The off-the-road tire market is unlikely to change much from last year, which means OTR dealers will see plenty of business but not enough tires to meet demand, two OTR industry officials said.
Gary Nash, director of off-road tire sales for Yokohama Tire Corp., said a number of indicators show that 2005 will be a ``banner year'' for the OTR tire market, thanks in part to Congress's extending funding levels set forth by the nation's surface transportation law through May 31. The increased road construction activity and growth in the overall construction industry has created a boom for the rock quarry and sand and gravel companies-the very sectors that need OTR tires most, he said. Congress is expected to renew the legislation this year.
Jack Fenner, Continental Tire North America Inc.'s director of dealer sales, said the number of replacement OTR tire units sold rose 14 percent in 2004 from the previous year, and original equipment tire units sold jumped by 33 percent from 2003. Those figures count units sold only to the civilian market, and Mr. Fenner noted that he expects units sold to continue to increase in 2005.
``It's a cyclical business, and the industry has not seen an increase since 1999,'' Mr. Fenner said. ``The last six months of 2003 was the beginning of increased demand for OTR product in the U.S.''
Replacement OTR tire units sold to the military jumped 14 percent in 2004 from 2003, and OE units rose 8 percent from 2003, according to Mr. Fenner.
Factors that fostered demand for OTR products in 2004 included a cold winter in the eastern U.S., which helped increase coal production, Mr. Nash said, while demand in China and other countries, particularly the Third World, raised iron ore production. Gold and copper prices also have been high.
``We figure that 2005 will be basically the same as 2004 with maybe just a small decline,'' Mr. Nash told Tire Business. ``Most of that is because of the Iraqi war buildup in 2004.''
Mr. Nash noted that positive growth indicators within the U.S. economy should also bode well for the OTR sector, including a 4-percent growth in industrial production in 2004 from 2003 and an unemployment rate of 5.5 percent.
Despite the rosy economic news, high demand has caused shortages of supply, and both Messrs. Fenner and Nash agreed that the supply situation will not get any better in 2005. Because of supply restrictions, Mr. Nash said Yokohama is not projecting a huge increase in OTR sales this year.
To give an example of how bad the supply situation is, Mr. Nash said that at year-end 2004 Yokohama had a 1.2-month supply of OTR tires vs. a 3.5-month supply at year-end 2003. He said replacement market demand during the last half of 2003 jumped by 70,000 units, and tire manufacturers just never caught up with demand last year. (See related story on page 1.)
``When you look at OE, the demand there has been so heavy that even the big OEMs are probably short by 25 percent of their needs just to get their equipment out the door,'' he said. ``It's really different from the times where you had so much inventory on hand that you had to reduce prices. It's been an exciting year. I don't know which is better.''
Mr. Fenner, who will present industry OE and replacement numbers at the Tire Industry Association's OTR Conference Feb. 24-26 in Tucson, Ariz., said the OTR tire shortage will continue through 2005 despite ramped-up production by tire manufacturers. He estimated that overall OTR tire production may be up 10 percent at most and that most plants will be running at or near capacity.
``I don't know how it could be up much more than 2004 because I don't think the capacity is there,'' Mr. Fenner said. ``I don't think you could possibly build too many more tires today.''
Yokohama at most could increase its OTR tire production in 2005 by 8 percent, Mr. Nash said, and that's with plant employees working holidays and overtime. The company also could increase OTR tire supply by 4 percent if it imports tires from its off-take ventures in Taiwan and China, but an obstacle facing imports is a weak U.S. dollar, so a lot of offshore production is going to Third World countries, he said. If the dollar strengthens, that could help bring more offshore tires to the U.S. to ease supply problems.
The recent tsunami in the Indian Ocean basin is not impacting demand for OTR tires because much of the relief efforts there involve military vehicles, Mr. Nash explained. However, prior to the tsunami disaster U.S.-based mining companies already had moved some operations to that area of the world because of strong environmental regulations here in the U.S., he said.
A recurring problem that still hasn't disappeared-high raw materials costs-will continue to plague the industry this year, Mr. Fenner said.
``Our raw materials in 2004 went up over 15 percent,'' he noted. ``I think steel is going to be the biggest problem right now. Some of this stuff, it's not how much it goes up, it's whether you get it in at all. We've had to air freight steel from Seattle to a plant to keep from shutting it down. At that point, we're not asking what the price is.''