Recycled tire market approaches equilibrium

by Brian R. Hook

Consumers are demanding more rubber products derived from recycled tires and that is helping companies like Lancaster, Pennsylvania-based Dodge-Regupol Inc.

“The market for green products in general is on the rise,” said Kathleen Keller, director of marketing at Dodge-Regupol. She said the growing awareness of the negative footprint that building products have on the environment is helping boost demand.

Dodge-Regupol manufactures cork, cork/rubber and recycled rubber products for commercial, fitness and industrial applications. It converts more than 2.75 million tires annually into original equipment manufacturer, industrial and architectural applications.

Keller said that the growing awareness of the negative footprint that building products can have on environment is helping boost demand in the commercial sector. She said that government mandates that certain buildings use green products also helps.

Since Dodge-Regupol is privately held, Keller would not release revenue numbers. But she characterized business as good. She expects sales to continue to grow next year. She said higher costs are impacting margins. Plus, global competition is having some impact. But she said the biggest impact now is the demand for green products.

“Supply and demand is at a very good state at this point in time,” said Michael Blumenthal, senior technical director at the Rubber Manufacturers Association. The Washington DC – based association represents more than 100 rubber manufacturers.

“There is almost a point of equilibrium between supply and demand, which is a vast improvement over past years when supply exceeded demand,” Blumenthal said.

Blumenthal said demand for ground rubber from tires has increased over the last couple of years. “As demand goes up, supply is keeping up with demand,” he said.   

Blumenthal said that he expects the current supply dynamic to remain in concert with demand. But he said there are some companies that want to start processing ground rubber without having any markets to sell product to. “This would upset this near-equilibrium state that we currently have,” he said. “We have been rather fortunate in the last year or so that we have not seen a lot of new entrants into this market arena.”

There are at least 275 million scrap tires in stockpiles in the United States, according to the Environmental Protection Agency (EPA). Approximately 290 million scrap tires are generated annually. The EPA estimates that markets exist for about 80 percent of scrap tires, up from 17 percent in 1990. Scrap tires may be recycled by cutting, punching, or stamping them into various rubber products, after removal of the steel from the tires.

Products include floor mats, belts, gaskets, shoe soles, dock bumpers, seals, muffler hangers, shims, and washers. Whole tires may be recycled or reused as highway crash barriers, and for boat bumpers at marine docks, according to the EPA.

Blumenthal said the number one use for ground rubber is molded and extruded rubber products, accounting for 25 percent of the market. “Over time the markets that consume the most ground rubber have changed. Years ago asphalt was the largest single market. Now, it is the third largest market. So, it’s a changing dynamic,” he said.

The recycled tire market remains mostly a domestic market. “I’m not aware that we export very much if any ground rubber,” Blumenthal said. “Certainly none goes into Canada. The Canadians have their own program. And I don’t know of any that goes offshore because Europe makes their own and Japan makes their own,” he said.

“I don’t think we’re importing very much ground rubber either. Will this change? That’s always a possibility. The key here is that the cost of transportation is still relatively high and the value of the ground rubber may not be able to cover or justify the cost.”

The current environment is helping margins at GreenMan Technologies Inc. in Savage, Minnesota. It collects and processes scrap tires in whole, shredded and granular form. Its end products are used as tire-derived fuel and as substitute for crushed stone in civil engineering applications. It also provides crumb rubber for surface applications.

GreenMan recycles approximately 14 million scrap tires per year. It operates facilities in Iowa and Minnesota. It sold its California facility as part of a turnaround effort to focus on its Midwest operations in July. It also restructured a credit facility.

“During the quarter ended June 30, 2006 we realized a 50 percent improvement in our gross profit percentage as well as 46 percent decrease in our net loss as compared to last year,” Lyle Jensen, chief executive officer at GreenMan told investors in August.

Net sales for the quarter totaled $5.4 million compared $5.7 million during the same quarter last year. The company recorded a net loss of $982,000 or 5 cents a share compared to a net loss of $1.8 million or 9 cents a share during the same quarter last year.

During the quarter the company processed 3.9 million tires compared to 4.1 million tires during the same period last year.

The company attributed the lower inbound volume to the completion of an Iowa scrap tire cleanup project completed in 2005.

In September GreenMan announced a $950,000 equipment update to its Des Moines, Iowa crumb rubber processing capacity. The capital investment was funded through long term debt provided by the state of Iowa and a senior secured lender.

“The installation of a new system in Iowa will allow us to process almost five times more of our existing crumb rubber products into smaller particle sizes with higher margins used in safety playground tiles, running tracks, football fields, soccer fields, equestrian arenas and public walkways. These higher value markets represent several of the fastest growing segments of the crumb rubber market today,” Jensen said.