The chaotic world of OTR tires

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Times they are a-changin

The chaotic world of OTR tires Global tire segment is extremely dependent on markets abroad

By Kevin Rohlwing 2008 dealer reported retail statistics — machines E dward Lorenz was a noted mathematician and meteorologist who pioneered the study of chaos theory. He determined that when Period ended By marketing region for the three-month rolling period compared to same months of prior year Asia/ Pacifi c EAME Latin America ROW North America World complex systems were entirely dependent on initial January Up 16% Up 21% Up 50% Up 25% Down 13% Up 7% conditions, such as the weather, even the smallest February Up 11% Up 18% Up 43% Up 20% Down 15% Up 4% changes could yield dramatically diff erent results March Up 10% Up 14% Up 14% Up 13% Down Down in the end. His work has been used in the fi elds of 20% 1% physics, applied mathematics, economics, biology, April Up 19% Up 21% Up 15% Up 19% Down Up 2% psychology and meteorology, to name a few. But 18% Lorenz is probably most famous for a paper he May Up 24% Up 9% Up 11% Up 13% Down 17% Down 1% entitled, “Does the flap of a butterfly’s wings in June Up 31% Up 12% Up 23% Up 18% Down 15% Up 2% Brazil set off a tornado in Texas?” July Up 28% Flat Up 18% Up 9% Down 13% Down 1%

One only needs to look at recent weather patAugust Up 32% Down 2% Up 23% Up 10% Down 18% Down 3% terns that have been att ributed to global warming to witness the genius behind his work. When the September Up 32% Down 4% Up 34% Up 11% Down 13% Up 1% initial conditions in a complex system are extremely October Up 16% Down 9% Up 35% Up 5% Down 12% Down 2% sensitive, even the slightest shift will totally change the outcome. November Up 5% Down 15% Up 18% Down 3% Down 11% Down 6%

Besides academics and other more intellectual December Down Down Up 11% Down Down Down pursuits, chaos theory can also be used to analyze 13% 20% 12% 21% 15% the OTR tire industry. Unlike the passenger, light truck and medium truck tire markets where there are only a few applications and the products have almost reached the commodity stage, OTR tires remain highly specialized. 2007 dealer reported retail statistics — machines By marketing region for the three-month rolling period compared to same months of prior year Th e engineering behind these complex tires continues to evolve, and while there is tremendous competition in other aspects of the tire industry, the OTR segment

Period Asia/ Latin North is relegated to only a handful of manufacturers with the ended Pacifi c EAME* America ROW** America World resources to build the largest tires on the planet.

January Up 21% Up 27% Flat Up 20% Down 9% Up 4% In order to bett er understand the relationship be

February Up 10% Up 32% Up 1% Up 19% Down 10% Up 3% tween supply and demand for OTR tires, the market

March Up 20% Up 43% Up 25% Up 32% Down 15% Up 6% April Up 16% Up 32% Up 29% Up 27% Down 14% Up 4% must fi rst be divided into three categories: small, large and giant.

May Up 23% Up 35% Up 15% Up 27% Down 13% Up 4% Market segments

June Up 12% Up 27% Down 1% Up 17% Down 13% Down 1% Small OTR tires are typically defi ned as those with 24- or 25-inch bead diameters that are primarily used

July Up 16% Up 32% Down 5% Up 19% Down 14% Up 1% on construction equipment such as small rubber-tire

August Up 10% Up 27% Flat Up 17% Down 9% Up 3% loaders and scrapers. When compared to the other

September Up 16% Up 26% Up 3% Up 19% Down 12% Up 3% segments in the OTR industry, there are defi nitely a

October Up 16% Up 25% Up 21% Up 22% Down Up lot more domestic and foreign manufacturers, so the 14% 3.5% likelihood of prolonged shortages is relatively small.

November Up 23% Up 31% Up 49% Up 32% Down 15% Up 9% Th e large OTR tire market is primarily dedicated

December Up 19% Up 24% Up 70% Up 30% Down 13% Up 9% to quarry opera* EAME = Europe, Africa and Middle East ** ROW = Rest of world All chart information provided by Catepillar Inc. tions and mainly consists of tires with bead diamALSO IN CTD Tire restoration: New type of shoulder repair could save money and time . . . 34

2009 dealer reported retail statistics — machines

By marketing region for the three-month rolling period compared to same months of prior year

