Deflated Markets

As front- and back-end activity for tire recyclers continues to fall in line with the rest of the sluggish economy, business remains mostly flat. Some companies are riding out the difficult economy by capitalizing on emerging market trends and segments, which they say not only helps them to stay afloat now but also ensures they’ll thrive once the market for tire recycling improves.

A SLOWDOWN

After a cooldown of last year’s hot fuel prices, Mark Hope says he is seeing decreased demand for tire-derived fuel (TDF). The president of Portland, Ore.-based Tire Disposal & Recycling Inc. (TDR) says the cement industry on the West Coast, a big user of his company’s TDF and fuel from whole tires, is getting less business in the United States and abroad, including the Asian markets, from normally big customers.

"We’re selling some of that product, but it has been tempered somewhat by the world economy," Hope says.

In turn, cement plants have scaled back production. Hope points to a company in Northern California that usually produces cement 11 months out of the year. This year, however, the company is shutting down its plant for the rest of the year beginning in August.

The economic slowdown also has led to states, counties and cities having less funding available to construct and maintain roadways, which means less demand for pavement, says Doug Carlson, executive director of the Tempe, Ariz.-based Rubber Pavements Association. Usually when there’s a general fund shortfall, officials "borrow" money from that government’s transportation fund to cover the deficit, he says.

Raw material costs also factor into the equation, he adds.

"Generally, the asphalt paving business has been hard hit by the high price of oil and asphalt and has been very slow to start in 2009, with about two to three months’ lag compared to years past," Doug Carlson says.

The crumb rubber market is a mixed bag, Hope says, adding that the outlook depends on whom you ask. Companies in states that subsidize crumb rubber production through grants or other programs are watching the states’ budget reports to see what might happen.

"In California, with its budgetary problems, it will be hard for the state to sustain the amount of subsidizing," he says. "If they don’t, that market will probably drop like a rock."

The market for the wire recovered from scrap tires has declined; besides that, Ron Carlson, chief operating officer of Pittsburgh-based Liberty Tire, says he doesn’t see major activity up or down in the other market segments.

"When you get into products, there hasn’t been a whole lot of price movement," says Ron Carlson. "I think it’s a pretty good equilibrium that exists out there. I don’t think we have huge shortages, and I don’t think we have huge surpluses either." He adds, "Maybe in some other regions it’s a little different."

SMALLER SUPPLY, SMALLER TIRES

While the shortages in scrap tire generation may not be huge, supply does seem to be short of the ideal amount, according to sources. Penny-pinching in the down economy extends to the tire industry. Motorists are looking to get more mileage out of their tires—and are even driving less—to avoid buying new tires, which obviously cuts down on the supply coming to recyclers.

"Tire sales are off by 5 [percent] to 10 percent," Ron Carlson says. "The economy has definitely impacted the number of tires being generated. With miles driven being down less than tires sales, you’d think at some point in time tires sales have got to catch up; maybe people are deferring purchases as long as they can."

A growing portion of the supply that remains tends to be from smaller cars rather than from SUVs and trucks, says Tony Cialone, chief operating officer of Florida Tire Recycling Inc. (FTR), Port St. Lucie, a producer of 10- to 30-mesh crumb rubber and 30- to 60-mesh rubber powder.

The average tire size is shifting from 27-to-28 pounds per tire down to 22-to-23 pounds as consumers are being drawn to hybrids and other more fuel-efficient vehicles, he says.

THE BRIGHT SPOTS

While some market segments leave tire recyclers to wait out the recession, other segments are providing opportunities to help pick up business in slow times. Federal stimulus money earmarked for construction should bode well for the asphalt industry, Ron Carlson of Liberty Tire Recycling says.

"While it may not be a super-strong demand at this point, it seems to be trending in the right direction and looks like it could really materialize into something more significant in the future," he says.

The additional funding is bringing back many of the projects that had to be cancelled as governments shifted transportation money to cover general fund shortfalls, adds Doug Carlson of the Rubber Pavements Association.

Mulch products continue to gain strength in the marketplace, Ron Carlson adds. Another bright spot, which he says he expected, is the turf infill market.

