OTR tires: demand in 2012; a flat 2013?
For OTR tire makers, 2012 was a decent year. Will 2013 be a repeat?
“The OE market is beginning to slow down due to uncertainty in mining and construction,” says Gary Nash, Yokohama vice president of OTR Sales. “With less OE demand, the industry can expect to see some improvement in inventory supply.”
Nash says that this year, growth is expected to be between 2% and 3%.
“Dealer inventories were low as they prepared for a potential crisis due to uncertainty based on the presidential election. This has now been resolved and the outlook should be more positive.”
A matter of value
While OE shipments are expected to diminish for the time being, demand for value from commercial tire customers is not decreasing.
“The biggest single business trend in the U.S. OTR market is customers continuing to look for and purchase value in both tires and the service that goes with the tires,” says Bruce Besancon, director of marketing, NA earthmover tires at Michelin North America Inc. “This value is not just in the initial price, but how long the tire will perform — and how to prolong the tire’s useful life and make it more productive.”
Besancon says the business cycles over the last few years have pushed large OTR tire customers to make sure they are getting the best value for their money as it relates directly to the bottom line.
“Within the last year, it appears that customers have had more choice in their tire selection than in years past,” says Besancon. “But they also know from experience that a lower-priced tire may not be one that gives them the best overall value for their operation.”
Because of this, commercial tire makers can expect demand for high-value, higher-priced tires to remain constant.
“Demand for tier-one Goodyear OTR tires has been strong in the United States, as well as globally,” says David Anckaert, general manager, global OTR tires, Goodyear Tire & Rubber Co. “We also have seen robust demand for the premium OTR expertise that Goodyear provides in the areas of training, mine site audits, performance studies, and after-sales service.”
Anckaert says the company provides its expertise through the support of Goodyear ‘s field team members, who work with customers on-site to foster long-term relationships.
“We work very closely with our customers to help them optimize their tire performance and investment,” says Anckaert.
2012: great start, and then...
“In the past two years, the OTR market demand has been extremely strong in all products (bias and radial),” says Yokohama’s Nash. “This was driven by a high demand both in the U.S. and globally, as well as by a short supply of products from all manufacturers.
“In the fourth quarter of 2012, the demand in the U.S. and worldwide began to slow down due to economic conditions and uncertainty originating from the presidential election and the issue of the fiscal cliff that loomed on the horizon. Dealers and users were reluctant to stock merchandise due to this uncertainty.”
Nash says the eastern coal markets began to slow the second half of 2012 due to mild weather conditions and environmental issues. Construction business began to pick up in 2012, offsetting some of the decline in eastern coal market demand.
“Despite weakened commodity prices and decreased equipment OEM activity, the giant OTR tire market remained robust,” says Goodyear’s Anckaert.
“In response, Goodyear continues to upgrade its capacity of giant OTR tires at its OTR tire plant in Topeka, Kan., which now manufactures 63-inch tires for the global marketplace.”
Anckaert says Goodyear also continues to invest in giant OTR tire production in other regions. Last year, the company announced a $250 million investment in its Japan-based Nippon Giant Tire plant in order to upgrade and expand production capabilities at the facility.
“Other segments, like construction tires, have experienced a softening as a result of global economic conditions,” says Anckaert.
The major OEMs are usually a leading indicator for this segment, notes Anckaert, and most of them began reducing their forecast in mid-2012.
“While the numbers are still being reviewed, it can be stated that 2012 was a divided year, the first half of the year being much more positive than the second half,” explains Michelin’s Besancon. “It appears that some customers took a wait-and-see attitude — many openly stating they were looking to the results of the U.S. presidential election and the ‘fiscal cliff’ to determine how business-friendly the future would look.”
Besancon says the coal sector had reduced output via natural gas and a warm winter, which slowed tire purchases in this area of mining. Other areas of mining continued on their very strong course over the last few years.
“Construction of new homes rebounded and we are awaiting development of new neighborhoods, which will increase the demand for construction equipment and quarry tires as the need for new roads and infrastructure increases,” says Besancon. “Overall, it was a positive year for the OTR tire business.”
Cliff gone, election over: now what?
