Welcome to the first monthly installment of “Around the Tire Shop”, a newsletter that encompasses everything OTR.
“The way to make money in a gold rush is to sell picks and shovels”
Needless to say the goal remains the same with today’s high commodity prices fueling growth and massive expansion. However, our techniques have become for lack of a better word, gigantic. Our picks and shovels have transformed into 400-Ton Haul Trucks and 2,300-horse power Front-End Loaders that operate in mines around the clock. Not to mention these monsters wield some of the world’s largest rubber made tires.
In 2003, the $6.1B Earthmover Tire Industry experienced a classic case of Supply and Demand imbalance that was abruptly halted by the Global Recession. Scholars couldn’t have written a more clear-cut case study to illustrate how the two powers affect each other in the course of operation.
Globally, we found ourselves in one of the most significant “Mining Booms” seen to date. China had emerged into a ‘Giant of Consumption’ striving to raise living standards and industrialize. Consuming 1/2 of the world’s Cement, 1/3 of the world’s Steel, and a 1/4 of the world’s Copper, it served as the primary driver behind record commodity prices and maximized mining production.
Prior to the Recession’s emergence, industry experts predicted the tire shortage to reach 2,000 tires per month through 2011 where the level may have decreased to 1,000 tires per month due to manufacturer expansions (for popular sizes: 49”– 63” tires). As Demand grew so did prices for surplus inventory known also as “spot”, “open”, or “grey” market tires.
Needless to say the Global Recession hit and it struck the mining industry especially hard. China halted many of its projects and expansions, which in turn reduced their voracious consumption of raw materials. Many mines scaled back operations due to overstocking issues and this void gifted the tire manufacturers with the time that they needed to play catch up.
In the name of mining cycles, the industry now finds itself in an interesting place. Negative signs of the Recession have tapered off; China is back to buying raw materials, mines are picking up where they left off with expansion projects, and tire manufacturers are already beginning to use the dreaded word; “shortage”. Aside from the already mentioned, we must introduce one looming perplexity, the Natural Rubber shortage, which is already affecting both pricing and availability of tires of all sizes worldwide.
Taking into consideration the information provided hereinafter, miners must begin to evaluate what hurdles come with high commodity prices, and coincidentally the largest of them all will be OTR Tires.
In next month’s installment we get down to specifics to evaluate the opportunities and options that mine’s have amidst the looming shortage, and more importantly, what they can do to stay rolling. We also take a look at the key driving forces in the OTR shortage and how each affects the outlook of this fast moving market.