A Stop-and-Go Market

Despite a few bumps in the road, the scrap tire market is rolling along at a steady pace, slowly trying to regain footing since the great recession of 2008.

Mildly concerning some tire experts and processors throughout the country is a level of scrap tire generation that has been viewed as flat in recent years. A number of factors may be at play, they say, including increasing exportation and changing consumer behaviors.

Meanwhile, the other side of the business, end uses for recycled scrap tires, looks to be promising, with healthy levels of demand being reported, though prices for material are flat or declining. Still, most processors contacted for this article seem to be optimistic about the scrap tire market going forward.

Outbound Bales
The biggest news story in the scrap tire market as of late, processors say, has been increasing exports of scrap tires, which have the potential to negatively affect processors’ front-end profits.

Michael Blumenthal, vice president of the Rubber Manufacturers Association (RMA), Washington, D.C., says the increasing export of scrap tires, particularly to Southeast Asia, is one of the most recent changes to have affected the scrap tire industry.

“This is whole tires being baled and shipped via containers in ocean-going vessels to Southeast Asia,” he notes.

“Back in 2009 there wasn’t a whole lot of exports,” Blumenthal says. But between 2009 and 2011, “that marketplace just exploded,” he adds. Since then, about 18 million tires are exported on an annualized basis, Blumenthal says.

Interestingly, that export market for baled tires was strong until early July, when overseas buyers apparently curtailed their purchases.

“From about 18 months ago until about two weeks ago, that was an expanding market,” says Blumenthal, interviewed in July. “Two weeks ago the door shut,” he says. “The export market to Southeast Asia came to a complete and pretty much absolute halt.”

The abrupt pause in exports to Asia is not completely surprising, Blumenthal says. He says he believes it is likely based on territorial disputes over waterways in Southeast Asia and that it most likely will be temporary. “We have been led to believe that by the end of the year or the early part of next year, that market will resume,” Blumenthal says.

The practice of exportation has been met with concern on the part of some U.S. processors. Dick Gust, director of government affairs for Liberty Tire Recycling, based in Pittsburgh, and also a past president and current board member of the Tire Industry Association, says the exportation of scrap tires, at about 8 percent of all scrap tires in recent years, has negatively affected the industry. Liberty now has 36 facilities throughout the U.S. and Canada.

“I’m not opposed to anybody exporting tires and doing it legitimately,” Gust says. However, he claims that exporters have been able to do business much more cheaply than traditional processors by baling whole tires for export, a practice that hasn’t been specifically addressed by rules and regulations.

“These balers are basically going around and creating a system that is not necessarily processing but collecting tires and shipping them out of the country in competition with domestic processors, who have to follow rules and regulations,” Gust says. “It’s very difficult to compete against people who don’t follow EPA (U.S. Environmental Protection Agency) rules.”

He continues, “It’s becoming, at least for now, a huge problem and a concern.” However, he says the issue is being addressed in California. Changes under consideration in that state aim to level the playing field between exporters and domestic processors.

Another related concern is what appears to be flatness in scrap tire generation. “I would say that 2011 and 2012 are pretty flat and comparable in terms of tire generation,” Gust says. He points to RMA predictions of a modest 1 percent growth in passenger and light truck tires through 2012.

The flat supply can hurt when coupled with an export market that can pull tires away from domestic processors. “The tires being generated are managed today, and there’s a supply,” he says, “but clearly there’s a concern about the supply drifting away.”

Mark Hope, president of Tire Disposal & Recycling, Portland, Ore., also describes a fairly tight supply situation, depending on the market. Tire Disposal & Recycling is the parent of a group of companies, including Waste Recovery West and Krider Construction, all of which collect and process tires. The company operates eight transportation hubs, four of which also have processing capabilities.

Hope says that in his area, generation of scrap tires has seemed to drop off, somewhere in the neighborhood of 15 percent since prerecession highs and hasn’t returned to prerecession levels. He wonders how much of the drop-off is because of the economy and how much is a function of reduced driving habits.

“Everyone would like to see some semblance of normalcy,” Hope says. “We don’t know if the price of gas has profoundly changed people’s driving habits, because that’s one thing that will always affect the generation of tires.”

Similarly, Gust says American consumers seem to be using tires longer these days, which affects supply.

Gust says a second concern with the loss of scrap tires to overseas processors and reduced generation is the accompanying loss of front-end collection fees. He notes that processors rely upon these fees to help make capital investments.

“What’s happening really is that there’s a reduction in the front-end revenue from the collection side that’s impacting the revenue for processors,” Gust says. And that, he adds, makes it more difficult for processors to invest in processing equipment to create more highly engineered products.

Many End Markets
On the flip side, experts are optimistic about what they say is the increasing utility of and demand for scrap tires in various end markets.

