How the Ukraine Crisis and the Infrastructure Bill Could Affect the OTR Tire Industry

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News of Russia’s invasion of Ukraine, labor shortages and the effects of the $1.2 trillion infrastructure bill were on the tire industry’s mind on Thursday last, as the OTR side of the business gathered for the OTR 2022 Conference, held at the Hilton Sandestin Beach Golf Resort & Spa in Destin, Florida. So how will all of these current events, and their implications for the economy, impact the OTR tire market?

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Kevin Rohlwing, senior vice president of training for the Tire Industry Association, shared construction and mining data points with attendees to give them a sense of how current events and what’s happening in these industries can impact the US economic outlook, the tire industry and in particular, the OTR tire industry now and in the years to come.

Coal

Rohlwing began his presentation by discussing coal, noting that the outlook for coal mining in the United States remains uncertain this year due to the Russian invasion of Ukraine. According to the International Energy Agency (IEA), Russia is the world’s third largest coal exporter. Due to the conflict, which has driven up energy prices globally, the circulation of energy raw materials, such as coal and oil, has been disrupted. This could lead to higher gasoline prices; however, it could also help the US coal industry recover from pandemic lows, Rohlwing suggested.

Since 2019, coal production has steadily declined in the United States According to the United States Energy Information Administration (EIA), coal production has fallen to just under 550 million short tons in 2020, from nearly 800 million short tons in 2019. However, as the economy recovers from the effects of the COVID-19 pandemic, a slight recovery is expected in 2022 and 2023.

“So the question is whether coal will ever recover [to pre-pandemic levels]asked Rohlwing. “Given the demands of the Biden administration on climate change, it looks like it won’t rebound for a while, but in the next 48 hours, that could all change. [due to the Russia-Ukraine conflict].”

Citing data from IBISWorld, Rohlwing said the southeastern United States is home to more than half of the nation’s coal mining establishments, with Pennsylvania having the most. According to the IEA, China and India account for around two-thirds of global coal consumption.

“So the data doesn’t paint a good picture for coal in the United States, but there is hope for coal in exports,” Rohlwing said. “Now that Russia has invaded Ukraine, the question is: what will happen to China?

Other Metal Markets

Rohlwing also provided updates on other metals markets to show attendees in which sectors mining is expected to resume.

Gold and silver prices are expected to decline moderately over the next five years, with recovery dependent on the suppression of the coronavirus, according to IBISWorld. The price of copper and zinc is also expected to decline over the next five years. However, Rohlwing said demand for copper is expected to exceed supply by 2030, citing data from S&P Global Market Intelligence.

“In a world where there will be more electric vehicles, it’s no surprise that there is more demand for copper,” he said. According to the Copper Development Association, electric vehicles use more than twice as much copper as an internal combustion engine vehicle.

Industry revenues for materials used in construction, including iron ore, stone, sand and gravel, are also expected to rise steadily and recover over the next five years as economic activity world is back to pre-pandemic levels, Rohlwing said citing IBISWorld Data.

“This projected recovery in 2025 and 2026 is from the infrastructure bill,” he said. “We are years away from seeing the results of this, but it shows in the increased forecasts [in these industries.”

Construction

The $1.2 trillion infrastructure bill that was signed into law last year in the U.S. brings the promise of better roads—and more profit—for the OTR tire industry, Rohlwing said.

“That infrastructure spending is how we’ll see economic recovery starting,” he said, “and that’s great news for everyone in this room [at the OTR Conference].”

According to IBISWorld, the construction sector is expected to grow as the US economy rebounds, with revenues increasing by 2% over the next five years. In fact, the total number of housing starts is expected to increase by 6% this year, reports the Dodge Construction Network. A slight increase in single-family and multi-family housing projects will follow.

On the commercial construction side, a 12% increase in housing starts is expected this year compared to last year, surpassing pre-pandemic levels in billions of dollars of construction projects. Commercial construction includes warehouses, offices, hotels, stores and parking lots.

“Again, that’s a good thing for our industry because these projects move a lot of material — a lot of stone, gravel, cement,” Rohlwing said. “And that really comes as no surprise, because warehouse construction is certainly breaking records.” In fact, the Dodge Construction Network reports that warehouse construction starts have increased from $30.2 billion in 2019 to an expected $52.8 billion this year.

In addition, funding for road and highway construction is expected to increase moderately over the next five years. According to the Portland Cement Association, the average start of construction will be in mid-2023 after federal and state paperwork, bidding and project review, which can take six to 21 months.

“It’s great news that we’re going to get all these infrastructure projects done, but we’re not really going to see [the results] of all of this until 2024,” says Rohlwing.

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