by Jerome a Paris
Fri Apr 21st, 2006 at 05:05:56 AM EST
soon you'll be hoping for the peak in "peak diaries"...
Big Tires in Short Supply
HOUSTON, April 19 -- The worldwide thirst for stuff from the ground -- materials as diverse as copper and coal, gold and oil -- has set off a stunning boom in just about every commodity market. But there is one item that lately has dealers in the global mining industry really scrambling: the supersize tire.
They are used prominently everywhere from the Canadian tar sands to open-air coal mines in the United States and China, but lately they have become almost as precious as gold and silver: prices have quadrupled for some of them in the last year to more than $40,000 a tire.
From the diaries
There are several reasons for the tire shortage. Demand is soaring, with greater needs by the military for the wars in Iraq and Afghanistan and by construction firms rebuilding the hurricane-ravaged Gulf Coast.
But mining companies and tire manufacturers say the biggest reason is the rapid industrialization of China, India and other developing countries, which is expanding the appetite for basic commodities.
In many ways, the tire shortage both reflects the soaring commodities prices and contributes to it. The price of copper, which is used in electrical wiring and pipes, has climbed 45 percent this year, closing at $2.9595 a pound on Wednesday. Nickel, used to make stainless steel, is up 37 percent during the same period, while gold is up 23 percent and zinc is up 65 percent.
In an attempt to cash in on the commodities rally, mining companies have been reactivating old mines and expanding existing operations. But time and again, these firms have been stymied by a lack of available tires.
Some companies have been forced to idle their heavy equipment or alert investors of the impact of the tire shortage. For instance, Fording, one of Canada's largest coal producers, has repeatedly warned in recent months that the tire shortage could reduce its coal output. Production capacity at its mines in British Columbia and Alberta is 28 million tons a year, but output this year could fall to less than 25 million tons, company said.
These moves and plant expansions by other tire manufacturers, however, will do little to ease the tire shortage until late 2008 or thereafter. The heavy equipment used to make the tires is relatively difficult to procure, which means that the earliest any new plants could be operating is more than two years from now.
Given the stress the commodities boom has unexpectedly created in an arcane area of the mining supply chain, some experts suggest that the tire shortage may keep prices higher longer than expected by limiting the ability of mining companies to meet the explosive demand for their products. But in the end, they say, there is little to worry about.
"This tire issue is, I believe, more a symptom of the mining industry's strength than its weakness," said Tibor Rozgonyi, head of the mining engineering department at the Colorado School of Mines. "It may be an acute concern at this moment, but the market has a way of taking care of these imbalances."
Don't worry, the market will take care of it. Demand destruction, baby.