Hankook Tire Co., South Korea’s largest tyremaker, said Tuesday that it has scaled back production due to its record inventory glut.
The company said the number of unsold tyres reached a staggering 660,000, the highest since the company was founded in 1941. The total is equal to 8.5 percent of the 7.75 million tyres it makes in a month.
The surge in unsold tyres comes as demand failed to pick up as originally anticipated, and because the company moved to expand its production capability both at home and abroad.
Hankook has seven tyre production factories in South Korea, China, Indonesia and Hungary.
“Expectations that demand will pick up after March were misplaced,” a corporate source said. He added that if things do not improve soon, there may be a need to curb production even at the company’s South Korean plants.
By region, the size of inventory was the greatest in its Indonesian operations, where numbers reached 234,150, or 35.5 percent of the total. This was followed by 187,980 tyres waiting to be sold from its Daejeon factory and 109,058 from its Chongqing base in China, which reported 22.7 billion won (US$22.3 million) in net losses last year.
The company said that up to May, it had stopped normal operations at its Indonesian and Chongqing plants for 13 and 16 days, each, with operations being suspended again in June for several days. It added that production was also suspended for a handful of days at its Jiangsu factory in China coming into this month.
The latest development comes as Hankook said it will start construction of its eighth production plant in the U.S. state of Tennessee in January 2015. Once this plant becomes fully operational, it will be able to churn out 32,000 tyres a day, which translates into 11 million per year.
Last year, Hankook, ranked seventh in terms of production capacity in the world, made 93 million tyres. Its annual sales reached 7.6 trillion won with operating profit hovering at 1.31 trillion won. The company’s ratio of operating profit to net sales hit a robust 14.6 percent for 2013.