OTR tires in 2011
The buzz surrounding this year’s Tire Industry Association Off-The-Road Tire Conference was constant and loud: “What impact will runaway natural rubber prices have on our industry?” This sentiment, whether by the formal speakers or during breaks, was on everyone’s minds.
And the overriding answer to the question was, nobody really knows how long or how high the prices are going to move, or what it ultimately means for the industry. There were a variety of opinions on the subject, however.
Shawn Rasey, president of the Bridgestone Americas Off Road Tires division of Bridgestone Americas Inc., is no stranger to giving the keynote speech at the conference. In 2007, he was the keynoter at the conference in San Diego, Calif. This year, he gave the keynote address at the 56th annual event, held in Miami, Florida in February.
His position on rising raw material costs? “Personally, I’ve never seen anything like it... the price of natural rubber has risen 92% in just one year. In fact, the price of natural rubber is up almost 250% from November 2009!”
Rasey said there are three primary drivers that have caused these unprecedented prices. “The first driver is mother nature. During the past year, the available acreage and yield of natural rubber plantations around the world have suffered enormous losses from both heavy flooding and drought. Then there’s the second driver, which is explosive growth and demand of natural rubber by the BRIC countries — Brazil, Russia, India and China. And the third driver has been ‘market speculation.’
“As scarcity from flooding and drought combined with explosive demand by the BRIC countries, natural rubber commodity investment speculation suddenly became a ‘sexy investment,’ further driving prices higher to today’s unprecedented level of $5,600 per metric ton.”
Change is a constant, he said. “Just think for a moment about how much change our industry has experienced in just four short years! It seems everything is changing and shifting faster than ever. One thing is for sure, more changes and shifts are coming, and they’ll likely keep all of us a little edgy and ill at ease from time to time.”
Rasey pointed out some key forces that continue to change and challenge the off-road tire industry:
• the continuation of rapid industrialization and growth of the BRIC countries;
• continued exponential growth of the Internet, “creating a flatter and faster world than most of us might have ever imagined”;
• a global mining and petroleum boom — occurring “as the industrialized nations of the world compete for raw materials, food and the intellectual capital to drive their economies ahead.”
Rasey said that the previous diversity in the mining market contributed to wide swings between supply and demand.
“However, that is changing quickly. More recently, mining has shifted from a diverse base to rapid consolidation, and far more specialization, creating much better control and integration between supply and demand.”
Rasey sees a steady and consistent growth in mining overall in the future along with far greater globalization in mining and far fewer mining customers than ever before as mining consolidations continue. He envisions 2011 being another year full of challenges — and opportunities.
“Just in mining alone, mine operators are increasingly adopting larger equipment to lower operating costs and improve productivity, creating ‘innovative disruptions’ (see sidebar) and driving all new classes of ultra-large machinery, and ‘ultra-class’ sized tires.”
As the demand for more specialized machines increases, “all of us must become more specialized than generalized if we’re going to grow along side these evolving segments,” he said.
“This innovative disruption in machine evolution will require us to shift quickly, from being all things to sell many to being far more ‘solutions driven performance consultants.’ We’ll need new and specialized capabilities to apply our products, technologies, people and services in more meaningful ways to every customer.”
He said competing in the OTR market will require “a mega leap” in design technology, manufacturing expertise, performance analytics and service modeling. “None of us who manufacture off-road tires; especially the largest ones, can afford to guess what our customers will want or will buy in the future. It’s never been more critical for all of us to get closer to the customer.”
Disruptive innovation -- What does it take to make ‘shift’ happen?
“Disruptive innovation is the process by which a product or service takes root initially in simple applications at the bottom of a market, and then relentlessly moves ‘up market,’ eventually displacing established competitors.”
Shawn Rasey, president of the Bridgestone Americas Off Road Tires division (see main story), captured the attention of everyone at the TIA OTR Tire Conference with this phrase.
He began his keynote speech by pointing to a photo of Steve Jobs, CEO of Apple Inc. Jobs disrupted and changed the music industry with his little invention called the “iPod.” He then purchased another company’s software and calling it “iTunes.”
“How dare he make us all download our music from the Internet, choosing only what we wanted to hear, and paying an incredible 99 cents to ‘have it our way’? And as of the middle of last year, Apple continued to laugh all the way to the bank having downloaded the 10 billionth iTune.”
He listed a few more innovative disruptions that didn’t even exist 10 years ago:
• online airline check-in. • Blu-Ray. • Red Bull. • Facebook. • digital video recorder. • YouTube. • Wii. • designer tea in bottles. • text messaging. • Twitter. • Kindle/e-readers. • hybrid cars.
Rasey said we’re either going to be part of the innovative disruptions that take our industry to the next level, or subjected to it. Either way, these disruptions will continue, and ‘shift’ will happen.
“So, what innovative disruptions can those of us here create that make shift happen for us, rather than to us?” asked Rasey. “What new innovative disruptions and markets that have never existed in the off-road tire industry will we create?”
Rasey said the OTR industry is prone to change. GPS mine production software, 63-inch tires and Homeland Security port management were unheard of 10 years ago.
