A tale of evolution

The marketplace for scrap tires is a variation of an evolutionary process, and “it’s déjà vu all over again.” The scrap tire industry began when states enacted legislation and regulations to recycle tires, with Minnesota being the first to do so in 1985.

By 1990, all but two states had a regulatory structure in place to allow the scrap tire industry to develop and expand. The first decade of our industry was marked by considerable market development and stockpile abatement activities.

By 1995, more than half of all annually generated scrap tires went to end use markets and about half of the known stockpiles were abated. The basic markets then were tire-derived fuel (TDF), tire-derived aggregate (TDA) and rubber-modified asphalt. At that time, some 500 companies were collecting and processing scrap tires.
 

Inconsistent states

The scrap tire industry has been and remains a demand-pull marketplace, unlike markets for many other secondary materials, which are supply driven. In 1996, the ground rubber portion of the industry suffered a major market correction in light of an immense imbalance between supply and demand.

This imbalance was caused by the false promise of an unfunded federal mandate on the use of rubber modified asphalt. The industry lost 80 percent of its ground rubber production capacity, which brought that market sector back into equilibrium. The industry also experienced the end of the funded aspects (market development, stockpile abatement and enforcement) in several state scrap tire programs.

During the next 14 years, a period of growth and expansion of end use markets benefitted the industry. Not only did the existing markets expand, but newer, higher-value added markets also were created. The dominance of TDF was reduced as an increasing percent of tire rubber was used in applications such as infill (for synthetic sports fields), molded and extruded rubber products, mulch and playground cover. By 2009, TDF consumed less than 50 percent of all the scrap tires generated while almost 90 percent of the annually generated tires were used by one of the several end use markets.

Nationwide, tire stockpiles also were reduced by nearly 90 percent.

Additionally, the industry experienced a long period of mergers and acquisitions, bringing the number of firms collecting and processing tires down to around 200, with the top 10 companies handling some 75 to 80 percent of all tires generated.

Strong market forces during this period obscured the underlying weaknesses that had developed over time, in large part because of the lack or loss of funded state scrap tire programs. The exceedingly high demand for high-quality TDF in the South diverted tires from the North Central region, which lost many of its TDF markets after state subsidies ended.

Tires from the Mid-Atlantic and Northeast were being directed to strong market areas in New England and eastern Pennsylvania. The West Coast developed regional markets, which consumed tires from several western and Rocky Mountain states. Isolated regions remained, each with unique systems and markets (e.g., Arizona and New Mexico) or reliance on land disposal (e.g., Wyoming).

The 2009 recession caused major upheaval in the scrap tire industry. The two largest TDF end user industries suffered dramatic decreases in demand for product, causing the idling of older cement kilns and reduced TDF use at pulp and paper mills. From 2009-2011, the use of TDF decreased by 40 percent. Road construction and home building plummeted, and school budgets were slashed, causing a 30 percent decrease in ground rubber sales. Additionally, the vast majority of states with tire fees diverted those funds to the state general fund and reduced or eliminated staff positions overseeing scrap tire programs.
 

Rebounding from recession

Three ironic, mitigating factors kept the percentage of scrap tires entering end use markets from completely crashing. First, the recession caused a dramatic reduction in new auto and replacement tire sales. This was not great for tire or auto manufacturers; but, with fewer scrap tires being generated, the effect on the percentage of tires going to end use markets was reduced.

Second, domestic demand for used tires increased, which took more tires out of the system before they became scrap tires. Third, starting in late 2010, a demand from Asia for baled tires began, albeit slowly. By the end of 2012, almost 10 percent of all U.S.-generated scrap tires were being exported to Asia, mostly to Vietnam.

Unfortunately, many of the individuals engaged in scrap tire baling and the exporters of those tire bales were not properly permitted. Scrap tire bale exports diverted scrap tires from local, properly permitted tire processors, further impacting local economies of scale and causing disruption throughout the scrap tire industry.

By 2012, the domestic scrap tire marketplace began to recover, even with significant exports of baled scrap tires to Asia. As the economy began to stabilize, demand for the two main end use markets started to increase. TDF use increased by 20 percent, ground rubber markets rebounded with a 30 percent expansion and the supply of scrap tires increased (though the industry has yet to return to prerecession volumes). In 2013, the use of TDF expanded again, this time by more than 50 percent.

