Black gold? That's not a question about crude oil bound for the refinery, but about ``refined'' crumb rubber. With the increasing amount of attention rubber recycling is receiving, crumb rubber production facilities may end up being gold mines.
``We refine crumb rubber and make it into a commodity,'' said Tim Leighty, part owner and vice president of operations for Rubber Technologies Inc. of Hanover, Pa.
That commodity has enjoyed an upward trend. Research from the Scrap Tire Management Council indicates a 33-percent increase last year in the number of scrap tires used to produce crumb rubber-which it calls ground rubber. The Council said 6 million tires were processed into crumb rubber in 1995, up from 4.5 million in 1994.
And it expects a further increase to 7 million tires this year.
The STMC said about 200 million pounds of tread buffings also were converted into crumb rubber in 1995.
``This market will increase 10 to 15 percent annually,'' said Michael Blumenthal, executive director of the STMC. ``The key is the creation and development of new uses. Rubber recycling is a big business, and it's going to get bigger.''
Supply and demand
The entire crumb rubber industry generates 250 million pounds per year, and one producer said industry capacity is up to 325 million pounds annually.
``The capacity is 25 to 30 percent more than what is being produced right now,'' according to Mr. Leighty. ``But there's a current need for (only) about 80 percent of what is being produced. It's a saturated market right now.''
Fernley Smith, president of consulting firm ETA Inc. and former CEO of crumb rubber producer Midwest Elastomers Inc. in Wapakoneta, Ohio, disagreed.
``We're going through a cycle of having material being generated and the market not being settled,'' Mr. Smith said. ``There's not an over-supply.''
Mr. Blumenthal said the industry's capacity is between 350 million and 400 million pounds per year, and of the 20 companies producing crumb rubber in the U.S., eight produce about 85 percent of the total market share.
``There are markets, but the question is if there are expanding markets for a new entry to try,'' said John Serumgard, STMC chairman. ``There just aren't any new markets.''
Richard Downey, vice president of Recycled Rubber Resources Inc. in Macon, Mo., said prices for crumb rubber range from 11 to 17 cents per pound, depending on the size of the crumb rubber.
``That's not a good price when it costs 19 to 20 cents per pound to make it,'' Mr. Downey said.
One new market that hasn't met initial high expectations is the rubberized asphalt industry.
Buoyed by promises from the federal government, some crumb rubber manufacturers hoped to take the fast track to prosperity through the Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991.
Under section 1038 of the ISTEA legislation, states were required to use ever-increasing amounts of asphalt rubber in federally funded highway projects. Highway officials in many states objected, saying rubberized asphalt was an unknown technology.
After four years of controversy, President Clinton signed a bill late last year that repealed the rubberized asphalt requirements but does allow funding for further research.
So many crumb rubber producers who got into the business because they were banking on ISTEA suddenly were out in the cold.
``A lot of uneducated people have been getting into the crumb rubber business because the incentives the government put into it and the fact that the ISTEA bill was around,'' said Adam Baker, sales manager for Baker Rubber Co. in South Bend, Ind. ``These people thought there would be a market, but that's not the case.''
``A lot of people put their faith and their fortunes in a federal mandate, and it didn't work out,'' Mr. Leighty added. ``The burden of proof was with the asphalt industry, and they didn't prove anything.''
Mr. Blumenthal, for one, cited the ISTEA situation as one reason for ``a lot of ground rubber overcapacity.''
Another problem that crumb rubber manufacturers have to deal with is government intervention in the market via fees and subsidies.
Currently, nearly every state requires a fee to aid in the disposal of tires. Those fees range from 25 cents to $1 per tire, according to Mr. Blumenthal, and 253 million tires were subjected to such fees in 1995.
Some states also give incentives to companies that take scrap tires off their hands, a practice many crumb rubber producers believe attracted newcomers with a get-rich-quick mentality to the industry.
``Tipping fees and other subsidies are the single biggest deterrent to growth in this industry today,'' Mr. Leighty said. ``There are too many producers of crumb rubber that don't produce the quality that is demanded. . . today. That is primarily due to the influx of people attracted by the tipping fees.''
``Tipping fees, coupled with the fact that governments in general have put incentive on the supply side, have hurt the industry by attracting people who don't know the industry,'' Mr. Baker said.
``(Government agencies) give a lot of grants for people to get into crumb rubber to get rid of existing piles,'' he added. But they don't do enough to develop markets for the crumb rubber that's produced.
The awarding of grants, most crumb rubber manufacturers say, allows politicians to tell their constituents something is being done about the scrap tire problem.
``There should be some incentive, but if the government realizes what the saturation of the market is today, they'll develop new outlets to use it,'' Mr. Baker said.
New outlets eventually will lead to fewer scrap tires, which in turn will lead to a seller's market.
``We believe tipping fees will diminish down the road as crumb rubber becomes more of a commodity,'' Mr. Leighty said.
``We're already seeing tip fees go down because scrap tires are more in demand,'' Mr. Blumenthal said, adding that 69 percent of all scrap tires are being reused and that number is predicted to rise. ``Ground rubber markets may end up paying for tires-especially when they're in competition with tire-derived fuel producers-and then (they) may be able to charge more for their product.''
New England, Southern California, Wisconsin and Illinois have all seen tipping fees decline, Mr. Blumenthal said.
In Illinois, for instance, tipping fees for passenger and light truck tires are 30 to 40 cents per tire, compared with 75 cents to $1 just 18 months ago.
``Declining tip fees will certainly alleviate a lot of the false economics that entrepreneurs associate with scrap tires and ground rubber,'' Mr. Blumenthal said. ``Tip fees should not be looked on as cash flow because they alone won't keep a company afloat.''
Government intervention aside, there are other problems facing the crumb rubber industry.
``Because it's a filler, transportation becomes a problem,'' Mr. Downey said. To keep costs down, ``you have to be close to your customers,'' he said.
The STMC's Mr. Blumenthal said companies often aren't aware of the logistics of dealing with crumb rubber.
``There's little room for good intentions,'' Mr. Blumenthal said. ``(The decision to use crumb rubber) must be a business-driven, market-based decision.''
That means crumb rubber manufacturers need to know what customers want.
``You have to do a lot of work to get the proper spec,'' Mr. Smith said. ``You have to get pretty technical before you go to market, and some people that have entered the business don't understand that.''
``We have to treat crumb rubber as a commodity,'' Mr. Leighty said. ``But right now there's no concentrated effort to take the industry as a whole in the same direction. Right now it seems as if it's every company for itself.''