Off-the-road tire shipments: They have yet to return to 2007 levels, but they appear to be improving
During his presentation on the United States OTR tire production numbers, Bruce Besancon, marketing director for Michelin North America Inc., commented on the “skyrocketing natural rubber prices.”
“It is a fact in the industry. They are controlled by a cartel and we pay the same price as anyone else. We must live with it and be more efficient.”
Looking at the bigger picture for OTR tire manufacturers and dealers, Besancon said the factors that dictate tire demand are improving, but “we’re not there yet.”
He said that the nation’s GDP hit the bottom of the barrel in 2009, and then rose 2.9% in 2010, although it tapered off during the year.
Housing starts are a key contributor for the health of the OTR tire market, he said. New houses mean dirt gets moved, streets are built, and raw materials are needed for the homes. Unfortunately, “housing is a disaster.”
In 2009, housing starts were at 550,000, and they only moved up to 590,000 in 2010. As a means of comparison, housing starts were 2.4 million in 1970, moving up and down somewhat until 2005, when they were at almost 2.3 million before dropping dramatically during the recession.
Looking specifically at domestic OTR tire market segments, Besancon said he likes to use rolling 12-month views instead of yearly statistics. Radialization in the replacement market is hovering around 50%, while it’s closer to 75% at the OE level.
There was a major decline in the total replacement OTR tire market from January 2008 until January 2010. It bounced back by 21% in 2010, but for the two-year period, shipments are still down 20.5%.
One sub-category, construction and quarry tires (typically size 14.00-24 to 27.00-49) increased in volume during 2010 by 16%, but was still 29.4% below shipments in the 2008-2009 time period.
In the larger tire segment, surface mining tires (all tires above 49-inch rim seat), were up 23.5% in 2010.
In 2008, the shipments at OE for all OTR tires dropped by 20.3% compared to the previous year. In 2009, they experienced a greater drop — 62.6%. This was followed by an upswing of 99.2% in 2010.
Looking at 2011 and beyond, Besancon said fears of a “double-dip recession” have been easing, but are not completely gone. The U.S. is slowly growing its GDP. Housing is also increasing, but is well below historic levels and won’t strongly return until 2012. Nonresidential construction will lag during the recovery.
Besancon cautioned everyone to not think of demand solely as a domestic issue, since other parts of the world are “emerging” and the minerals and commodities that need mined are a positive for OTR tire shipments.
In all, the OTR tire market appears to be slowly getting better, but there are a lot of obstacles before the market fully moves ahead.
Tire manufacturers’ panel discusses raw material costs -- ‘You can see how we’ve been impacted,’ says Michelin’s Roger Lucas
During the tire manufacturers’ panel, moderated by Modern Tire Dealer Publisher Greg Smith, the subject of spiraling raw material costs was one of the hot topics. Roger Lucas, vice president of marketing and sales for earthmover tires at Michelin North America Inc. was pointed with his comments.
“We are seeing historic records every day on raw materials... if you look at our financial reports, you can see how we’ve been impacted.”
He said Michelin worldwide spent 544 million euros on raw materials in 2010 (approximately $410 million), and that his company expects to spend 1.5 billion euros in 2011.
Lucas said he believes that there will be more production coming on line for natural rubber, and there should be an easing of costs toward the end of 2011.
James Wang, sales and marketing director for Techking Tires Ltd., said, “The Chinese manufacturers are very sensitive to the increases. The manufacturers increase prices very often. This is new to us and puts us in a risky position.” Wang believes that long-term, there will be less natural rubber suppliers that will keep pricing high.
Nelson Richards, national OTR sales manager for Yokohama Tire Corp., said, “If you look at the increase in the U.S., it is due to the cartel — we all know what happened to oil when that cartel was formed.” Richards said to “hold on” as he expects increases in prices, “large and often.”
Even as the pricing is a concern, the panelists addressed the issue of possible shortages. Paul Hawkins, vice president of OTR Tires, Titan Tire Corp., summed up the sentiment for the all the panelists. He said there “have been some hints of shortages for rubber and some other materials, but it is not a problem that can’t be managed.”
On the issue of using other types of raw materials, the panelists agreed that they are all working on different formulas, but nothing is immediate. “I don’t think there’s anything dramatic coming within the next five years,” said Wang.
The retreaders in the room, particularly those into the larger size OTR tires, asked the panelists what their companies were doing to increase casing life. Lucas’ response was to the point. “What is the number of retreads that you want out of casings? We talk with retreaders inside their shops and continually ask this question.” Lucas said in the over-the-road truck tire side of the business, it’s well known how many retreads per tire should be expected.
“Do we need a baseline for this industry? Is this the right thing to do?” Lucas said that before answering the question, the industry had to make sure that it has “the right number of retread plants. This is critical. We must know as an industry where we want to be.”
Richards took a different direction on the issue of casing durability. “I think I speak for all the guys up here — when we build casings, we build for integrity. If we have a problem, such as it won’t repair or retread, we fix it.”