Construction market rebuilds after difficult 2020

Of the three OTR tire markets, construction took the biggest hit during the pandemic last year, but the industry seems to be recovering in 2021.

"Overall, there was a decrease in construction-related activity due to the COVID-19 pandemic, which affected the OE and replacement tire market in 2020. However, all signs point to a better year in 2021, which is great news," said Paul Hawkins, senior vice president, aftermarket sales, North America, for Titan International Inc.

"The markets took a dip in 2020—mainly in Q2 and Q3—as COVID-related shutdowns and quarantines took place. There was increased activity moving into the second half of the year, and we see that trend continuing into 2021," added Bruce Besancon, vice president, OTR sales for Yokohama Tire Corp.

"While the outlook is 'cautiously optimistic,' we are looking to a good 2021. By all accounts GDP will be up in Q1 2021 by a significant amount (about 4 percent)—and GDP is a good indicator of what the business will be looking like."

Dodge Data & Analytics Inc. predicts that U.S. construction starts will increase 4 percent in 2021, to $771 billion.

"The COVID-19 pandemic and recession has had a profound impact on the U.S. economy, leading to a deep drop off in construction starts in the first half of 2020," Richard Branch, chief economist for Dodge Data, said.

"While the recovery is under way, the road to full recovery will be long and fraught with potential potholes. After losing an estimated 14 percent in 2020 to $738 billion, total construction starts will regain just 4 percent in 2021."

The dollar value of starts for residential buildings is expected to increase 5 percent in 2021, nonresidential buildings will gain 3 percent, and non-building construction will improve 7 percent, according to Dodge Data. Only the residential sector, however, will exceed its 2019 level of starts due to historically low mortgage rates that boost single-family housing.

Meanwhile, the Associated General Contractors of America reported that few construction firms expect the industry to recover to pre-pandemic levels anytime soon. A recent survey of contractors indicated widespread pessimism about the volume of work available in 2021.

According to the AGCA survey, firms reported that many of their already-scheduled projects either have been delayed or canceled. The survey showed that 59 percent of firms reported they had projects scheduled to start in 2020 that have been postponed until 2021; 44 percent had projects canceled in 2020 that have not been rescheduled; 18 percent reported that projects scheduled to start between January and June 2021 have been delayed; and 8 percent had projects canceled.

"The outlook for the industry could improve, however, if federal officials are able to boost investments in infrastructure, backfill state and local construction budgets and avoid the temptation to impose costly new regulatory barriers," AGCA CEO Stephen E. Sandherr said.

"How significant that recovery is will depend in part on the level of federal infrastructure funding passed. Regardless of infrastructure funding, however, Titan is investing in new OTR product development that will position us and our dealers for success in 2021," Hawkins said.

Tire market

Despite the uncertainties in the construction market, tire makers are optimistic.

"The OE market has started to rebound nicely, so I would anticipate a nice recovery in 2021, possibly double-digit growth," said Shawn Rasey, director of global business development for earthmover tires for Continental Commercial Specialty Tires.

"Like in the mining segment, replacement tire sales for construction products started to climb over Q4 of 2020 and demand seems to be starting out even stronger in 2021, perhaps high single-digit growth."

Besancon noted that some tire dealers are starting to rebuild tire inventories.

"They kind of let them run down. When things get difficult, people get very cautious and right now people are starting to look a little more optimistic about where we're going to be this year," he said.

The tire makers said there hasn't been an issue with construction tire fill rates.

"Generally speaking, fill rates have not been a problem throughout 2020. However as demand has started to increase at such a brisk pace here in early 2021, it may bear watching how this develops as the year wears on," Rasey said.

However, higher raw material costs, along with rising transportation fees, may prompt some tire price increases this year.

"In 2020, OTR pricing held steady for the most part. With large increases in the cost of raw materials and the increase in demand, look for price increases in 2021," predicted Scott Holub, manager of OTR technical services for BKT USA Inc.

"Similar to agriculture, raw material prices and pricing for logistics on those raw materials are on the rise, which will have an impact on tire pricing," Hawkins said.

Trends

The construction tire OEMs said they are taking steps to address the trends in the market.

"The biggest trends/issues we see happening in the market are that end-users have become very market savvy—this is not new—but the customers really want to focus on the value they are getting for their money on tires," Besancon said.

Yokohama recently consolidated its OTR tire sales operations and brands under the new Yokohama Off-Highway Tires Americas division.

"By doing this we can offer value products and the higher end, more performance-priced products in a complete market portfolio that we see will be attractive to most customers. Now instead of trying to find multiple brands to suit their needs (and budgets), they can rely on one supplier to help them across the board. ... The more we can make things simple for the customer, the better off its going to be for everybody," Besancon said.

"In an ever-increasingly competitive environment for contractors, reducing costs, improving productivity and controlling health- and safety-related incidents on site are major drivers," Rasey added.

"Our focus at Continental has been on bringing new technology and integrated fleet solutions to contractors to address these very issues. We've seen this development coming for several years, and with the events of the past year it brings these challenges into even more clear focus.

"Our ContiPressureCheck system is just one way that we are integrating new technology into our fleet management approach. It allows remote monitoring of fleet performance enhanced with better and more accurate data to help end-users, dealers and Continental to address these critical concerns in real time," Rasey said.

"With BKT having our own tire mold factory and a carbon black plant, we are able to respond quickly to the changing needs in the market and grow our product line offerings to meet the demands of OTR tire dealers and end-users," Holub said.