"These are emerging and growing markets, so that helps to offset the negative impact of the economy and keep sales reasonably strong and stable despite the negative economic impact," he says.

Cialone says there’s opportunity in his marketplace for those who cater to a fast-growing movement: sustainability.

"Customers are getting the benefit of recycled materials being at a lower price point and the benefit of saying they’re using recycled materials," he says. "They’re able to use higher and higher loadings and they’re seeing product performance improving." Cialone adds, "Also, they’re able to use recycled rubber powder and getting properties they’d get through a higher-end virgin polymer."

This is a result of companies considering the size of their carbon footprints, Cialone notes, adding that customers want documentation that their tires aren’t being landfilled or burned and that the wire from the tires also is being recycled.

"They don’t look at tire disposal companies in terms of ‘Who’s the cheapest service provider out there,’" he says. "Customers are saying, ‘You may not be cheapest service solution, but you’re the most sustainable service solution we’ve seen," he says.

Tire recycling companies like FTR are breaking the image of being strictly waste management companies and showing they can be a complete solution provider by being involved in each step of the process, connecting the front end with the back end, he says.

"We’re showing up with Ph.D.s who have technical results, compounds and formulas to help end users understand how they can use the products," Cialone says. "From there they can figure out how to incorporate it into their product." He adds, "It’s unfair to show up and say, ‘You figure out how to do that;’ and I think, unfortunately, the tire industry has had a history of doing that."

Cialone adds that another reason he believes FTR’s model can succeed is because few recyclers go as far into the process to create fine rubber powder. The product produces profits, especially when you consider the increase in value of the end products, he says.

"We’re not getting 3 cents per pound for rubber as an alternative for fuel (by burning it)," Cialone says. "We’re getting 20 to 30 cents per pound because we’re substituting petroleum-based polymer."

Those who are late to adopt the new model will miss out, Cialone adds. This is no small potatoes, considering the global market potential for crumb rubber and rubber powders currently exceeds 5 billion pounds annually, or more than $2.5 billion per year, according to FTR’s market overview.

KEEPING COSTS IN CHECK

Asphalt producers are finding they can reduce raw material costs by adding recycled tire rubber to their product, displacing a portion of the asphalt liquid, Doug Carlson says.

"In 2008, it was the first time that liquid asphalt had cost more than the granulated tire rubber," he says. "Also, the extended life of particulate rubber modification to asphalt paving has gained in importance as engineers look to pave less in the future. Studies show that the tire rubber particles in paving systems can help obtain over 60 percent reduction in maintenance cost (mostly crack filling) over 10 years and eliminate one paving/resurfacing cycle in 25 years," Doug Carlson adds.

To help offset the traditionally higher costs of using granulated tire rubber, virtually all recycling companies charge a tip fee or collection fee to pick up the tires. Liberty Tire’s Ron Carlson says he can’t foresee making a profit in the current market without this fee.

"To deal with all aspects of the tire and all of the costs associated with picking up tires and handling them through the whole process—meeting the customers’ needs, staying environmentally compliant, following the right safety standards and including the right quality procedures," he says. "It takes a tip fee on the front end for the tire generator or retailer as well as what we can sell the product for on the back end."

The revenue stream generated by tipping fees has been increasingly essential to tire recyclers during this time of sagging wire prices, he adds.

However, Cialone predicts that this operation model might not be around much longer.

"End-use and higher-end applications will drive the market, and, in turn, we think tipping fees will come down," he says. The high demand of cardboard and office paper in the pulp industry led to lower collection costs, and he says he foresees the tire recycling industry heading in the same direction, possibly in the next four to six years.

Those who can adapt and expand into the new, higher-value markets should be best poised for future success, Ron Carlson says.

"Even if the economy is off a bit, you’ve got expanding uses for the rubber," he says. "So even if some of the existing markets may be under a bit of economic pressure this year, you’ve got more markets to sell to. This should bode well for the tire recycling business when the economy improves. We’ll have business from existing customers picking back up, as well as the business from expanding into new marketplaces."

The author is a freelance writer based near Cleveland, Ohio. She can be reached at hwoodtaylor@gmail.com.