MISSISSAUGA, Ontario (Nov. 2, 2000) — Veteran scrap tire processors have two messages for those who want to enter the business:
*Don´t believe everything that other people tell you about scrap tire processing; and
*Don´t think you can survive by undercutting your competitors, because you´ll all lose your shirts.
These comprised the basic messages of three scrap tire processors at Rubber Recycling 2000, the conference and trade show held in Mississauga Oct. 11-13 and co-sponsored by the Rubber Association of Canada and the Scrap Tire Management Council.
"Thirty to 40 percent of our cash flow comes from tipping fees and/or subsidies," said Cornelia Snyder, president of Colorado-based JaiTire Industries Inc. "Most industries are market-driven, but not this one."
That´s why even established suppliers of crumb rubber, according to Ms. Snyder and others, are vulnerable to start-up enterpreneurs who think they can succeed by selling crumb at a lower price.
Too often, they agreed, the new supplier underestimates his costs and sells the crumb for less than it costs him to make it. Yet the older companies have no choice except to try and meet the new guy´s prices.
The upshot is that everyone goes bankrupt, particularly if the tipping fees processors are able to charge or the government subsidies available in that locality aren´t enough to make up the difference.
"A producer needs to know his market and be aware of pricing," said Terry Gray, president of Ontario-based T.A.G. Resource Recovery. "I know of people who are still meeting a fly-by-nighter´s prices a year after that guy has failed."
The maxim that a good producer supplies a good market just doesn´t work in scrap tires, Mr. Gray said.
"Joe Blow gets into the market, sees you´re supplying crumb at 12 cents a pound, and decides to sell it for nine cents," he said. "If somebody´s supplying it for nine cents, you´ve got to match that.
"You must understand your real costs," he added. "Don´t believe your own baloney. I´ve had people insist they were making money right up to the time they declared bankruptcy."
If subsidies and tipping fees aren´t covering your expenses, you´re better off trying to make value-added products, according to Mr. Gray.
"The profit is in the cottage industries, not crumb," Mr. Gray said. "The large (Canadian) provinces have been very wise in not forcing everything into crumb. We need to have evolution in this industry, involving multiple alternatives."
Besides knowing his costs and expenses, a crumb rubber producer has to assure himself of a steady stream of scrap tires and reliable equipment that does what he wants it to, said Mike Roberge, vice president-operations at Western Rubber Products Ltd. in Vancouver, B.C.
"A processor should do some of his own (tire) collecting to establish a relationship with the generators," Mr. Roberge said. "Generators must be part of the solution, for without them we have no business."
In starting up, it´s important not to enter an already saturated market, according to Ms. Snyder.
"You don´t build a business by stealing somebody else´s market," she said. "I think you can build a sustainable tire recycling industry in a sparsely populated area. But you have to figure out what you can make in your plant that your neighbors want."
It is very difficult for a straight processor of crumb rubber to compete in the U.S., according to Ms. Snyder. This is not only because of new processors who think they can undercut the competition, but also because of localities where the disposal of whole tires in landfills is still allowed and "new-kid regulators who put in statutes you can´t deal with."
The subsidies Canadian provinces pay to their crumb rubber producers also skew the market, Ms. Snyder said. "Every ounce of U.S. crumb sells at less than what it costs to make it, because of Canadian subsidies."
Like the others, Ms. Snyder stressed the need for value-added product and for selling rubber´s unique properties. "In civil engineering, rubber competes with gravel," she said. "If you don´t have a value-added project based on rubber´s light weight, it´s hard to ask for a higher price."
Ms. Snyder also said that if regulators want to help tire processors, they should learn something about the business first. Colorado had a five-year law, she noted, to give subsidies to processors.
"There are three processors in Colorado, and no one ever got a cent," she said.
"They gave the money to a conservative lending agency which could never justify giving money to tire recyclers because they´re such a high risk."
All three speakers urged that start-up tire enterpreneurs do their own math before getting into the business. "If you don´t do your own numbers, you´ll be broke before you know it," Mr. Roberge said.
At the same time, there are still opportunities out there for tire recyclers, according to Mr. Gray. "This industry is in its adolescence," he said. "Adolescents make a lot of mistakes and make them over and over. But some adolescents turn into productive adults."