A severe global shortage of large off-the-road tires caused by soaring demand in China, Russia and Indonesia will continue in 2005.
That´s the opinion of tire manufacturers, who are working flat out to meet demand, and dealers who find themselves on allocation. "There´s no less supply—every OTR tire plant in the world is running 24 hours a day," said Manny Cicero, vice president of OTR sales for Bridgestone/Firestone. "It´s all a function of exploding demand."
OTR tire demand increased more than 20 percent in 2004 from 2003, according to Todd Ramsey, director of marketing for Michelin Earthmover at Michelin North America Inc. "This demand is unprecedented in the history of the industry and was unanticipated by the industry," he said.
Goodyear agrees growth in OTR consumption in 2004 prompted the shortage. "From our standpoint, it was a result of increased demand, domestically and overseas," a Goodyear spokesman said.
OTR manufacturers aren´t even taking new orders now, dealers across the U.S. reported.
"We´re on allocation with everybody," said Terry Sparks, president of Sparks Commercial Tire Co. in Findlay, Ohio. "We have people calling us from all over, but unfortunately we can´t help them. We´re OK right now, but in 45 days I don´t know what we´re going to do if we don´t get more tires."
The shortage is starting to hurt mining, construction and other companies right down to the lowest-level employees. "If a mining company has to park a piece of equipment because it can´t find tires for that equipment, that takes the operator off the job right there," said Edward L. Johnson, sales and regional manager for Hudson Co., an OTR tire dealer in Hazard, Ky.
Bull market causes shortages
A tremendous increase in demand for minerals—especially coal, iron ore, copper, nickel and bauxite—with no matching increase in OTR manufacturing capacity is behind the OTR tire shortage, according to Otraco International Pty. Ltd.
"The demand for these commodities has been driven largely by the surge in development in China and, to a lesser extent, Russia and India," Otraco, a provider of OTR tire management services, said in report issued by the Australian firm in 2004.
OTR tire makers and dealers second that assessment.
"China is a big driver of the market, as are Russia and Indonesia—indeed, pretty much all the developing countries," BFS´ Cicero said.
In a year´s time the price of copper more than doubled to $1.40 per pound from 60 cents and lead to more than 40 cents from 16, said Bob Purcell, president of Purcell Tire & Rubber Co. in Potosi, Mo.
"You don´t have to be a genius to know what happens next," Purcell said. "Every marginal truck that was parked, every marginal mine that was closed, is put back into service."
The current bull market in mining also is fueling a tremendous increase in demand for new mining trucks and equipment. Cicero said companies held off buying equipment for years, waiting for the market to improve.
In planning production capacity for OTR tires, tire companies pay close attention to the projections of their OEM customers. Eighteen months ago, the equipment makers predicted demand growth of only 3 to 5 percent.
That´s way below what Continental Tire North America Inc. has experienced. The firm has seen OTR demand grow 14 percent in the replacement civilian market and 33 percent in the OEM civilian market, according to Jack Fenner, Conti director of dealer sales for North America. He projected the shortage will continue throughout 2005.
"It´s a cyclical business, and the industry has not seen an increase since 1999," Fenner said.
That being said, Conti is negotiating the sale of its OTR tire plant in Bryan, Ohio.
The mining industry is notoriously difficult to predict, according to Cicero. "Nobody knows when or how big the upturn´s going to be, except in retrospect," he said. "Even if they´d predicted correctly, it´s not that easy for a manufacturer of our size to increase our capacity that quickly."
The upshot is that—particularly in the super-large sizes for mining applications—the shortage has become acute. For at least one type—57-inch bead diameter tires for mining trucks—the capacity at some plants is one tire per day, said Mike Berra Sr., president of Community Tire Co. Inc. in St. Louis, Mo., which specializes in OTR retreading.
Responding to demand
Bridgestone, according to Cicero, is investing about $130 million to double annual capacity of small radial earthmover tires at its Hofu plant in Japan to 16,000 metric tons and has expedited the expansion to go onstream in mid-2006, instead of year-end 2007.
Until new capacity is available, however, the manufacturers are forced to allocate production. BFS is placing its highest priorities on fulfilling its contractual obligations and pursuing its strategic goals, Cicero said.
"If we´re contractually obligated, we have to take care of that," he said. "We are trying to be loyal to the people who are loyal customers to us."
It´s the same situation at Michelin. "We are doing everything possible to provide all of our customers with as many quality tires as possible, as quickly as possible," Ramsey said.
Goodyear has only one OTR tire plant, in Topeka, Kan. This facility already is running at full capacity, but rather than increasing that, the firm is focusing on improving productivity and boosting output with its current equipment, the Goodyear spokesman said. The tire maker also has an allocation program in effect through 2005.
The shortage has forced manufacturers to prioritize among customers, according to Fenner. "With our dealers, it depends on how much of a percentage of their business our brands are," he said. "If we´re 10 percent of his total business, we probably don´t represent enough of it to matter much to him. There are some people who buy only 10 tires a year."
At Yokohama Tire Corp., the company ended 2004 with just a 1.2-month supply of OTR tires vs. 3.5 in 2003, according to Gary Nash, director of off-road tire sales. He said aftermarket demand during the last half of 2003 jumped by 70,000 units, and tire makers never caught up with demand last year.
"It´s really different from the times where you had so much inventory on hand that you had to reduce prices. It´s been an exciting year. I don´t know which is better."
Vera Fedchenko, Tire Business staff, contributed to this story.