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Peak tires

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.

Some of this is undoubtedly typical of a normal "boom and bust" cycle and may be temporary. This is precisely the kind of sector where supply has trouble adapting to demand, because of long lead times for investment, a narrow market, and high upfront costs, thus booms and busts in prices.

But this one could have a pretty big impact on a number of other markets, as it REALLY constrains production of a number of commodities at a time when supply is already really tight.

Which means, once more, that the market solution will require demand destruction, as supply creation is not available for a while. With unelastic demand for a number of these commodities (or strong growth in a number of places which needs to be slowed down AND  still compensated by sharp reductions elsewhere), massive price increases seem likely.

The question is - will prices go down in a while, as the market gets back in balance, or should we expect permanently strained markets, and prices going up and up and up, for much longer, as these shortages feed one another in an increasingly vicious circle?

I am wary of saying "things are realy different this time", but the potential for explosive price movements is real.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Apr 20th, 2006 at 05:24:57 PM EST
Where there is money to be made new businesses will move in to fill the demand.

For example, why do these big trucks even use tires? Why not tracks like on a tank? Or why not run railroad tracks from the mines as was done in prior days? Or even why not design a wheel where only the contact surface needs to be replaced instead of a one-piece tire design?

I don't know if the level of innovation has declined over the past several decades, but it feels like it has. I think this is a consequence of the focus of Wall St. on quarterly statements, quick trading, hedge funds and derivatives. None of these is designed to make the stock holder feel any need to be patient while companies do long term capital investing and basic R&D.

In the US there are only two real industrial labs left: IBM and Bell Labs. Neither does much basic research any more, mostly it is applied engineering and product development. Even university research has shifted to military funded projects at the expense of basic research.

It's hard to measure the effect since the rise of junk patents obscures the amount of real innovation. It would make an interesting academic study.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Thu Apr 20th, 2006 at 06:44:44 PM EST
Sure some company will move in, but the point seems to be that we're looking at about 2 years of scarcity, be it in huge tires or in caterpillar vehcles.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Apr 20th, 2006 at 06:49:26 PM EST
[ Parent ]
One known solution is to use chains (like snow chains), it reduces the wear of the rubber tyre.
But they have  likely become quite more expensive too these days. So, let's write another peak article?
For really big big vehicle, I don't even know if they are available (never seen on pictures).

La répartie est dans l'escalier. Elle revient de suite.
by lacordaire on Fri Apr 21st, 2006 at 03:06:36 AM EST
[ Parent ]
In answer to your questions.

Efficiency and economics.

Remember the really big trucks are gigantic, in the mining world a 150 tonne capacity truck is relatively small, a 250 or 350 is the norm, 500 tonners exist.

All these trucks use diesel-electric drives, big diesel driving a generator for an electric motor at each wheel.

The main advantages of wheels over tracks tho are

  • less complex, the suspension systems on tracked vehicles are their weakest point
  • simpler to maintain
  • faster moving
  • less power per tonne required so lower fuel costs
  • less damaging to the roads in and out of the pit

Tires are also, believe it or not more resilient and hard wearing than tracks. Where rubber simply flexes out of the way, steel erodes.

Why not rails?

Well the main reason is that an open cast mine is dynamic — the hole is always getting bigger. Rails are static, in an open cast environment they would be under continuous construction.

Yes there are open pits where rails are still used. The ore is near the surface and spread over a wide area. The rails are static and the ore/overburden is brought to the trains via belt systems. That does not hold in all situations.

The other big factor is access to the pit. Many pits are deep holes in the ground. You can build a road that spirals down into the pit a lot more easily than a rail loop with acceptable grades.

The rule of thumb for access is, the lower the grades on the access the larger the pit is. The larger the pit the more overburden (i.e. non-orebearing material) that has to be removed. The more overburden you remove the higher are your operating and infrastructure costs.

Eats cheroots and leaves.

by NeutralObserver on Fri Apr 21st, 2006 at 09:33:17 AM EST
[ Parent ]
Looks like some commodity prices just, ahem, peaked..

Metals hit as price of silver goes into freefall

THE price of silver collapsed into freefall yesterday afternoon, racking up its biggest one-day loss in almost two decades and triggering a massive sell-off in other precious metals.

Dealers blamed the near-14 per cent plunge in the silver price on a strong bounce in the dollar, prompting some of the hot money that has been chasing the market to a 23-year high to cash in profits. The sell-off gathered momentum as speculators who had been gambling on the silver price breaking through $15 an ounce scrambled to cut their losses, dealers said.

By mid-afternoon in New York, silver had crashed by more than $2 to $12.45 after earlier changing hands at $14.69 -- the highest level since January 1983.

The dramatic plunge quickly gripped other markets, with gold tumbling more than 4 per cent to $610.50 an ounce, its largest one-day drop in more than six years. The price of platinum, which earlier in the day hit a record high of $1,145 an ounce, fell more than $20 while palladium, which is used in products ranging from surgical instruments to aircraft spark plugs, collapsed more than 7 per cent to just $347 an ounce.

Jitters also unnerved other commodities, including oil, where benchmark US crude gave up more than $1.5 a barrel after earlier hitting a new high of $72.49, and copper, where prices fell by more than $200 a tonne...

by TYR (a.harrowellNOSPAM@gmail.com) on Fri Apr 21st, 2006 at 05:58:35 AM EST
But a one-day movement is probably not enough to call off the upwards movement...

The tires still aren't there.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Apr 21st, 2006 at 06:02:22 AM EST
[ Parent ]
The metal markets are a lot smaller than oil and hence a lot more vulnerable to speculation (or so people tell me). We would never see this kind of plunge in for example oil.

Another thing to keep an eye on is bottlenecks in the nuclear fuel cycle. Stuff like enrichment and mining (obviously) but also capacity for things like heavy boiler work.

If you are going to order a reactor, do it soon or you might end up last in line and having to wait years and years for all the order backlogs to be cleared.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Apr 21st, 2006 at 07:11:45 AM EST
[ Parent ]
Don't worry, the market will take care of it. Demand destruction, baby.

The way the market deals with things is frequently for people who need them to go without, at least in the short term.  In the case of tires, that's probably not too important (messy, but not important).  It is however a problem when you start talking about food or electricity...

by IdiotSavant on Fri Apr 21st, 2006 at 06:23:00 AM EST
Is there anything we're not running out of?

Other than "peak" diaries, of course. :-)

by TGeraghty on Fri Apr 21st, 2006 at 03:08:45 PM EST

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