Mining freefall taking toll on rubber industry

It wasn't pretty in the mining industry during 2014 or 2015.

Producers of rubber products such as conveyor belts for the mining industry experienced very difficult times. Added to the companies' displeasure has been the downturn in the oil and gas sector, where a number also have a stake.

Expect more of the same in 2016, although there could be a slight improvement, some manufacturers of rubber goods said in recent interviews. But then again, anything is an improvement over dismal.

For the mining industry globally, a bad year ended on a bleak note. Mine giant Anglo American said in early December it would cut as many as 85,000 jobs from its work force of about 135,000 as it overhauled its business. A drop in commodity prices led to that decision, according to the London-based firm, one of the world's largest mining companies.

Anglo American officials said the firm planned to sell parts of the business—including possibly coal and copper mining operations—but added that further details would not be available until later in February.

ContiTech A.G., one of the largest conveyor belt producers in the world, does not foresee a significant improvement in 2016 globally or within North America, where it gained a large base when it completed the purchase of Fairlawn, Ohio-based Veyance Technologies in January 2015. It already had a solid presence in the belt market in Europe and Asia.

Global demand for mining commodities remains stagnant, a ContiTech spokeswoman said, and has negatively impacted the company's sales. “We believe the overall mining market will recover on a medium-term perspective.”

There is potential for some mining segments to do better if external conditions significantly change and things break right, she said.

She said the firm's heavy duty belts mainly are produced for the mining industry, but there are other industrial fields where the company has a strong presence, such as bulk material handling for above-ground activities or cement plants.

Being versatile and producing products for numerous sectors has helped ContiTech maintain balance and profitability during the long slump.

“Currently our business with the automotive industry is developing well,” the spokeswoman said. “Based on our past experience, we are able to balance economic fluctuations with our broad positioning. That is why our strategy is based on being active in different industries. That is a big, unique advantage that we have at ContiTech.”

Despite that versatility, the company closed its Bowmanville, Ontario, conveyor belt plant in November because of the continued global downturn in the mining sector, in particular the coal industry in North America. About 135 employees were affected.

Hannes Friederichsemn, head of the firm's conveyor belt group, cited decreasing demand for mining materials in discussing the closure. He noted that 71 major mines in 2016 worldwide were forced to shut down, “with 17 closing between July and September alone.”

ContiTech, which has its U.S. and NAFTA headquarters in Fairlawn, said it would relocate production of heavyweight belts—both steel and fabric—from Bowmanville to other company plants in the region.

Another leading manufacturer of heavy duty conveyor belts, Vienna, Austria-headquartered Sempertrans—one of four business segments of Semperit A.G. Holding, which has a strong presence in a variety of industries—produces about 50 percent of its belts for mines, including iron or copper ores, bauxite, coal, fertilizers and others.

It also makes belting for use in the cement, steel, ports, thermal power and heating plants, quarries and the chemical industries.

That gives the firm a broad base for its conveyor belts.

“While our stronghold has been Europe, during the last (several) years we have significantly expanded the global presence of Sempertrans and our conveyor belt product and technology for our customers globally,” said Boris Illetschko, head of the Sempertrans operation. That includes North and South America, Africa, the Middle East, India, China, Southeast Asia and Australia.

It also has plans on the drawing board to add a conveyor belt production plant in the U.S. in the not-too-distant future, he said.

Due to low prices for natural resources, Illetschko expects mine companies will continue to scrutinize new projects more thoroughly and continue cost-cutting programs at existing operations.

“This might include more closures of those mines, which cannot produce according to the current market price level,” he said. “While the U.S. economy is generally performing better than the European Union's economy, the relatively strong U.S. dollar as well as the sentiment toward coal in our opinion will not allow a much better U.S. mining industry development than globally.”

After the end of the mining super cycle—from 2000-14, when the global commodity market experienced significant growth—mines and suppliers began facing serious challenges. Today, with a weak global economy and little growth support from China on the horizon, “we see imbalance of supply and demand for raw materials to continue for awhile,” Illetschko said.

Nevertheless, he said, “in the long run, we still believe the megatrend for raw materials demand will continue, even though we may not see a mining super cycle in the near future again.”

Despite a challenging market environment during the last two years, the firm was “able to record a positive volume development in the first three quarters of 2015,” the executive said.

That development was made possible, he said, by winning new customers and expanding the company's share among existing customers by:

• Further developing the company's first tier heavy conveyor belt portfolio to optimize product performance;

• Providing additional value to customers through technical consulting by the firm's application engineering team;

• Striving toward excellence in customer service to ensure it delivers what it promised and what customers expect from the company; and

• Strengthening and extending the firm's sales and distribution network, including entering new markets and market segments, and convincing new customers to select Sempertrans' belts.

Illetschko said the result from its efforts has been increased demand for the company's products and led to the decision to expand its plant in Belchatow, Poland. Sempertrans invested about $43.4 million to double the factory's capacity.

London-based Fenner P.L.C.'s Fenner Dunlop conveyor belting business experienced both major changes and cutbacks in 2014 and 2015 because of its heavy exposure to the mining industry, to which it supplies a variety of products including heavy duty belts.

Most recently, it refocused and restructured its Engineered Conveyor Solutions Americas' operation in North America, began slashing its work force of about 800 by 20 percent and set the stage to close a large portion of its 285,000-sq.-ft. plant in Port Clinton, Ohio. The largest number of cuts will be made at the Port Clinton facility.

Fenner estimated the savings gained from the restructuring was about $10.8 million, beginning in the second half of 2016.

Company officials said they expected that in fiscal 2017, the financial returns of the Americas' conveyor belt operation will start to return to more normal levels, despite revenues being less than half of those achieved when the business was thriving and hit its peak.

It also began downsizing the company's South American business to reflect changing conditions in the copper mining industry.

In September, Fenner CEO Nicholas Hobson noted that the company continued to see declines in the North American coal market. “We have started to see bankruptcies and in-solvencies among some of the smaller mining companies in America in the past few weeks.”

Other moves the firm made previously include:

• An 11 percent reduction of its Amer-icas work force in August, trimming costs by more than $9.8 million;

• Merging its global operations into two divisions, the Northern Hemisphere and Southern Hemisphere/Asia-Pacific from the previous three, and eliminating a director's post; and

• Downsizing and cutting costs within the company's belting units in England and China.

In October, Hobson said Fenner would continue to restructure and realign its manufacturing and service capabilities. It is not merely a cost-cutting exercise, he said; it is a refinement of the firm's business model.

“The Chinese coal mining industry has somewhat belatedly come to be in a similar position with the rest of the world,” said Hobson, who in January took a temporary medical leave of absence.

He said China “is the engine for a lot of what happens in the mining industry. An acceleration of growth in China could improve mining conditions in many parts of the world, certainly in Australia as well as ... Brazil and South Africa.”

Fenner's goal is to position itself not as a heavyweight conveyor belt manufacturer, but also as a provider of ancillary products and services, he said.

Hobson did not predict when he thought the mining industry would level off and begin to rebound.

However, company officials in a January update said U.S. coal production was down by around 10 percent during 2015.

They estimated that the challenges being faced in the U.S. coal industry will continue for some time.