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

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

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

FULL COVERAGE: 2022 OTR Conference

Coal

Rohlwing started his presentation by touching on coal, noting that prospects for coal mining in the U.S. remain uncertain this year due to the Russian invasion of Ukraine. According to the International Energy Agency (IEA), Russia is the third-largest global exporter of coal. Due to the conflict, which has increased energy prices globally, the movement of energy commodities—such as coal and oil—has been disrupted. This could lead to a bump in gas prices; however, it could also help the U.S. coal industry recover from pandemic lows, Rohlwing suggested.

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

“So, the question is, will coal ever recover [to pre-pandemic levels]?” Rohlwing asked. “Given the Biden administration’s requirements for climate change, it’s looking like it won’t bounce back for a while, but in the next 48 hours, that could all change [due to the Russia-Ukraine conflict].”

Citing data from the IBISWorld, Rohlwing said the southeastern U.S. is home to more than half of the country’s coal mining establishments and Pennsylvania has the most. According to the IEA, China and India account for roughly two-thirds of the world’s coal use.

“So, the data doesn’t paint a good picture for coal in the U.S., 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 gave an update on other metal markets to show attendees in which sectors mining is slated to pick up.

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

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

Industry revenue for materials used in construction, including iron ore, stone and sand and gravel are also slated to grow steadily and recover over the next five years as global economic activity recovers to pre-pandemic levels, said Rohlwing citing IBISWorld Data.

“That projected recovery in 2025 and 2026, that’s from the infrastructure bill,” he said. “We’re years away from seeing the results of that but it’s seen 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 anticipated to expand as the U.S. economy rebounds, with increasing revenue at 2% over the next five years. In fact, total construction starts is projected to increase 6% this year, reports the Dodge Construction Network. A slight increase in single-family and multifamily housing projects will come with it.

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

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

In addition, road and highway construction funding is expected to moderately increase over the next five years. According to the Portland Cement Association, the average construction start will take place mid-2023 after federal and state paperwork, bidding and reviewing for projects happens, which can take anywhere from six to 21 months.

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