Steel, tire shortages continue to affect manufacturers

The steel and earthmover tire shortages seem likely to rage on as manufacturers continue to see supply for the raw materials needed to produce these products lag behind demand.

According to Nick Yaksich, vice president of global public policy for the Association of Equipment Manufacturers, steel remains a major concern for equipment manufacturers. “Factored in with cost increases in energy and other raw material costs, the considerably higher prices manufacturers are paying in 2005 for steel continue to put price pressures on equipment,” he said.

While some shortages of certain types of specialty steel remained, earlier this year it appeared shortages had eased and prices had stabilized. An AEM survey of construction equipment manufacturers conducted late last year indicated prices would stabilize in mid to late 2005, Yaksich said.

But that was before Katrina came ashore. “The effects of Katrina, primarily on the supply of natural gas used in the production of steel, remains to be seen,” Yaksich said.

Still, the burden put on equipment manufacturers trying to acquire steel is not likely to be alleviated anytime soon. “While the ‘crisis’ label associated with the rapid steel price increases and shortages of 2004 may not be on the front page, the significantly higher cost of steel continues to challenge equipment manufacturers as demand for product remains strong,” Yaksich said.

The outlook for off-road tires doesn’t appear to be any better.

Bob Harnar, director of original equipment manufacturers and international sales for Continental Tire North America, says the tire shortage that first made headlines at the beginning of this year hasn’t improved much in the past six months.

“Continental is seeing very little change in the radial tire shortage or the large bias tire shortage,” he said. However, Harnar said there seems to be some relief in the 25-inch sizes as import tires from the East are filling some of the demand.

OEMs are still shipping some equipment without tires. “We continue to hear from our OEM customers around the world that new machines are being shipped to their dealers on wooden wheels, slave tires, retreads, used tires and, in some cases, even barefoot,” Harnar said.

If getting new equipment with tires is difficult, it seems natural that contractors would have trouble finding replacement tires for their off-road equipment. Harnar says it really depends on the type of equipment, type of tire, tire size and machine job application. “Many times customers must settle for substitutions to the type of tire they have used in the past,” he said.

Herb Johnson, Michelin public relations manager for earthmoving tires, says that given the unprecedented demand for earthmover tires, many in the industry are experiencing difficulty sourcing them.

To counter this demand, Michelin is increasing production at its Lexington, S.C., Le Puy, France, and Victoria, Spain, facilities and is building a new earthmover tire plant. Johnson said he sees no signs of decline in demand and expects all segments of the earthmover market to experience continued growth through 2007.

Harnar said all Continental plants that build off-road tires are operating at maximum capacity.

Harnar said the outlook for the off-road tire supply in the United States during the next couple of years will depend on a few intangibles, including:

· The direction of the U.S. and world economies
· The impact of foreign tire imports from Eastern countries
· Continued demand for new machines around the world
· The availability of tires from plants being built in other countries

While Harnar thinks the supply of small off-road tires will improve as world tire production increases, he says the supply of larger mining tires will continue to be tight for several years because of the limited number of tire manufacturers producing them. “They simply cannot fill the huge demand,” he said.