Maybe They Should Call ‘Cash for Gold’ - Tire Review Magazine

Maybe They Should Call ‘Cash for Gold’

Dire news up north where commodity experts suggest that one half of Canada’s mining companies could go kaput before summer.

That’s not real good news for the OTR tire market, which has seen its years of heaping, healthy and under-met demand shrivel thanks to the harsh downturn in commodity metals, coal and oil.

One analyst thinks some of Canada’s big mining companies will go bankrupt before too long. "I think you’ll have five bankruptcies before the second quarter (of 2009) ends, and some of them will be sizable entities," said Andrew Martyn of Davis-Rea Ltd. "The metals side is just on the edge of apocalyptic. It looks horrible."

Vale Inco, Xstrata Canada and Rio Tinto Alcan have already reduced planned expansions, slashed jobs and shuttered profit-dry mines to save dollars. Financially struggling operators could find themselves bought or forced into mergers just to stay afloat.

Add to the OTR tire mix a downturn in Canada’s oil sands, driven by barrel pricing that has fallen from a mid-year high of $147 to a year-end low on $39. Handsome at the gas pumps, but not a healthy level for oil sands operators.

Still, operators like mid-sized Connacher Oil and Gas Ltd. are putting on the brave face and saying a full-scale shutdown is unlikely, despite well-reported output reductions in Alberta.

Full-scale shutdowns are not out of the realm of possibility. Merrill Lynch warned last month that slumping oil prices could force around 1.6 million barrels a day of Canadian oil production offline, nearly 60% of the country’s total output, half being shut in below $38 a barrel and the remainder below $30.

That may not come to pass. The cutbacks that are being made, though, will have a bottom line impact on OTR tiremakers and dealers.

If you have comments to share, send to me at [email protected].

– Jim Smith

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