China-made tires in its European sales from about 15% last year to about 4% this year. In particular, it replaced shipments from China to Europe with output from its plants in the Czech Republic and Korea. A Nexen Tire official said, "Because we proactively reassigned the origin of EU sales volumes, the impact of anti-dumping tariffs on European revenue and profit and loss is limited."
It also reduced the role of its China plant. Instead of exporting to Europe, it is adjusting its operating strategy to expand domestic sales in China and exports to third countries. It is strengthening local distribution in China by expanding business with local automakers such as BYD. In addition, the expansion of the automated finished goods warehouse at the Czech plant has been completed and full operations have begun.
Kumho Tire faces relatively more pressure. About 30% of its total output is produced in China, and roughly half of its European sales volume is supplied from its China plants. A Kumho Tire official said, "We are pursuing supply chain restructuring using global production bases such as Korea and Vietnam," and added, "We are reviewing response measures to minimize the impact of the tariffs."
By contrast, Hankook Tire has operated a plant in Hungary, an EU member state, since 2007 and built a local production system. The annual capacity of the Hungary plant is currently about 17 million tires, and Hankook Tire plans to raise annual capacity to 18.8 million by adding truck and bus tire production lines through a large-scale expansion investment.