The one surprising and disappointing trend in 2013 was that ground rubber usage remained at 2012 levels. Indications are that the level of road paving remains low, which affects the use of rubber-modified asphalt. This market decreased by some 30 percent over the last two years and is the primary reason that the overall numbers remain about the same as in 2012.

In 2013, two factors caused a dramatic increase in the U.S. scrap tire recovery rate. First, strong demand for TDF caused scrap tire processors to use inventories of stored scrap tires to meet demand. Second, a considerable volume of imported ground rubber entered the U.S. bound for end use markets. Together, the previously stored scrap tires and the influx of ground rubber imports increased the overall scrap tire supply serving markets in 2013.

This phenomenon resulted in an historic first. Data from the Rubber Manufacturers Association (RMA) show that more than 100 percent of scrap tires entered end use markets, when using annually generated scrap tires as the metric to calculate the overall percentage of tires going to end use. This metric, annual generation, while imperfect, has been used historically by RMA and others to assess recovery rates for secondary materials.
 

Rewarding legitimacy

The recession left a lasting deleterious impact on state agencies, resulting in a massive loss of enforcement activity and market development projects. Given that the barrier of entry into the scrap tire industry is relatively low, especially in the collection aspect (all you need is an out-of-work relative and a pickup truck and you can claim to be in the “scrap tire business”), the enforcement of regulations is absolutely necessary to keep the fly-by-night scrap tire collectors (and dumpers) on the sidelines.

Yet this aspect of state agency work generally remains unfunded. Furthermore, most states no longer consider scrap tires as public enemy No. 1, as they were deemed in the 1990s. In many ways this is a result of scrap tire management successes, but decreased urgency has led to decreased state program resources.

Most states consider scrap tire issues to be resolved, since state officials and the public are not seeing the creation of new scrap tire piles and believe sufficient markets for tires exist. Yet, the reduction in experienced agency staff and dramatic reductions in scrap-tire-related activities have left state agencies ill prepared to handle marketplace shocks, such as recessions or losses of end use markets.

Scrap tire stockpiles are returning, marshalled by an army of nonpermitted tire haulers and fueled by increased indiscriminate dumping. The scrap tire industry does not need the financial support of government agencies to survive; rather, the industry needs adequate enforcement of governmental regulations to create and maintain a level playing field for properly permitted scrap tire management to thrive.

The stability created by government oversight and enforcement existed early in the scrap tire industry and must return to ensure market sustainability.

The diminished role of state agencies in the effort to develop and expand scrap tire markets coincides with market development efforts by individual scrap tire processors. Ironically many of these efforts require cooperation by state departments of transportation (for rubber-modified asphalt or TDA) or by state regulatory agencies (for TDA or TDF projects). The industry also is moving into product manufacturing, which is one of the last, untapped markets remaining.

Recovering and expanding end markets (TDF and ground-rubber applications), coupled with industry efforts to expand marketplace boundaries is positive indeed. Yet disturbing signs exist within the industry. Over the past three years, an increase of imported ground rubber, along with an increase in domestic production capacity, has resulted in a 20 percent increase in ground rubber supply without a corresponding increase in actual or potential demand for ground rubber. If the increase in supply goes unabated, the likelihood of market disruption increases.

Interest remains in reverting scrap tires back to something related to their original components. The technology is called pyrolysis, and the process renders tires into any of three byproducts: gas, carbon char and an oil-like liquid. The issue is not whether the technology works (it does) but rather how to further refine the byproducts economically. To date, previous attempts have failed to become commercially viable.

Currently, three companies in the U.S. have invested in proprietary pyrolysis systems and claim to be near commercial viability. Some level of advancement in the effort to pyrolyze tires is possible; but, given the inherent limitations of the raw material (tires) and the processing systems, it appears this technology, if it ever becomes viable, will be, at best, a minor market.

The short history of the scrap tire industry demonstrates five consistent trends: 1) it works most effectively when state regulations are enforced; 2) state scrap tire programs cannot be considered never-ending; 3) end markets come and go; 4) an imbalance between processed tire rubber supply and end markets is harmful; and 5) history does indeed repeat itself.

The author was a vice president of the Rubber Manufacturers Association (RMA, www.rma.org), which represents the eight U.S.-based tire manufacturers, until retiring in July 2014. He had been with the Washinton-based RMA since 1990 and in the scrap tire industry since 1985.