Period Asia/ Latin North ended Pacifi c EAME America ROW America World

January Down Down Up 4% Down Down Down 15% 27% 17% 30% 22% February Down Down Down Down Down Down 8% 37% 2% 22% 35% 27% March Down Down Down Down Down Down 13% 44% 6% 28% 41% 33% April Down Down Down Down Down Down 21% 47% 9% 32% 51% 39% May Down Down Down Down Down Down 30% 46% 12% 35% 57% 43% June Down Down Down Down Down Down 27% 51% 23% 38% 59% 47% July Down Down Down Down Down Down 30% 50% 28% 40% 59% 48% August Down Down Down Down Down Down 33% 50% 37% 42% 57% 48% September Down Down Down Down Down Down 40% 55% 41% 47% 60% 52% October Down Down Down Down Down Down 36% 53% 41% 45% 58% 50% November Down Down Down Down Down Down 31% 53% 27% 40% 54% 45% December Down Down Down Down Down Down 12% 41% 24% 28% 46% 35% On the other hand, the OTR tire industry in North Th ere are a number of initial conditions that aff ect the worldwide to illustrate this relationship, dealer statistics from Caterpillar (the world’s largest heavy equipment manufacturer) for the past four years show how shift s in one part of the world can impact the global market.

For example, in 2007 the collective markets outside North America were up by as much as 32% in March and November. But the reduced demand on this continent brought the worldwide sales increases down to 6% and 9% for the same months.

The beginning of 2008 shows the same trend, where increased sales throughout the rest of the world were off set by decreases in North America. And by the time that the recession had a stranglehold on the global economy at the end of year, worldwide sales were down by 15% in December.

Everyone would like to forget 2009, and the dealer statistics from Caterpillar clearly demonstrate the economic downturn in every market. Th at trend more or less continued into the fi rst half of 2010 until May, when the numbers started turning around. It’s also interesting to note that when North American sales experienced their fi rst increase in more than three years, the decreases in Europe, Africa, the Middle East and Latin America were off set to actually increase the worldwide statistics. By the time November rolled around, the global market for heavy equipment had turned around faster than anyone could have forecasted.

Based on these fi gures, it’s fair to say that the market for new heavy equipment in North America represents another

eters that range from 33 inches to 49 inches. As the tire 2010 dealer reported retail statistics — machines sizes get larger, the number of manufacturers gets smaller, By marketing region for the three-month rolling period so they are more susceptible to supply issues. compared to same months of prior year

Finally, the giant OTR tire segment is comprised of tires Period Asia/ Latin North with bead diameters of 51 to 63 inches that are used in large ended Pacifi c EAME America ROW America World mines. And as history has shown, the balance between January Up 1% Down Down Down Down Down supply and demand for these tires is extremely delicate 35% 15% 19% 40% 27% for a number of reasons that will be explained later. Unlike the passenger, light truck and medium truck tire February Down 2% Down 22% Down 20% Down 15% Down 30% Down 20% industries, the OTR tire market can easily be described as chaotic. Most of the passenger and light truck tires used in North America are produced in North America with March Up 11% Down 18% April Up 13% Down 14% Down 15% Down 10% Down 7% Down 3% Down 21% Down 5% Down 11% Down 4% litt le reliance on overseas production. And since most of that production stays on this continent, changes off shore May Up 38% Down 8% Down 2% Up 9% Up 15% Up 11% typically do not have a major impact on our supply because June Up 36% Up 8% Up 18% Up 20% Up 26% Up 22% those markets have their own manufacturing plants. July Up 41% Up 19% Up 32% Up 29% Up 38% Up 32% Likewise, the demand for passenger and light truck tires overseas is primarily supplied by production closer August Up 32% Up 26% Up 57% Up 35% Up 40% Up 37% to those regions, so changes in North America have litt le September Up 44% Up 40% Up 73% Up 49% Up 60% Up 53% eff ect on their supply. Th e same can be said for the medium October Up 45% Up 40% Up 59% Up 46% Up 52% Up 48% truck tire industry, although the current truck tire casing November Up 51% Up 43% Up 43% Up 46% Up 53% Up 48% shortage can be att ributed in some part to the reduction December* in casing imports. * Not yet available

America is global in every sense of the word, so it is extremely In the next CTD section coming in April, we will continue dependent on the markets abroad. our look at OTR market conditions and tire production. ■

initial condition that contributes to the chaos. supply for all types of OTR tires, regardless of size. First and Kevin Rohlwing is senior vice president of training for the Tire foremost is the demand at the original equipment level. In order Industry Association (e-mail krohlwing@tireindustry.org).