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TakAspare:Global tyre shortage threatens to stop mining industry in its tracks

By Danny Fortson, Business Correspondent
Published: 24 December 2007

http://news.independent.co.uk/business/news/article3280478.ece

Times have never been better for the mining industry. Driven by insatiable demand from an industrialising China, the industry is awash in unprecedented billions. Yet the flip side of the boom is that every nook and cranny of the infrastructure, after years of under-investment, is groaning under the strain of the round-the-clock race to dig up everything from iron ore to coal to gold and diamonds destined for ports around the world.

Perhaps nowhere is this strain more acute than in one of the most mundane yet crucial components that keeps the global mining machine rolling: tyres. It may seem a minor detail, but these are no normal tyres. Reaching up to 13ft high and weighing more than five tons each, they are quite literally what keeps the global mining machine rolling. Without them, the house-size dump trucks that cart out loads from the depths of the world's biggest mines in Chile or Western Australia remain idle, costing millions of dollars in lost revenue.

Japan's Bridgestone, the biggest provider of the "super-giant" tyres, warned this year that the shortage would last until 2012, a view echoed by Michelin, the No 2 supplier. So acute is the shortage that tyres that two years ago cost $30,000 (£15,000) have increased by as much as three times.

"With a current worldwide shortage of large mining machinery tyres, world haul truck tyres can exceed $90,000," said Anthony Kocken, manager of Xstrata's Black Star Open Cut mine in Australia. It is not uncommon for new dump trucks to be delivered to a site without tyres, sitting idle for weeks or months until its wheels arrive.

That has led to a raft of quirky and innovative ways to head off the shortage. Mr Kocken has instituted an optimisation programme in which its drivers are given "tyre awareness sessions". Rio Tinto opened a retreading centre last year to extend the life of spent tyres, while so-called "mummy shifts" have surged at other companies that have found that the tyres on the trucks driven by women last significantly longer. With most lasting no more than six months, squeezing another month out of the tyres is significant.

Yet the shortage is just one part of a much larger squeeze which has sent operating costs soaring throughout the mining sector. In a recent Goldman Sachs note revising up it target prices for a whole range of commodities, the bank said: "Evidence has been mounting that the supply side is struggling to keep pace with accelerated demand growth... The incentive to operate at above design capacity is high, but the ability to do so is unsustainable, and the incidence of companies failing to meet their production targets is high."

The cost of explosives, for example, has rocketed amid a similar squeeze, while at ports freighters are having to line up single file to take on fresh loads.

The shortages have taken on even greater significance in the context of the merger mania which has taken hold in recent months. Just weeks after BHP Billiton, the world's biggest miner, laun-ched an offer for Rio Tinto, Xstrata put itself up for sale. Anglo American and Brazil's Vale are seen as the most likely bidders. The leanest, most efficient companies with the highest margins are likely to emerge triumphant from the merger scrum, or at least be able to secure a higher price.

The rising costs, however, have been outstripped by the near record current prices across a whole range of commodities. Morry Taylor, the head of Titan International, a US tyre manufacturer, explained: "In [Canada's] tar sands, with oil at $80 per barrel, a $3m dump truck pays for itself in 30 days."

Courtesy.... LoneClone