Mining industry looks to dig out of slump in 2017

The mining industry is having a difficult time digging itself out of a multi-year slump, but this year's outlook, while still sluggish, is expected to be an improvement compared to 2016, according to industry observers.

The OE market for OTR tires was down in 2016, especially for large, heavy-duty equipment, and it is expected to remain flat this year, according to Tim Easter, director of off-the-road sales for Yokohama Tire Corp.

The aftermarket also suffered as fleets parked their equipment amid the mining slowdown.

However, things may change under the Trump administration.

"We're seeing a bit of an upturn on metallurgical coal and, based on changes in our government and how they react to the Clean Air Act and different things, I think you'll see steam coal could return," Easter said.

"We're getting reports now from some of our dealers and mines that they're putting people back to work, which is a very, very positive sign, and that's predominantly in the East. The western mines ... probably will see some of the same things in time."

The 2017 mining market will be driven by prices for gold, copper and other ores.

"If the economy improves and the market goes up, we could see some positive movement in that as well," Easter said.

"We're not seeing any big jumps, but we are seeing a small movement in a positive direction."

He noted a sense of optimism in the OTR industry regarding President Trump.

"I think 2018 probably will be better once the administration is in and we see where the economy is going to go," Easter said.

Michelin North America Inc. said growth remains well below historical highs, but anticipates improvement in 2017.

"We're expecting to see some growth in mining production next year, but the commodity market will remain uncertain driven by political unknowns with our new presidential cabinet and ongoing changes in China," Michelin said.

Taylor Cole, president of Bridgestone Americas' commercial OTR business unit, also believes 2017 will be more positive than 2016, citing the possibility that the Trump administration could be more favorable than past administrations have been for natural resources in general.

"It's nothing that happens overnight. It's really tied to supply and demand in general and it's not just domestic policies that drive that, it's global supply and demand," Cole said. "Yes, the administration has the ability to help with positioning the market to a certain extent, but a lot of this being a global supply-and-demand-driven business, it's going to be driven by things outside of just an administration in the U.S.

"We're looking at a optimistic viewpoint—not to return to the levels we saw in the past—but I think we've started to see the bottom being reached in the overall mining market, and there will be some oscillations up and down with different commodities."

Still some hurdles

Elevated costs and lower mineral prices are expected to hamper the U.S. mining industry through 2017, according to Business Monitor International Ltd. Research, a Fitch Group company.

BMI expects coal production to continue to decline because of weak thermal and metallurgical coal prices, significant coal stockpiles and competitively cheap natural gas.

The firm added that the declining coal sector, which accounts for nearly two-thirds of the U.S. mining industry value, will drag down mining overall. BMI forecasts it to contract by an average of 0.6 percent annually from 2017 to 2020.

It projects the U.S. mining industry value to stagnate, totaling $97.7 billion by 2020 compared to an estimated $98.2 billion in 2016.

"We forecast U.S. coal production to maintain a steady decline, averaging a 2.5-percent contraction over 2017-20. In terms of volume, we expect the U.S. to produce 625 million tons of coal in 2017 and only 588 million tons by 2020, compared to a peak of 1.1 billion tons in 2008," BMI said.

Meanwhile, U.S. copper production will edge up in the next few years as prices stabilize and as major miners cut costs and maintain output.

Conversely, the lead industry will remain bogged down by weak prices, tightening environmental regulations and increasing competition from recycled products.

Overall, the global mining industry's value and production growth outlook for 2017 gradually will improve over the course of the year as metal prices are likely to trend higher over the coming quarters, according to BMI.

"Any production growth in the mining market will likely be met with large efficiency efforts on the part of the mining operators to keep costs low and protect working cash flow," Michelin said.

Given these expectations, Michelin said it has no plans to restart production this year at its Starr, S.C., giant earthmover tire plant, idled in late 2015 because of slowing global demand. The factory is one of three Michelin factories globally with capacity for 63-inch OTR radials.

"For the tire industry, OTR customers will be increasingly focused in 2017 and beyond on the total cost of ownership and how well any given provider helps them meet their own business goals," Michelin said. "As seen over the last few years, miners will continue to manage down their tire inventories to a minimum while keeping just enough to meet their annual production plans as closely as possible."

BMI predicts capital expenditures among mining companies will remain subdued until 2018 due to persistently low metal prices. Miners will continue to seek ways to further cut costs and pursue greater operational efficiencies.

"A large share of global miners will shift away from the diversification strategy they have been following and concentrate on increasing competitiveness in specific commodities in order to improve earnings.

"Major miners will also increasingly direct capex toward innovation through the use of technology and automation," BMI said.

Bridgestone expects the OE equipment market to be flat this year due to inventory buildup of new equipment coupled with a surplus of used equipment in the market.

Bridgestone has sufficient capacity at its factories for mining tires, so it doesn't plan to increase production for the time being, Cole said.

Likewise, Yokohama, which produces OTR tires up to 51 inches in diameter, is looking at maintaining its output until the market improves, Easter said.

However, the tire maker is focusing on ramping up production of radial OTR tires vs. bias-ply.

"We're trying to build a lot of the products that are in demand now in the radial sizes. We're probably the best in the industry on the bias-ply side, but we're playing catch-up these last few years on the radials," Easter said.

"Pretty much everything we're developing now (is radial)," Easter said, adding that the tire maker also will be updating its bias-ply products and occasionally build a new product for underground mining which still uses bias-ply tires. "As far as development of new products with Yokohama, our focus right now is radial."