OTR makers navigate waters of turbulent mining industry

While heavy duty conveyor belt producers have struggled mightily to overcome the downturn in the mining industry, most manufacturers of off-the-road tires also have had to traverse the same turbulent waters.

Recent production cutbacks, global company restructuring, dividend elimination and mine closures within the sector are affecting all regions, according to Taylor Cole, president, off the road, Bridgestone Americas tire operations.

“This is the nature of a cyclical business,” he said. “However, the lengthy period of high demand has positioned the commodity market in a territory where it has never been regarding its ability to supply product to the market.”

Because mining companies in the U.S. struggled during the last year with lower commodity pricing and over-supply, some tire manufacturers scaled back large OTR tire production.

Michelin North America Inc. suspended operations at its Starr, S.C., giant earthmover tire plant, impacting about 100 employees, at the end of last year due to slowing global demand. The factory is one of three Michelin factories globally with capacity for 63-inch OTR radials.

Titan International Inc. cited a cyclical downturn in the mining and agricultural markets for its double-digit third quarter and nine-month sales declines last year. Titan said demand for its products was further impacted by inventory reduction efforts at both OEMs and their dealers.

Weak market conditions in key sectors prompted its subsidiary, Titan Tire Corp., to put in motion plans to lay off at least 130 workers at its Bryan, Ohio, farm and OTR tire plant beginning Feb. 8. Those cuts followed a number of others put in place last year in response to the decline in the mining sector.

CEO and Chairman Maurice Taylor Jr. noted that when the market is off for two years, as it has been in terms of mining, the third year is usually flat, “and then we grab market share and move up. So I do expect business to pick up or at least be flat this year,” depending on market conditions.

Saying that the global commodity market has experienced an extraordinary period since 2000, Jamey Fish, director of marketing for Michelin Earthmover North America, said “the dynamism we witnessed in the Chinese economy with respect to commodity consumption has begun to level out.

“This means the industry and its supporters are adjusting from the period of rapid expansion to one of stabilizing production.”

Based on current indicators, he said, “we feel that the bulk of the adjustment has been realized, and we can look forward to the homestretch leading to the "new normal' that will involve much higher commodity demand than prior to the 2000-14 super cycle,” he said.

“Mining is in a bit of an opposite than it was 10 years ago,” said Bruce Besancon, vice president of marketing for Alliance Tire Americas Inc. The commodity prices are down. If you look at oil, we're at about $25 a barrel.

“We've been hit with big heavy mining, commodity prices going down and coal going down, so I don't see there being a major turnaround,” he said. “There is obviously still work going on, but the (capital expenditures) that the mining companies were going into a number of years ago and really expanding ... has reduced some. I think there is a core base of that mining that continues on.”

Mining machinery manufacturers will continue to struggle at least through 2016, he contended.

“I don't think there are a lot of large machine orders out there,” Besancon said. “But I think there is a good base of people who have survived the last few ups and downs that we always have. And they are the go-to people that will keep things running steady.”

Alliance Tire's core product range is in construction, utility and small quarry. “That's what we've decided to concentrate on because that's where we feel that we can have the biggest impact with things,” he said. “And quite frankly, we have been expanding in that over the last number of years. Unlike some of the bigger guys that had to actually idle capacity, we're growing it. We're in the right sector at the right time.”

He noted that the company has been ramping up production at its new tire factory in Dahej, India.

Fish said the mining industry has continued to place more demands on open pit mine sites, primarily when it comes to the performance of machinery. “Machines are required to be pushed to their maximum potential. Miners want their trucks to carry more, carry it faster and experience little or no downtime.”

Miners who primarily work in quarries, small surface mines and construction areas generally use newer model loaders that continue to increase in power, torque, speed and load capacity in order to allow them to dig deeper, carry more load and travel faster, Fish said.

Because they work in areas ranging “from rocky terrain with debris to puddles and mud, and their primary usage is load and carry,” he said, “users need tires that are well matched to support their uptime and cost targets.”

According to Bridgestone's Cole, the market will improve when supply and demand come back into balance. Because there are numerous macroeconomic factors that impact the timing of the return to that balance, it's difficult to predict accurately when that will happen.

“In the longer term, the mining industry will prevail due to the fundamentals of the industry being necessary for economic growth—but may be a few years out as the global industry continues to struggle,” he said.

On the up side, Cole said, the port and construction industries have a positive outlook for 2016 and with the recent passage of the federal highway bill, OTR tire makers could benefit, especially if the infrastructure experiences a strong recovery.

“Any company that supplies products to the mining industry is having difficulty completely offsetting the reduction from the mining industry,” he said. “As a strategic partner with our customers, our focus has been on finding creative methods to help them improve productivity on a cost per ton basis. This is an approach we take regardless of the market conditions.”

Mike McNulty, Rubber & Plastics News Staff, contributed to this report.