WASHINGTON—Faced with the combination of a weak economy and rock-bottom prices for virgin rubber, some scrap tire recyclers are looking to alter or diversify their operations to weather the financial storm, according to industry experts.
Others, however, seem to be riding out the tough economic times reasonably well, in an “it depends” recycled rubber market, according to Michael Blumenthal, senior vice president of the Rubber Manufacturers Association.
Not all branches of the scrap tire recycling industry are seeing a downturn, Mr. Blumenthal told Tire Business.
“Tire-derived fuel (TDF) is still being used even though natural gas, coal and oil have all come down in price,” he said.
There are several reasons why demand hasn't gone down for TDF, Mr. Blumenthal said. For one thing, companies that use TDF have invested in new systems to handle the product; for another, they have a long-term plan to diversify their sources of energy.
“People believe petroleum will go up again,” he said. “Tires, on the other hand, are stable and cost-competitive, and people are used to using them now.”
However, higher-value-added applications for recycled scrap tire rubber are feeling the pinch, he added.
“The playground surfacing market, in any form, is looking at a down year,” he said. “Historically, the markets for playgrounds are in schools and other state institutions. Tax revenues are down, state budgets are being cut, and they don't have the money. If it's a choice between repairing playgrounds or paying teachers and buying books, guess what's going to be delayed.”
Paving projects involving rubberized asphalt also aren't going to get done, unless President Barack Obama's plans for creating jobs through federal funding of infrastructure projects comes to fruition, Mr. Blumenthal said.
“The largest line item in any state budget is for highway construction, and that makes it the biggest target for cuts.”
If the various job and economic stimulus packages take hold, the situation for the tire recycling industry could start picking up by year-end. However, as Mr. Blumenthal said, “There are so many variables it isn't even funny.”
Added to that, some states are starting to plunder their scrap tire funds and other dedicated monies for more general use, he said.
“We aren't being singled out in any way. Everybody is taking a hit,” he said.
Traditionally, decreased costs always have been a major argument in favor of recycled rubber products.
“Any time you can make the argument that tire-derived products can save you money will be in your favor,” Mr. Blumenthal said. “People will sit up and take notice.”
Even when virgin rubber costs are low, the growing specification of “green” recycled products—particularly flooring and soundproofing products in construction projects—will ensure a market for tire recyclers.
“The fact that virgin rubber is a couple of pennies cheaper per pound is not a factor,” he said. “You won't see any switching.”
Scrap tire processors and recyclers are facing different situations, depending on the markets they serve.
Norman Emanuel, president of Emanuel Tire Co. in Baltimore, said the low price of virgin rubber isn't hurting his business because he doesn't compete with it in any of his markets.
“The fuel market has been stable, although some companies have been shutting down for three or four weeks at a time,” Mr. Emanuel said. The company's used tire sales also are up.
For Emanuel Tire, the biggest problem has not been the economic downturn but the cost of fuel and retread tires.
“I get tires retreaded for my trailers, and that cost has gone up 20 to 30 percent,” Mr. Emanuel said. “But fuel has really been putting a hurt on us. It's down now, but for how long?”
It's been up and down for Four D Corp. in Duncan, Okla., according to Vice President Max Daughtrey.
“Our molding operations are going real good, and playgrounds are fairly decent, but artificial turf is not,” he said. “In November, our sales were practically nonexistent. Our business is seasonal anyway, and November through January are the down months.
“January will turn out pretty good, because I have a big playground contract I'm filling. But our artificial turf business begins in late February and early March, and so far I haven't had an order there.”
While Mr. Daughtrey said he couldn't give a definite answer on how much the economy has to do with his company's current business, he did say that its scrap steel market is down sharply.
“I'm pushing about half the steel I used to,” he said. “The price has gone from $295 to $44 a ton, and the steel mill I take it to has been stacking it.”
Mr. Daughtrey belongs to a group of scrap tire processors that keeps in touch through conference calls every month.
“On our last call, we were all in the same boat,” he said. “But I'm diversified in several different areas, and that's what keeps us going.”
Pittsburgh-based Liberty Tire Recycling, with 14 processing centers in nine states, saw a 5- to 10-percent drop in the number of scrap tires it collected, according to CEO Jeffrey Kendall.
Recently, however, collections climbed back to the company's usual level.
“I think the lower price of gasoline has had a major impact, along with the bad winter weather, which causes people to change to better tires,” Mr. Kendall said.
Liberty Tire, meanwhile, is not at present being affected by the lower costs of virgin rubber, he noted.
“Half of what we sell is fuel, which is not affected at all by virgin rubber. However, the economy is causing the closing of a number of plants using tire-derived fuel. If the closings continue, we could run into a problem, ” he said.
Similarly, very little of Liberty Tire's crumb rubber competes directly with virgin rubber, according to Mr. Kendall.
“Those who are using crumb rubber to replace virgin rubber are doing so at a substantial discount and are unlikely to shift during this temporary price fallout,” he said.
Denver-based AcuGreen Inc. is seeing a decline in the playground and landscaping business because of the economy, according to President Dan Stonebaurger and Vice President Jesse Lowe.
Mr. Stonebaurger bought the assets of the former JaiTire Inc., a specialist in playground and landscaping materials.
According to its Web site, AcuGreen still sells many of the former JaiTire products. However, the company is looking into diversifying into construction materials, used tires and other areas, Messrs. Stonebaurger and Lowe said.
AcuGreen is interested particularly in getting into product areas that mix recycled rubber with asphalt and concrete, according to Mr. Stonebaurger.
“We did a sound wall over at Sixth Avenue in Denver,” he said. “We talked with some folks who got a grant from the state, and we mixed rubber with concrete to build that wall.”
Norm Affleck, one of the founders of Big O Tires Inc., is chairman of AcuGreen, Mr. Lowe noted. “With his knowledge, we'll open up a chain of used tire stores.”