Strong outlook for scrap rubber market
Strong is just one of the words used to describe the scrap rubber markets.
“I have been in the business for over 15 years and I see a major change coming on as far as the acceptance of our products,” said Rick Snyder, president of U.S. Rubber Recycling Inc., a manufacturer of flooring products made from recycled rubber.
“Architects and designers are driving the use and awareness of environmentally friendly products. We think the future is going to be very strong for our products,” Snyder said.
The $5 million a year, California-based company uses millions of pounds of recycled tire material a year. Snyder said the company has seen a 10 to 20 percent increase each year in the use of recycled tires during the past few years.
“The movement to green products has been very strong,” he said.
Snyder said the industry faces a couple of hurdles, however. Higher oil prices have negatively impacted the cost of the specific binding agent used to re-bond rubber. Snyder said the industry also has to fight a common misperception that products from recycled rubber are inferior to virgin rubber.
More manufacturers are starting to demand the use of recycled rubber, according to Jonathan Levy, assistant director of legislative and regulatory analysis, at the Institute of Scrap Recycling Industries in Washington D.C.
“It boils down to supply and demand. As the cost of using virgin materials goes up, manufacturers will start looking for cheaper alternatives,” Levy said.
“This increased demand causes the price of recycled rubber to go up.”
Levy said one of the biggest uses of recycled rubber is in the construction of new homes. He said anecdotal evidence suggests that demand for this type of material from recycled rubber may be dropping due to the current turmoil in the housing sector.
“The recycled rubber market is not one monolithic market. As uses for recycled rubber are discovered and expand, so does the demand to supply those markets,” he said.
Levy said the biggest issue facing the scrap rubber industry is that it is cyclical. It is often hard to know how many tires to store for a particular market.
“Since processors need to collect inventory months in advance, this can bring a considerable risk if something happens to the market and demand drops,” Levy said. “Processors have to be able to predict what will happen in the future.”
“Prices for scrap rubber continue to stay firm year after year,” said Lyle Jensen, chief executive officer of Savage, Minnesota-based GreenMan Technologies, which collects and processes over 12 million tires a year, mostly in the upper Midwest.
“We could process more tires than we can economically collect,” he said.
The fluctuating price of oil is impacting the industry. “GreenMan has been forced to use fuel-charges to properly manage the ups and downs in fuel costs,” Jensen said.
During the company’s latest fiscal quarter ended June 30, GreenMan shipped over 7.7 million pounds of crumb rubber, 47 percent more than in the same quarter last year.
Net sales from continued operations for the quarter increased $610,000 or 13 percent to $5.3 million, compared to $4.7 million in the same quarter in 2006.
Income from continuing operations during the three months was $212,000, compared to a net loss of $946,000 or $.05 a share last year.
“Profitability certainly does mark an important milestone for GreenMan,” Jensen told shareholders after the release of the company’s latest earnings report this previous summer.
Michael Blumenthal, senior technical director at the Rubber Manufacturers Association headquartered in Washington D.C., said the outlook for the scrap tire markets is positive. “The overall markets are showing continued strength,” he said.
The tire-derived fuel market is continuing to go strong, Bluementhal said. “The continued high price of energy is keeping tire-derived fuel in demand. As long as nothing impacts the ability for us to use tire-derived fuel, the market should continue to expand.”
The tire-derived fuel market is starting to focus more on refined tires. “As this demand continues, some of the lower return on investment markets, such as whole tires put into cement kilns, may be impacted. The return on the investment for the higher, value-added, tire-derived fuel will pull tires from lower yielding markets,” he said.
The state of the market for tire-derived aggregate used in civil-engineering applications is stable at this point, Bluementhal said. “We’re not seeing any great spikes. We’re also not seeing any great drop off in the current usage of tires as aggregate.”
Blumenthal said there is good progress in the ground rubber market. “We’re seeing continued good market penetration in the sports surfacing marketplace. Things like mulch are also continuing to be strong,” he said. “We believe that in the use of ground rubber, we’ve only scratched the surface of the tremendous market potential.”
“As long as the economics work out, tire supply should remain stable. We haven’t seen any gross shortages of supply. There may be some regionalized shortfalls for one reason or another, but there is nothing systemic at this time,” he said.