Blumenthal says the percentages of scrap tires going to various end uses haven’t changed all that much from 2009, with the exception of the export market.

The largest end market for scrap tires has historically been tire-derived fuel (TDF), used to power cement kilns and paper mills, and it remains so Blumenthal says. But that use may be shrinking. Data from the RMA indicate that tire-derived fuel claimed about 40 percent of scrap tires generated in 2009.

Blumenthal describes TDF as a stable market that may have some growth left in it. “TDF, at this point in time, looks relatively positive,” he says. “There are a series of factories that are looking at using TDF now that the economy has come back some,” he says. Despite this, Blumenthal says TDF is a mature, shrinking market.

However, Hope says he’s seen strength in TDF markets on the West Coast in recent months. And, he says, the recent surge in oil prices has led to increased demand for scrap tires. “There’s pretty good strong demand for tires for their fuel value,” Hope observes.

According to RMA, about 10 percent of scrap tires go into making tire-derived aggregate for civil engineering applications, such as subgrade for roads and backfill for walls and bridges. “It’s an application that I think is steady,” Gust says. But, he adds, “I don’t see it growing, and I think as other more high value products come into the marketplace, it may take some of that material away from that.”

Meanwhile, Gust, points out that other applications using ground rubber from scrap tires are much more dynamic and seem to hold more profit potential.

“There’s also been a concerted effort to try and move the scrap into higher-value products,” he says, referring to the ground rubber market in particular.

Other industry experts agree that the ground rubber market appears to be a bright spot for the tire recycling industry. This market includes rubber asphalt products, molded or extruded products, surfacing and ground covers.

Blumenthal agrees that the ground rubber market has the greatest potential, as it provides the greatest return on investment. Close to 30 percent of scrap tires go into ground rubber applications, according to the most recent RMA data.

“Asphalt and new products are the main focus of the industry,” Blumenthal says of the tire recycling sector.

When it comes to extruded and molded rubber products, Blumenthal says there appears to be significant potential, even though it can be a slow-moving, conservative and technologically complicated industry. Still, a few companies are making inroads, he says. “There are a couple of companies that have integrated vertically in making their own products, which I still think is probably the most effective way of getting into this marketplace,” Blumenthal says.

Meanwhile, the rubber asphalt market is one that Liberty is emphasizing, says Gust, who is hopeful about the recent technical advances he’s seen in this area. “The science has shown that you can actually lay rubber material into the asphalt in a thinner layer which makes it also much more cost effective than it had been in the past,” he says.

As the price of polymers used in asphalt increase in relation to oil prices, recycled tire rubber becomes a more cost-effective replacement for the polymers.

“I think in the next 10 years you’re going to see a lot more roads that have rubber in them,” he says. Gust points to the strides being made in this arena in California, Texas, Arizona, Florida and Georgia.

Currently, he says, rubberized asphalt accounts for about 15 percent of the scrap tire market. But he sees that growing substantially. “I think in the next five to 10 years it could go up to the 30 to 40 percent range.”

Gust says one mile of road paved with a certain rubber modified asphalt could consume as much as 7,200 scrap tires.

In terms of end market pricing, Gust says pricing for processed material is competitive, which has led to flat prices since 2009. “As you try to expand into any specific market and there are competitors in that market who are trying to move that material, it tends to drive the material pricing down,” Gust says.

Meanwhile Hope says demand appears to be strong for the three major markets his company is involved in: energy, crumb rubber and the used tires themselves.

Hope says regardless of what end use scrap tires are going into, in his view the demand for scrap tires correlates highly and directly with oil prices. “As oil prices go up, the recycled material becomes more valuable because it can effectively compete in the marketplace against virgin material.”

Meanwhile, Art Dodge, president of ECORE International, Lancaster, Pa., says his company hasn’t experienced any problems in terms of the supply of scrap tires. He says ECORE, a producer of crumb rubber for manufactured products such as flooring and underlayments, is “the largest user of recycled rubber for manufactured products in the U.S.”

Dodge adds that ECORE Inetrnational has seen its business growing at double-digit rates in recent years.

“I’ve heard rumors that rubber is being exported,” Dodge says, “but there’s tons of rubber out there. We’ve actually seen rubber costs stable or decline over the last 12 months.”

Dodge says that while the recession hit hard from 2008 through 2010, ECORE International has since recovered nicely. In fact, the company has made capital investments in recent years to upgrade its facilities, which also has improved the quality of the products ECORE International manufactures.

Dodge says the company has also improved in terms of timing its purchases of scrap tires. “We have the ability to stockpile material when we can buy it at the right price,” he says.

The author is managing editor of Recycling Today Global Edition and can be reached at lmckenna@gie.net.