HD Tyres MD Nick Alexander tells Mining Weekly in an exclusive interview that although two of the three major tyre manufacturers are investing in production expansions, the shortage of tyres could continue until 2010.
This could have enormous implications for mining companies, which stand to suffer major production losses if truck fleets should stand idle because of this ongoing supply crunch.
Alexander says that a number of mining engineers have admitted to him that, for certain vehicles, they only have one or two tyres left.
Indeed, the situation is so serious that Gold Fields CEO Ian Cockerill recently pointed out at the company’s results presentation that “these days, when you buy trucks, they arrive ‘dry-feet’, which means that you receive the truck, but have to find the tyres”.
Although both underground and surface operations are feeling the tyre tightness, it would seem that the problem is particularly evident at opencast mines.
Alexander says that while opencast and underground operations face very similar problems with regard to tyre damage, the logistics of underground operations, where machinery is often taken very deep below the surface, has prompted industry to develop foam-filled tyres and solid tyres so as to prevent punctures.
These types of developments are suitable for underground use as the vehicles work shorter distances at lower speeds.
However, on an opencast mine, large tonnages of ore are often hauled between five or six kilometres, causing massive heat build-up in the tyres, leaving them much more prone to damage.
Thus, tyre solutions used in underground operations are usually not applicable to surface operations.
Dealing with the supply crunch
Mining Weekly approached a number of mining companies to ascertain how the supply shortage is affecting their operations and what they are doing to overcome the problem.
Only two companies, Gold Fields and BHP Billiton, responded to emailed questions.
Gold Fields strategic sourcing manager Ben Ludik says that the global earthmoving (EM) tyre production and supply shortages first became apparent during the second half of 2004.
During 2005, these shortages were classified as a ‘crisis’ in the industry, with specific reference to equipment and related larger-specification tyres, required to generate increased production volumes, like loaders and haul trucks.
According to Ludik, Gold Fields effectively managed to facilitate through this risk period through leveraging strategic partnerships and tyre-solution-management arrangements with mining contractors in some regions and with tyre suppliers and service providers in other regions.
Ludik explains that, historically, tyre manufacturers made smaller margins on the EM tyres owing to price and demand squeezes prior to 2003, and, as a result, capacity increase planning did not appear to be a key focus for manufacturers at the time.
“During this period, the unplanned extreme demand upturn in areas like China, the Iraq war and increasing military usage of heavy-vehicle tyres, construction and related industry growth, general emerging-market demands and mining expansions overloaded the raw materials input requirements and existing tyre manufacturing capacity. Although the EM tyre manufacturing industry has been catching up subsequently, these supply and demand pressures are anticipated to potentially continue into 2007/8.”
Ludik says that given the priority for continued operations at surface mining and earthmoving-driven operations, the inflexible interim EM tyre supply reality does come at some additional price premium.
Though no guarantees can be given during this ‘pressure’ period, Gold Fields believes that, through continued development of strategic partnerships and joint tyre-management solutions, the interim ‘crisis’ can be optimally seen through and longer-term sustainable business models can be developed.
“Key dependencies during this process continue to be effective joint demand planning and smoothing, interim alternative supply option testing and utilisation, and effective tyre-life management strategies,” Ludik says.
BHP Billiton vice-president: investor relations and communications Mark Lidiard, meanwhile, comments that, although the shortage of tyres for mining equipment is not currently affecting production at BHP Billiton, supplies are tight, which has prompted the company to put increased focus on enhancing the life of its tyres through its operating excellence initiatives.
“We have rolled out our tyre maintenance programmes to all our sites and we are starting to see real benefits in terms of tyre life extension.”
BHP Billiton is also working closely with its suppliers and has long-standing supply arrangements with the three major players.
“Our suppliers are aware of our requirements for both existing operations and projects in development and they have built these into their supply models,” Lidiard notes.
Thus, although there are significant industry wide supply shortfalls for tyres, BHP Billiton believes that its strong relationships with tyre suppliers, together with its extensive tyre-maintenance programmes, will enable it to manage these pressures for both its existing and future operations.
Mining Weekly also recently reported (May 26–June 1 2006 edition) the concerns of Lester Day, CEO of Barloworld.
Day said mining companies which use heavy equipment should expect longer lead times, as high demand and shortages of components like tyres are set to continue.
This, he added, would mean that it would take longer for some new mining projects to come on stream or for existing operations to increase production.
According to Day, the world’s largest heavy-equipment manufacturers, Caterpillar and Komatsu, had experienced a sharp increase in demand and did not have much spare factory capacity.
Alexander says the shortage of OTR tyres is purely a capacity issue and not a result of the unavailability of raw materials.
“In spite of the sizes of these tyres and the importance of mining worldwide, OTR mining tyres do not make up the biggest part of the manufacturers’ businesses.
“The bulk of their markets are passenger-vehicle tyres and light commercial or light-truck vehicle tyres, so mining tyres have not been a historical priority.”
Quadrem’s senior vice-president of operations, Brandon Spear, who formerly led the company’s Africa operations, concurs, saying that the production of large tyres takes longer and is more complex than smaller tyres.
“The production of large tyres has always been a speciality process, which, over the years, resulted in limited production capacity.”
The manufacturers’ response
That said, the three OTR tyre manufacturers, Michelin, Bridgestone and Goodyear, are very much aware of the problem and are taking steps to address the supply shortage.
