There are a number of ways to profit from a commodity bull market. One is savvy stock-market betting on things like coal and iron ore. Another is digging out as much of the stuff as possible while prices are high. A third one: selling giant tires.
They are the rubber whoppers, measuring about 3.5 m in diameter, used on the wheels of mining trucks. Resurgent global growth and China’s appetite for raw materials haven’t just propelled gold over US$1,600 an ounce, they have also tripled the price of mining-truck tires, Bloomberg News reports. Normally about $30,000 to $60,000 apiece, the gargantuan tires are now selling for up to $100,000, or as much as the combined pre-tax annual income of an average Canadian couple with two kids. When one considers that mining trucks run on six wheels and wear out tires in about 12 months, the cost of keeping a mining vehicle on the road could be $600,000 a year.
Big mining conglomerates such as Rio Tinto and BHP Billiton, and mining equipment giants such as Caterpillar, are relatively sheltered from the current price hike because they rely on contracts based on considerably lower figures, according to Kevin Rohlwing of the Tire Industry Association. But unless another crisis cools off the global demand for commodities, the supply squeeze is likely to last. In fact, the current market resembles the first half of 2008, when giant tires reached $150,000 apiece. “The bottleneck is typical” when the economy heats up, says Rohlwing.
In the short term, though, tire manufacturers can hardly scale up production. One tire press churns out about one giant tire per day—compared to 20 regular car tires—says Rohlwing, and building an additional press takes around 18 months. And with the price of natural rubber nearly doubling over five years, from $1.25 per ounce in 2006 to $2.24 this year, he says, mining truck tires “are only going to get more expensive.”