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They're still big (in more ways than one)

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RIO GRANDE, Puerto Rico—U.S. OTR tire demand continued to grow in 2012, and 2013 is expected to be an even better year as national and global economies continue to improve.

“We're almost back to the '07, "08 level,” said Amit Agarwal, manager, business analysis and forecasting, Bridgestone Commercial Solutions, during a presentation at the Tire Industry Association's 2013 Off the Road (OTR) Tire Conference, which took place Feb. 20-23 in Rio Grande.

One of the biggest factors influencing the OTR industry, he said, is the state of the U.S. economy, which has gradually been improving since the 2009 economic downturn.

“GDP continued to be strong in 2012,” he said. “We saw a little bit of a dip toward the end of the year, but most of that was due to the political uncertainty in Washington.... Looking into 2013, we expect another solid year.”

The OE segment more so than the replacement side has benefitted from the continued growth, as a result of pent-up demand for new equipment.

“One of the things we did see in 2012 was the difference between the OE market recovery and the replacement market,” Mr. Agarwal said, noting that OE sales were on an upward swing, while there was a pull-back in the replacement market.

“Most of that was in the second half of the year, partly because of new OE equipment in the market,” he added.

Of the three major OTR tire segments—construction, aggregate and mining—construction tires (up to 25 inches in rim diameter) lead in unit sales, accounting for about 77 percent of all OTR tires. Mr. Agarwal said this will continue as the construction market makes its comeback.

Approximately $1.1 trillion was spent on new construction in the U.S. last year, a 6-percent jump from 2011. IHS Global Insight is forecasting a slight decrease in growth for 2013 to 5.6 percent followed by double-digit growth in 2014 and 2015.

About 780,500 new homes were built during the year, according to Bridgestone's data, with the average selling price of a new home expected to surpass the 2008 average this year. While the housing market isn't yet back to the level where Bridgestone would like it to be, Mr. Argawal said it's “gearing toward it.”

In addition, construction industry unemployment dropped to 13.5 percent in December, the lowest it's been since April 2009. New construction equipment sales grew 16 percent year-over-year from 2011, according to IHS data, but is expected to pull back to a normal range of about 3 percent in 2013.

“Overall, the construction industry is back on its feet, it's employing people and that bodes well for the future,” Mr. Argawal said.

Though the construction industry is the clear leader when it comes to the number of OTR tire shipments, the mining segment—made up of tires that are 51 inches and larger—remains the most profitable, he said. Mining tire production and mining sector employment have been rising steady since 2009, largely resulting from continued economic growth in emerging markets.

“Mining is impacted more by global factors than just what happens within the U.S., Canada and other developed countries,” he said.

Commodity pricing has played a major role, Mr. Argawal said. While the average price of iron ore, copper, thermal coal and oil all declined in 2012 from 2011, each remains at or near record high price levels.

Compared with January 2008, the 2012 average prices for iron ore and gold have skyrocketed, increasing by 112 and 89 percent, respectively, according to Bridgestone's data. The price of copper has increased by 13 percent in the same period, while thermal coal has increased by 1 percent. Only oil has dipped below those levels, by about 5 percent.

Mr. Argawal noted that the aggregate segment, which saw substantial growth in both 2010 and 2011, experienced only mild growth in 2012 and may decline slightly this year.

“Some of the negative coming into the aggregate industry is from the government. With the sequester looming, with all the political uncertainty happening, with budget cuts happening at the federal and the state level, in 2013 we will see a pull-back from the spending that we've been seeing in that industry,” he said, adding that he expects the market to be back to pre-recession levels between 2014 and 2015.



To reach this reporter: wschertz@crain.com; 330-865-6148.
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