Tyre Shortage Set to Continue

We hear so much about overcapacity in the tyre industry, with too many tyres chasing too few wheels, but this is not the case in all sectors and certainly not in the OTR/Earthmover tyre market, where words and phrases such as “crisis” and “global shortage” are freely bandied about.

Reports suggest that there is little prospect of improvement in the short to medium-term, with the entire global OTR tyre production for at least the next couple of years having already been sold. One prediction, from the UK’s OTR Tyres, forecasts that demand will exceed supply through to 2010.

The tyre manufacturers – or at least the small number who are active in this highly specialised sector – are getting a good kicking in some of the media; witness an article in last December’s Daily Telegraph, where a spokesman for a mining company said that the increase in worldwide mining activity has not been matched by investment in new tyre factories.

This seems a touch unfair – as was said earlier, the number of manufacturers active in the earthmover sector can almost be counted on one hand and the scale of the rapid and consistent increase in mining activity was not foreseen by those in the industry, never mind the tyre manufacturers.

Then there is the point that we are talking about a unique animal here – the large OTR tyre costs an awful lot of money (recent press reports quote £25,000 and $22,000 a tyre), and involve highly specialised equipment, so you do not decide to stop making 155/13s and switch over to earthmover tyres. And to be fair, the tyre manufacturers are responding to the challenge, as the articles in this section illustrate. Bridgestone had plans to increase manufacturing capacity by 80 per cent by 2008 and these plans have been upgraded, while Michelin is spending $85 million to double production capacity at its Lexington plant, as well as building a new factory in Brazil. On a smaller scale, OTR Tyres has invested in further retreading equipment, believing that the demand for retreaded earthmover tyres will increase as the supply of new tyres dwindles.

Meanwhile, all the manufacturers are pleading with users to look after their tyres to ensure that they last as long as possible. The trouble with tyre factories is that it takes time to upgrade or build them from scratch, but the mining industry wants its tyres now. It is easy to understand their impatience – if you have spent millions of dollars on a dump truck, then you want to have it working 24/7 if possible to recoup your investment. If it cannot operate because of a tyre shortage, then you are not going to be happy; an idle machine is not making you money. When you realise that the giant mining company Rio Tinto spends $100 million a year on tyres – that is a lot of machinery to keep up and running.

Sustained growth

The scale of the problem can be seen from a couple of statistics; the Daily Telegraph reported that, between 2003 and 2004, demand for large tyres rose 20 per cent, while Bridgestone tells us that worldwide demand for rigid dump truck tyres has increased by 50 per cent within 12 months.

What has fuelled this sharp upturn? The short answer is ‘China.’ The booming economy of China, and, to a lesser extent, that of India, is absorbing great quantities of raw materials such as copper, coal, iron and gold and it was not so long ago that we were warned of a shortage of steel as the Chinese economy boomed.

As well as consuming vast amounts of raw materials, China’s own mining industry is expanding, fuelling the demand for loaders, dump trucks and the like – all of which need tyres.

The demand has been sustained and does not look like falling off in the near future, which is just as well for those tyre manufacturers investing in earthmover tyre factories, and things are set to get worse, from the point of view of the tyre-buying customer. Take for example Bridgestone UK – in the past the company carried a fair amount of stock of OTR tyres, to the extent that it had the luxury of placing tyres in stock at its most important customers. Not now – when a ship docks in the UK, all its earthmover tyres are spoken for and shipped immediately to customers; keeping tyres in stock is not an option.

Alberta the next boom?

Things would be difficult enough were it only the stellar Far Eastern economies that were the only problem, but there is another market development that promises to put further pressure on the earthmover tyre market.

In Alberta, Canada, there are vast deposits of oil sands just below the surface. In the past, it has been uneconomic to try to recover the oil from the sand by steam heating it, but with oil prices rising seemingly inexorably, suddenly the game is worth the candle.
The topsoil is removed and the sands are dumped into dump trucks – some of them 400-tonners with six massive tyres – before being taken away for processing into crude oil.

The scale of this operation could be immense, as the oil reserves are estimated in trillions of barrels. “Only Saudi Arabia has bigger reserves,” according to the BBC.

Perhaps all the new capacity that will come on-stream at Michelin’s Lexington plant will not head to the Far East, but will be going north? In answer to the argument that Alberta is not exactly on the doorstep of South Carolina, it’s a darn sight nearer than China. It is interesting that Michelin and Goodyear are both said to have tyre distribution centres in the area, although it must be said that we do not know if these are of a scale large enough to deal with earthmover tyres. No doubt if there were to be large-scale exploitation of the oil sands, the tyre manufacturers would gravitate to the scene. It certainly looks like the extraction is viable, as the news report said: “so now mighty corporations are pouring billions of dollars into the area.”

But this is speculation. What seems certain is that Albertan oil sands or no Albertan oil sands, the demand for earthmover/OTR tyres is set to remain high. From the point of view of the tyre manufacturers, at least the shortage mean that tyre prices have been buoyant and this is no mean consideration, as the cost of the raw materials that go into making one of these giant tyres has rocketed astronomically over the past year or so.

A question at the back of many minds must be “will the demand continue rising?” It is all very well berating the tyre manufacturers for not keeping up with demand, but suppose production increased and demand slackened off – what then would happen to all the new production capacity? Earlier we said that you cannot just decide to stop making 155/13s and switch over to earthmover tyres – by the same token, you cannot suddenly switch from earthmover tyres to car tyres, so let us hope that some sort of balance prevails.