AKRON—Unlike the rebounding construction industry, mining in the U.S. struggled this past year with lower commodity pricing and over-supply, prompting some tire companies to scale back large OTR tire production.
Michelin North America Inc. suspended operations at its Starr, S.C., giant earthmover tire plant, impacting about 100 employees, at the end of last year due to slowing global demand. The factory is one of three Michelin factories globally with capacity for 63-inch OTR radials.
“Based on current indicators, we feel that the bulk of the adjustment from the period of rapid expansion to one of stabilizing production has been realized, and we can look forward to the homestretch leading to the 'new normal' that will involve much higher commodity demand than prior to the 2000-2014 super cycle,” a Michelin spokesperson said.
Titan International Inc. cited a cyclical downturn in the mining and ag markets for its double-digit third quarter and nine-month sales declines last year. Titan said demand for its products was further impacted by inventory reduction efforts at both OEMs and their dealers.
Weak market conditions prompted its subsidiary, Titan Tire Corp., to announce plans to lay off at least 130 workers at its Bryan, Ohio, farm and OTR tire plant beginning Feb. 8. (See story below)
Titan said it does not expect conditions to improve much during 2016.
“Mining is in a bit of an opposite than it was 10 years ago,” said Bruce Besancon, vice president of marketing for Alliance Tire Americas Inc.
“The commodity prices are down. If you look at oil, we're at about $25 a barrel.... That impacts the big heavy mining,” he continued.
“We've been hit with big heavy mining, commodity prices going down, coal going down, and so I don't see there being a major turn around.
“There is obviously still work going on but the capex (capital expenditures) that the mining companies were going into a number of years ago and really expanding...has reduced some.
“I think there is a core base of that mining that continues on....”
Mining machinery manufacturers will continue to struggle for a bit at least through 2016, he contended.
“I don't think there are a lot of large machine orders out there. But I think there is a good base of people who have survived the last few ups and downs that we always have. And they are the go-to people that will keep things running steady,” Mr. Besancon said.
Alliance Tire's core product range is in construction, utility and small quarry. “That's what we've decided to concentrate on because that's where we feel that we can have the biggest impact with things.
“And quite frankly, we have been expanding in that over the last number of years....
“Unlike some of the bigger guys that had to actually idle capacity, we're growing it. We're in the right sector at the right time,” Mr. Besancon said, noting that the company has been ramping up production at its new tire factory in Dahej, India.
Mining and logging employment decreased by 8,000 in December—the industry's 12th consecutive month of employment decline, according to the U.S. Bureau of Labor Statistics.
Mining drives the employment trend in this sector and accounts for essentially all losses over the month and over the year (down 129,000).
The losses were concentrated in support activities for mining, according to the bureau.
The U.S. Energy Information Administration (EIA) estimates U.S. coal production declined 11 percent in 2015—the largest year-to-year decline ever recorded—mainly due to a decrease in electric power sector consumption. The slump occurred in all coal-producing regions, with the largest percentage decrease occurring in the Appalachian region.
The agency predicts U.S. coal production will continue to decline over the next two years, with production projected to slow down 4 percent this year and another 1 percent in 2017.
Coal stockpiles are still relatively high due to the loss in market share to lower-priced natural gas for power generation, according to the EIA, which expects coal consumption in the electric power sector to remain relatively unchanged in 2016. Other energy alternatives, including solar, also have continued to chip away at “King Coal's” predominance.
Lower mining costs, cheaper transportation costs and favorable exchange rates will continue to provide an advantage to mines in other major coal-exporting countries compared with U.S. producers over the next few years, according to the EIA.
Tim Easter, Yokohama Tire Corp.'s director of OTR sales, told Tire Business the company's outlook for the mining industry in North America this year is “very soft.”
He said coal “is down to levels I haven't seen in my 25 years in this business, mainly due to government regulations on coal-burning power plants.
“As for other ores being mined, such as gold, copper and silver, the price has dropped, causing mining to scale back production.”
U.S. crude oil production has been on the decline in the Lower 48 states, according to the EIA, driven by low oil prices that are partially offset by growing production in the Gulf of Mexico.
Total U.S. production began falling last May and is expected to continue on a downward slide through 2016 and level off in 2017. The expectation of reduced cash flows in 2016 and 2017 has prompted many drilling companies—as well as companies involved in shale oil production—to scale back investment programs, deferring major new undertakings until a sustained price recovery occurs, the EIA said in its Short-Term Energy Outlook report.
Natural gas production in the U.S. is expected to remain flat in 2016, according to the EIA, partly in response to lower prices and declining rig activity, and pick up slightly in 2017.
Increases in industrial sector consumption will drive total consumption growth in 2016 and 2017. The EIA predicts industrial sector consumption of natural gas will increase about 3.5 percent in 2016 and another 2.5 percent in 2017, as new projects in the fertilizer and chemicals sectors come online.
Conversely, the EIA predicts a slight decline in consumption of natural gas for power generation in 2016 and a 1.4-percent decrease in 2017.
Natural gas consumption in the residential and commercial sectors is projected to increase slightly over the next two years.
Total marketed production of natural gas hit a record high last September before declining the following month, according to EIA's survey data. Although demand will level off, production is expected to remain high, thus reducing demand for gas imports from Canada and increasing exports to Mexico.
To reach this reporter: kmccarron@ crain.com; 330-865-6127