AKRON—Things are generally looking up for the OTR tire market in the construction and mining sectors this year as the U.S. economy slowly recovers from the recession.
Anticipating this uptick, several tire companies are boosting their OTR tire production capacity:
c Michelin North America Inc. last year announced projects to build a new radial OTR tire plant in Anderson, S.C., and expand mining tire capacity at its Lexington, S.C., plant, for a total investment of $750 million;
c Bridgestone Americas, citing strong demand for giant loader tires, is building a $900 million-plus radial OTR tire plant in Aiken, S.C., and boosting capacity for bias-ply OTR tires at its Bloomington, Ill., plant with a $27.3 million investment;
c Yokohama Rubber Co. Ltd. secured an alternative supply of OTR and mining tires via an off-take agreement with Shandong Xingda Tyre Co. Ltd. of Dongying, China, covering radial tires in rim diameters of 25 inches and larger; and
c Titan International Inc. bought majority control of Planet Corp. Group, a Perth, Australia-based OTR tire and wheel distribution and service specialist, whose assets include a supply relationship with Shandong Superhawk International Rubber Industry Co. Ltd. of Laizhou City, China.
Michelin described 2012 as a “divided” year for the OTR market with the first half more upbeat in sales than the second half.
Some OTR customers took a “wait-and- see” attitude regarding the presidential election and the fiscal cliff debate to determine how business-friendly the future would be, according to Bruce Besancon, director of marketing, North America Earthmover Tires for Michelin North America.
In the mining sector, coal suppliers faced reduced demand in the energy market last year due to an unusually warm winter and competition from natural gas, thus reducing tire purchases in this area. Other areas of mining continued on their very strong course over the last few years, Mr. Besancon said.
Construction of new homes continues to rebound, which will increase demand for construction equipment and quarry tires as the need for new roads and infrastructure increases. “Overall it was a positive year for the OTR tire business,” he said.
However, 2013 may also be a divided year, Mr. Besancon said, with the first half being more difficult than the second half.
“Seasonally, the first half normally is a bit more difficult—but with the added 'slowing' of the third and fourth quarters of 2012, this trend may linger into the first half of 2013. Many of the traditional indicators—housing starts, unemployment, GDP, etc.—are positive though not at enthusiastic levels as witnessed in the past, we do see a brighter second- half outlook. We remain cautiously optimistic for 2013 but will continue to monitor the market on a very close basis,” Mr. Besancon said.
The OTR tire market for the first half of 2012 was “extremely strong” but suffered a slowdown in the second half, at the OEM level and on the replacement side, according to Gary Nash, Yokohama Tire Corp.'s vice president of OTR sales.
However, he said tire makers still grapple with tire shortages.
“We were all shocked the global market slowed down so fast in 2009 and then recovered so quickly. The market really has taken off the last three years—that's what's caused the shortage. In 2013, the OTR market is predicted to be back to the high-volume sales levels of 2008,” Mr. Nash said. He noted that depending on the product, back orders can be anywhere from nine months to a year.
He expects continued growth of extra-large radial tires, 51-inch and larger, which he said is the fastest-growing segment in the industry.
Housing starts are improving. Yokohama said it is seeing a stronger demand for scraper tires, which are used in road construction and homebuilding.
Mr. Nash said raw and synthetic rubber prices have plateaued, but remain at high levels.
“During the rise of materials costs, raw rubber went up by as much as 200 percent. Tire manufacturers absorbed the increases, and today you're seeing them try to regain some of their losses with price increases. The price increases have slowed, but there is still a lot of catching up for manufacturers to do when it comes to price recovery,” he said.
McGraw-Hill Construction, part of the McGraw-Hill Cos., predicts that U.S. construction starts for 2013 will rise 6 percent to $483.7 billion, slightly higher than the 5-percent increase to $458 billion estimated for 2012.
“As reported by McGraw-Hill Construction, new construction starts in 2010 edged up 2 percent, followed by another 1 percent gain in 2011, and 2012 is headed for a 5 percent increase to $458 billion. This still leaves the volume of total construction starts 32 percent below the 2005 peak on a current dollar basis, and down about 50 percent when viewed on a constant dollar basis,” said Robert Murray, McGraw-Hill Construction's vice president of economic affairs.
“The modest gains experienced during the past two years have in effect produced an extended bottom for construction starts, in which the process of recovery is being stretched out.”
According to McGraw-Hill, single-family housing construction is expected to increase 24 percent in dollars, the pace of foreclosures has eased, home prices are stabilizing and mortgage rates are at record lows.
Multi-family housing starts are forecast to rise 16 percent in sales while commercial building starts will increase 12 percent, an improvement over the 5-percent gain estimated for 2012 but still more than 40 percent below the 2007 peak.
The manufacturing building category will grow 8 percent after a decline in 2012, predicted McGraw-Hill.
While public works construction is expected to slide an additional 1 percent this year with federal spending cuts, the new two-year federal transportation bill should help to limit the impact of spending cuts on highways and bridges, according to McGraw-Hill.
The American Road and Transportation Builders Association (ARTBA) predicts the U.S. transportation construction infrastructure market will increase 3 percent to $130.3 billion from $126.5 billion. It foresees growth in highway and street pavements, private work for driveways and parking lots, airport terminal and runway work, railroads and port and waterway construction.
The federal Moving Ahead for Progress in the 21st Century (MAP-21) Act could lead to additional construction market activity in the short term and strengthen the market in 2013 and 2014, according to the ARTBA.
The law's restructuring of the federal highway program offers state transportation departments more flexibility in their use of federal funds that could result in slightly increased investment in highway, bridge and pavement work and the MAP-21's loan program could boost construction activity in some states. Damage from Hurricane Sandy on the East Coast also will boost reconstruction work orders, according to forecasts.
Standard & Poor's Financial Services L.L.C. said it has grown more negative about the prospects for U.S.-based metals and mining companies this year.
“Despite our projection for continued, albeit slow, growth in the American economy, which in most cases would signal better credit quality for the sector, we expect global economic pressures and political uncertainties—and, in the case of coal, competition from natural gas and high inventory levels—to weigh heavily.”
The coal sector is probably hardest hit due to inventory build-up at power plants during last year's mild winter, as well as natural gas prices that remain low enough to support coal-to-gas switching, Standard & Poor's said.