Read our OTR tire market - earthmovertiregroup.com

Load & hauL
on a roll
Earthmover Tire Group reviews the high and lows of the global OTR tyre
market over the past 10 years and analyses its effects on the mining industry
O
ver the course of the last
10-15 years, the off-the-road
(OTR) tyre market has
remained a significant and central topic
of conversation. Dominated by astronomical price surges and subsequent
crashes, what was once a normal part
of the supply chain had turned into a
frenzied gathering to which everyone
was invited.
While busy maintaining their core
businesses of meeting production
goals, developing expansion plans,
balancing commodity prices and
appeasing shareholders, miners were
put to task with having to navigate an
ever-changing tyre market for which
there was no manual to reference.
To properly examine the state of the
OTR tyre industry today, it is imperative
to dissect the past market conditions
from which the foundation was built.
www.
.com
2004-08: LaYing the
foundation
Between 2004 and 2008, OTR tyre
users received a crash course in supply
and demand.
The first lessons were straightforward: if global economies are booming,
so are most commodity prices. If
commodity prices are high, there is
increased investment in expansion;
when mining expansion is under way,
fleets also expand; when fleets grow in
number, more tyres are required to
ensure demand is met; and when tyre
demand exceeds tyre supply, a
shortage is born.
It was the final lesson that came
hardest to miners.
Tomy Szczypiorski, vice-president of
US-based Earthmover Tire Group,
explains: “Mining companies were
caught scrambling to find ways to
March 2015
protect their operations from the
shortage. It was a ‘learn as you go’
experience for many.”
As the industry coped with
piecemeal solutions to temporarily
solve their tyre supply issues, the global
financial crisis (GFC) struck in August
2008. Economic health crumbled and
global industry was left reeling.
Szczypiorski adds: “This was certainly
a period of great difficulty for many
companies. However, as it pertains to
the tyre shortage, it was a pause in the
chaos and a chance for the industry to
re-organise.”
2010-13: Post-reCession
shortage
This was a significant period, as it
encompassed the world economy’s
emergence from the GFC. During this
time, the mining industry provided a
There is
currently a
high volume
of surplus
inventory
available in
the market
21
22
Load & haul
The OTR tyre
market has seen
dramatic ups
and downs over
recent years
“By the
close of
2013, the
market was
seeing low
averages
similar to
those at the
beginning
of 2010,
completing
a four-year
cycle of
inflated
prices”
Number of
mining trucks
shipped
between 2010
and 2014 using
40.00R57
OTR tyres
continued showcase for just how
quickly OTR tyre prices could react to
changes in the commodity market.
“In 2011, the average price for a
40.00R57 in the secondary market
increased by US$36,858 or 68% during
one six-month period,” says Szczypiorski. “In 2013, the same tyre decreased
in value by US$34,909 or 34% over six
months.”
While this period welcomed the
return of healthy commodity prices, it
was evident that end users had learned
valuable lessons from the previous
shortage. Companies actively
familiarised themselves with alternate
tyre options to avoid paying enormous
prices for tier-one tyres in the
secondary market. This helped to
manage the effects of short supply.
During the downturn, many had
systematically devised an approach to
identify the safest ‘next best’ options,
and although miners were better
equipped to deal with the shortage
environment, this did not entirely
protect them from exposure.
As the global economy slowly
rebounded, so did the demand for OTR
tyres. This re-emergence drove prices
skyward in 2011 and 2012, especially
for giant sizes, tripling and sometimes
quadrupling figures recorded in 2010.
A squeeze on natural rubber
inventories played a major role in
prompting approximately 77 price
increases by 18 tyre makers, and also
causing secondary-market prices to
react sharply.
2012 was the year that saw prices
reach renewed heights during the
‘post-recession shortage’. However, as
companies adopted more conservative
approaches to spending and expansion,
those high prices were short-lived and
followed by a slow yet steady decline
into 2013.
“By the close of 2013, the market
was seeing low averages similar to
those recorded at the beginning of
2010, subsequently completing a
four-year cycle of inflated prices,”
Szczypiorski concludes.
2014: new lows
2014 welcomed a new definition of low
with regard to secondary-market prices.
Not only did prices fall to near-contractual levels (in some instances below),
but there also became a high volume of
surplus inventory available in the
market.
As OTR tyre consumers aimed to
bolster cash reserves and lighten
inventories, many began to evaluate
off-loading assets not immediately
required, including OTR tyres. At the
same time, tyre manufacturers were
also experiencing increased inventory
levels, ultimately leading to a
significant swell in available stock. This,
coupled with minimal demand, further
weighed prices down to those seen
during the GFC.
“Although the economy may not
March 2015
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.com
24
Load & haul
highest number of new truck shipments
occurred (4,750 units of 90-363t
capacity). Conversely, as truck deliveries
slowed into 2013, tyre prices recorded
their sharpest decline in average pricing.
2015: transitioning into
the future
Graph showing
average
40.00R57 tyre
prices between
2010 and 2014
have been in the same state of chaos
that it was during the GFC, mining
companies focused on conservative
approaches to spending in the weaker
commodity market,” Szczypiorski states.
“Consequently, this directly affected
truck deliveries, which share a high
correlation with tyre demand and
pricing.”
The period’s peak average prices were
all recorded in 2012, and this also
happened to be the year that the
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As prices in the secondary market
remain at their lowest level in years, a
sense of quiet has settled over the OTR
tyre industry. On the back of a sharp
decline in copper and oil prices, many
miners are taking this time to closely
review their capital budgets.
CAPEX cuts should delay new
capacity additions, this having a direct
impact on the number of tyres required
on a global scale. Additionally, the
Bloomberg Commodity index recently
fell to its lowest point since August
2002, while the Chinese economy (the
world’s largest consumer of commodities) recorded its lowest rate of growth
in 24 years.
“These statistics are undoubtedly
concerning when considering growth in
the global mining sector,” Szczypiorski
notes. “However, this is another
opportunity for miners to further
educate themselves, and properly
Load & haul
organise and prepare for the future.”
Not all the news is bad news, as
history has proven that mining is
extremely cyclical in nature. As China
undergoes new reform, experts have a
generally positive outlook for the
world’s largest economy in 2015 and
beyond. Miners will be hoping that this
spurs yet another increase in commodities consumption.
When asked how that may affect the
OTR tyre balance, Szczypiorski says:
“Our current tyre-manufacturing
capability, on a global level, is
significantly broader than past
shortages. OEMs will be far better
equipped to react when the market
returns.”
Anchored to the ebb and flow of
mining activity, OTR tyre shortages
share the same cyclical nature. It is
those companies that carry out due
diligence and understand the pitfalls of
the tyre market that will succeed in the
near and long term.
Szczypiorski summarises: “Miners
should utilise past shortage experiences
as their greatest assets. It is difficult to
predict the future. However, if you
closely analyse past trends, you can
proceed confidently with a clear plan.”
25
Graph showing correlation between
haul truck deliveries and 40.00R57
tyre prices between 2010 and 14
Earthmover Tire Group is a web-based solutions provider offering platforms to seamlessly navigate the mining-tyre industry.
See: www.earthmoverDIRECT.com
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