Tyre Manufacturers Face Earnings Declines Despite Falling Rubber Costs

In the first quarter of 2025, major tyre manufacturers in Vietnam have reported disappointing earnings despite a notable decrease in natural rubber prices. The Đà Nẵng Rubber Joint Stock Company (DRC) experienced a 21.2% increase in revenue, reaching VNĐ1.19 trillion (approximately US$45 million). However, its post-tax profit plummeted by 80.8% to VNĐ9.47 billion, and the gross profit margin decreased significantly from 16.6% to 11.1%. Similarly, Casumina (CSM) saw its revenue drop by 11% to VNĐ1.02 trillion, with a 25.9% decline in pre-tax profit to VNĐ17.48 billion.

Despite the favorable conditions that lower rubber prices typically create for the tyre industry, these figures reflect ongoing challenges. According to Dr. James Lee, an economist at the University of Melbourne, "While lower input costs usually benefit manufacturers, the current economic landscape, characterized by rising fixed costs and export difficulties, has overshadowed these advantages."

The decline in rubber prices is largely attributed to high inventory levels in China, which coincide with a weakening demand for automobiles and electric vehicles. As a result, tyre companies, particularly those reliant on exports, are grappling with profit declines. DRC, for instance, generates nearly 70% of its revenue from exports, primarily to the United States and Brazil. However, the company has faced consecutive profit drops since 2022 and is now attempting to penetrate European, Middle Eastern, and African markets, where profit margins remain modest.

The implementation of phase III of DRC's radial tyre plant in the second quarter of 2024 has further burdened the firm with increased costs, driving its outstanding debt from VNĐ573.8 billion in 2021 to VNĐ1.07 trillion by the end of Q1/2025, representing 55.9% of its equity. Casumina, on the other hand, has struggled with low capital and asset efficiency, reporting a return on assets of just 1.87%, significantly below the industry average of 5.59%.

For 2025, Casumina has set a revenue target of VNĐ4.7 trillion, reflecting a 5% decrease, while projecting a modest 6% increase in profits to over VNĐ94 billion. The company is now focusing on the domestic market for growth, amidst an uncertain export environment.

According to Mr. An Pham, CEO of Casumina, "The domestic market offers potential, but without addressing barriers to market access and rising operational costs, recovery remains uncertain."

In summary, even as input prices decline, the tyre industry continues to face significant hurdles including market access barriers, rising fixed costs, and low operational efficiency. As the industry navigates these challenges, experts emphasize the need for strategic adaptations to foster sustainable growth within this critical sector.