Two of the manufacturers, Bridge-stone and Michelin, have already announced capacity expansions.
In 2005, Bridgestone revealed that it would invest some Y=17-billion to increase production capacity for large and ultralarge radial tyres for mining, construction and other OTR equipment.
The capacity increase of the OTR tyres centres on expanding tyre-production capacity at Bridgestone’s Shimonoseki plant by about 20% by the beginning of 2008.
It also includes expanding production capacity for steel chord by about 5% at the company’s Saga plant and for OTR tyre parts at the Hofu plant.
The company said in a statement that mining and quarrying equipment are the main applications for the large and ultra large tyres for which it will increase its production capacity.
Construction of new buildings at the Shimonoseki plant began in the latter half of 2005 and it is expected that construction will be completed by the end of this year.
Production capacity at the Hofu plant will be brought on line this year to assist the expansion of production at the Shimonoseki plant, while the expanded Saga plant is expected to begin operations in early 2007.
Michelin, meanwhile, also announced in 2005 that it would invest $85-million over a five-year period at its earthmover tyre production facility in Lexington, South Carolina, in the US.
The expansion will increase the production capacity for large surface mining tyres by nearly 50% and add about 70 new jobs by 2010.
That announcement came in addition to capacity increases announced earlier that same year and would serve the continued high demand for Michelin’s 57-inch to 63-inch radial earthmover tyres for surface mining equipment.
Michelin said in a statement that its expansion plan offers the ability for further growth and that the potential second phase could increase Lexington’s production still further over several years.
“This additional phase is contingent on the continued growth of a market that has seen explosive increases in recent years,” the company said.
Michelin has additional earthmover tyre facilities in Spain and France and another facility under construction in Campo Grande, Brazil.
However, Spear notes that, as things stand now, expansion of production capacity has simply not met the rate of increased demand, which has been soaring on the back of the ongoing strength of most commodities prices, which is, in turn, driving significant expansion of global mining activities.
Since tyres are only one specialised component of Quadrem’s supply into the mining industry, the impact on the transaction delivery network, which connects more than 2 500 suppliers and 422 buyers and handles more than $6,8-billion in order throughput annually, has been limited.
Nonetheless, Spear says the shortage is affecting all participants in the supply chain to some extent.
“Buyers are frustrated that their expansion plans and normal tyre-maintenance programmes are being affected, while suppliers and manufacturers are struggling to meet the orders that they are receiving from buyers, which, in many cases, are leading to long lead times.
“In addition to these frustrations, the demand and the large increase in the input costs of the tyres have driven the prices of tyres higher.
“That being said, most tyre companies have been very reluctant to use the shortage in tyres to extract premiums for their tyres.
“Many buyers and their tyre manufacturers have strategic relationships that span many years, consequently extracting a short-term windfall would not be considered part of this ‘good faith’ relationship,” Spear says.
Plan A and plan B
There seems to be consensus among all stakeholders that the supply shortage is here to stay for at least another two years or so.
Although manufacturers are increasing their production capacity, Spears says these are longer-term solutions to the problem and that the primary short-term remedy to the supply shortfall will be to extract longer operating hours from existing tyres.
Thus, while waiting for plan A –increasing production capacity – to kick in, end users have to resort to plan B, which involves preventative maintenance programmes and tyre repairs.
Alexander says that most mining tyres never see the end of their workable life, with many cut and damaged tyres ending up on the scrap heap.
“If mines have a proper system of maintenance and repair in place, many of these tyres can be conserved for further use.”
Alexander says that there is a need for sophisticated day-to-day maintenance of tyres and road conditions so as to get the absolute maximum performance out of tyres.
Thus, he is currently, in conjunction with the Wits Mining School, involved with research to extend the life of tyres through real-time monitoring devices, which could prevent tyres from getting damaged or identify damages much earlier for repair.
Alexander says that there is much scope for significant cost savings through good repair and maintenance practices.
“Generally, a new OTR tyre could cost between R50 000 and R120 000, while repairing a tyre would probably cost less than 10% of the original cost price of a new tyre.
“So, if a tyre is indeed repairable, it definitely makes sense from a cost point of view to go that route.”
While most mines carry out their own maintenance, repairs are outsourced.
Currently, there are about half a dozen reputable repairers in South Africa that regularly do work for local mines.
Of these, only two (HD Tyres and Construction Tyres) are Rema Tip-Top-certified.
This German-company certification is a repair standard for equipment, materials and repair practices that is proved worldwide and used extensively in Australia, South America and North America.
Most mines in South Africa also favour repairers that are Rema Tip-Top-certified.
Retreading of tyres is one option that is currently being explored as a possible solution to the tyre shortage.
As technology and materials have improved, so has the ability of OTR tyre retreaders to rebuild ultralarge tyres for use in mining operations.
According to Purcell Tire senior vice-president Joe Jackson, one cannot ignore the potential benefit that retreads in 493, 513 and 573 diameters could bring to the South African opencast mining industry, where certain operations are reporting less than one month’s worth of inventories on certain sizes at a time.
“Ultimately, mines will definitely see a saving now that they are being forced to repair as much as they can. Their overall tyre expenses will also be much cheaper over time if they follow preventative maintenance procedures,” Alexander concludes.