Despite the challenges, Yokohama’s Nash has a positive outlook about the OTR replacement business in 2013, due to adequate supply.
“However, the market will be extremely competitive,” he says. “Dealers are expected to be very cautious and to continue having low inventories.”
“We expect to see continued strong demand for giant OTR tires, both in North America and throughout the world,” says Goodyear’s Anckaert. “Looking at the overall mining market in 2012, we observed a slowdown in growth activity, plus continued consolidation, centralized product procurement and other trends.”
Anckaert says conditions have stabilized recently, and Goodyear expects none of these factors to negatively impact demand for OTR tires and services. He also does not expect current trends to impact Goodyear’s customer agreements.
“If anything, customers are even more cognizant of the need for premium-level OTR products and services as they seek to boost their efficiencies. Expectations for the construction segment are less favorable. However, Goodyear expects to have moderate growth in this segment as the market stabilizes.”
Amit Agarwal, manager, Business Analysis and Forecasting, Bridgestone Commercial Solutions, has a positive outlook for construction tire demand in 2013 and beyond.
“Construction activity has been stable, with modest growth forecasted for 2013,” he says. “Residential construction should be first to recover to pre-recession levels, followed by non-residential.”
Mining activity remains strong, says Agarwal, with the notable exception of coal production. Mining tires remain in short supply.
“The U.S. replacement market is currently about 67% radial. This should continue to radialize at about two percentage points per year.”
Agarwal says global demand for equipment in expanding markets should result in steady growth in OE shipments. Economic indicators show modest improvements in replacement demand.
“The giant tire segment will remain an area of growth — and not just the 63-inch category,” says Goodyear’s Anckaert. “Demand for 49-, 51- and 57-inch OTR tires remains strong. Goodyear will continue to offer a wide variety of products in these sizes as part of its ever-evolving Rock Mining (RM) OTR tire line, which is available globally.”
Anckaert says tires in Goodyear’s RM line have been specifically designed for large haulage applications, such as coal and hard rock mining, and oil sand work. “We will continue to monitor the industry — and the needs of our customers — as both continue to evolve.”
“2013 may also be a divided year, with the first half being more difficult than the second half,” explains Michelin’s Besancon. “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, notes Besancon.
“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.” ■
Three factors that will drive OTR tire customers in 2013
Bruce Besancon, director of marketing, NA earthmover tires at Michelin North America Inc., shares these OTR customer areas of growth and concern for 2013:
1. Safety: This is always the key area of focus for any OTR customer. Customers need to know that they are getting the best products and services that will help keep their operations running safely and smoothly.
It is imperative that competent technicians are working on their tires and have all of the necessary training for safe operations. Michelin continues to promote this with its dealers by offering service technician classes which use Tire Industry Association (TIA) sanctioned materials specific to the OTR market.
As an enhancement to this offering, Michelin has worked with TIA on translating these materials into Spanish so all its service technicians have the same opportunity to understand the training and be safe and competent in their professional lives.
2. Environmental concerns: Many of Michelin’s customers are seeing additional pressures placed on them to have more enhanced environmental controls in place — and many of these involve tires. The longer a tire’s life can be extended, that much less scrap will be placed in landfills. By helping a tire “live” longer through repair or other means, it helps the environment by placing less waste into the system.
Michelin works diligently with customers to ensure they get the most out of their tires and that its dealers put the proper repair and life-enhancing practices in place to lessen the impact on the total environment.
3. Productivity: Customers will continue to look for the best ways to make their operations more productive. Tires have a great impact on the overall productivity of a job site. Michelin says “the right tire changes everything.” This is not just a slogan for Michelin but a true reality in the OTR market. Along with that tire comes an expectation that the manufacturer and the dealer will be there to support the tire throughout its life.
This requires that all involved assist in getting the most out of the tire’s useful life. Dealers and manufacturers need to prove their worth to the OTR tire user. This is why Michelin just launched the OperTrak system — a comprehensive, easy-to-use web-based OTR tire and wheel management system designed to monitor tire activity and optimize budgeting, forecasting, inventory and performance (for more information on OperTrak, turn to page 52 of this issue).