Tyre shortage to hit major projects in the Middle East

 

The New Year could bring further bad news for mining and construction firms that have been reeling under rising costs and supply shortages.

 

The supply shortage in the off-the-road (OTR) tyre segment, which has already seen the price of a tyre that cost £15,000 (100,500) in 2005 increase by up to 300 per cent in 2007, is set to increase by a further 20 to 30 per cent by the end of H1 2008, industry sources have told Emirates Business.

TBR tyres are those used in the logistics and transport industry vis-à-vis trucks, trailers and buses while OTR tyres are used in almost all construction and heavy machinery equipment including earthmovers (also called dump trucks), shovels, bull-dozers, industrial cranes and scrapers.

 

The region’s large number of impending and under-construction projects and mining operations means there is a 20 to 25 per cent deficit between demand and supply, according to industry estimates. Prices of OTR tyres have gone up by 15 to 20 per cent in 2007 in the UAE alone, a Bridgestone executive said.

“Over the last year, there has been a 25 to 30 per cent growth in OTR demand in the UAE alone, while the production capacity cannot be accelerated beyond 7 to 10 per cent per year,” a senior sales executive at Bridgestone’s Dubai office said.

 

This means increasingly, contractors and companies are opting for multi-brand supply. But many of these brands do not have good testing or manufacturing standards, industry experts have warned. The causes of the shortfall are no surprise. The Chinese economy is absorbing large numbers of off-road tyres directly.

 

There is a worldwide rubber shortage due to major construction projects and mining operations and investing in greater tyre production capacity is expensive. As a result major tyre manufacturers – including Michelin, Bridgestone, Goodyear and Pirelli – have revised prices up to three times a year since 2005.

Earlier this month, Pirelli said its tyre division will increase its prices by 10 per cent on markets in the Middle East, Africa, Asia and the Pacific as of January next year. Bridgestone is likely to increase prices by 10 per cent in January followed by another 10 per cent in June.

Goodyear is also expected to increase prices between five and 15 per cent. Pirelli said the price increases are the result of higher raw material and energy costs.

Bridgestone the biggest supplier of these “super giant” OTR tyres, has already warned world demand will not be fully met until 2012, a view echoed by Michelin, the second largest supplier. The acute shortage has meant that tyres two years ago cost $30,000 (Dh110,100) or £15,000 have increased by as much as three times.

Japan’s Bridgestone Corporation supplies between 35 per cent and 40 per cent of global demand for mining equipment tyres and says its entire production of tyres for large and giant earthmover tyres is committed to existing customers for 2006.