Quality Counts

Until recently the root cause of the OTR tyre shortage was under-production caused by increased demand for both finished OTR tyres and the raw materials need to make them. The latter just adding fuel to the OTR tyre price-increase fire that spontaneously combusts when demand exceeds supply. Since then, large scale manufacturers including Michelin, Bridgestone and Yokohama (to name but three) have pumped literally billions of dollars of investment into building new OTR tyre factories and expanding production at existing sites. However, these kinds of projects take time and in the interim, businesses reliant on OTR machinery have been looking further afield to source products.

Manufacturers in the emerging tyre production nations of India and China have been particularly quick off the mark in responding to the OTR tyre shortage. and some industry observers have been surprised at how quickly the Chinese manufacturers in particular have been able to radialise their production output. Tyres & Accessories recently visited the RTF Tyre Exhibition in Qingdao, China where literally dozens of companies are now offering radial OTR products.

When the US Department of Commerce put “anti-dumping” duties of up to 210 per cent on Chinese OTR imports in February, it closed the door on many Far Eastern OTR tyre manufacturers’ North American sales strategies. In light of the global OTR/earthmover tyre shortage these companies had been seeking to capitalize on their relatively low production costs by selling products into markets (like the US) where the shortage had pushed prices up. According to the US authorities the move was designed to stop “price distortion by Chinese exporters,” however another effect has been that this flow of OTR product has been redirected to other markets, including Europe and Africa.

Increased production and US restrictions mean Far Eastern tyremakers want to sell more OTR tyres in Europe

The figures available certainly seem to be in-keeping with the suggestion that premium manufacturers are leaving a gap in the market for cheaper competitors. The latest full-year ERMC Europool data for Western Europe shows that just over 134,000 OTR tyres were sold in the western European markets in 2007. However it is interesting to note that this actually represents a 6.6 per cent drop year-on-year. Broken down by application segment, it is clear that the 6.6 per cent overall drop is reflected across the board with two notable exceptions: Firstly, radial mechanical handling tyre sales grew roughly 5 per cent last year to approximately 23,000 units across Europe; and secondly radial crane tyre sales skyrocketed almost a fifth to over 17,000 units.

With no data to suggest that European market demand has reduced 6.6 per cent, and bearing in mind that these figures don’t include tyres produced outside Europe, the overall market drop could represent the gap in the market the imported tyre manufacturers are looking to fill. That said there is little in the way of evidence to show exactly how many tyres are being imported into Europe.

All this speculation about increased Far Eastern tyre product has led some global mining operations to conclude that the OTR tyre shortage will soon be over. Earlier this year, De Beers director Debbie Farnaby told Mining Weekly that she expects the shortage problems to be resolved by the end of 2008, despite earlier indications suggesting that the shortage of large OTR tyres would last two or three years longer.

During this interview Faranaby revealed that her company has been testing unidentified Far Eastern tyres at Venetia, De Beers’ largest South African diamond mine. However, just as interestingly (later in the same interview), Farnaby revealed a possible explanation as to why. The implication is that certain manufacturers appear to be offering preferential supply arrangements in exchange for information. “We won’t buy anything that’s not Michelin, we report everything that we get offered and, as a consequence, they’ve been very good in supplying us, and we have managed to keep all mines operational,” Farnaby told Mining Weekly. At the same time there are reports of Mining companies investing in increased tyre-making in partnership with tyre manufacturers so their investments can be repaid in kind with tyres.

The point is that those companies that don’t have such good relationships with manufacturers end up buying whatever they can source. And this does not always fulfil customer expectations.

Some customers report that tyres they expected to last 7000 hours in fact were useless after 1000 hours. While it is important not to tar all Far Eastern brush products with the same brush (some manufacturers are going to great lengths to demonstrate that they use premium materials and machinery in their tyres), this dramatic example is consistent with the worst reports T&A has encountered. Speaking off the record to one respected testing engineer revealed that with some exceptions, most Chinese radial OTR products he had tested do not yet offer the performance or retreadability that customers have come to expect from premium offerings.

Something similar appears to be true when it comes to high speed crane tyres. A year ago King’s Road Tyres’ Peter Gaster predicted that this market would soon reach saturation point: “In six months to a year from now the market with reach oversupply point. But you have to ask if all the products on the market are fit for purpose? One has to be sure that products are up to the job, especially when it comes to high-speed crane products.”

This view is further supported by the less than scientific anecdotal evidence provided by this month’s T&A question of the month. The overwhelmingly vast majority of those that answered our question (Has the European EM/OTR Market Reached Saturation Point?) answered “No – There may be more product than before, but I can’t get the right tyres.”

So on the one hand the OTR shortage may soon be over in some segment, but on the other hand that doesn’t necessarily mean there won’t continue to be a shortage of “the right kind of tyres.”