Recycled tire market is steady

Current economy is surprisingly easy on most tire recyclers

As jitters about the economy rise and recession fears mount, the market for scrap tires continues to hold steady at Auburndale Recycling Center Inc., a tire recycling facility in rural Wisconsin that processes around four million scrap tires a year.

“The flow of tires is strong. Demand has been good,” said Jerry Swensen, president of the facility, which processes tires of all sizes to produce rubberized playgrounds, horse arenas, landscaping material, as well as tire-derived fuel.

“I was concerned the downturn in the economy and the rising cost of fuel would impact us,” Swensen said. “But surprisingly, I have seen very little impact.” The recycling center used to pick up tires down into Missouri and Indiana, but Swensen said he had to shrink his service area because of high fuel costs. Auburndale Recycling Center, however, has been able to pass along some of the higher costs.

“With the increased cost of doing business, everybody has become very aware of higher prices,” Swensen said. “When you do have to pass along these costs to customers, they are much more ready to accept it because they’ve been seeing it for awhile.”

The cost of maintaining equipment has also increased. Swensen estimates that the cost of parts has gone up between 50 to 100 percent. “Lead time to buy new equipment is ridiculously long because companies aren’t keeping inventories,” Swensen said.

Despite higher costs for fuel and parts, Swensen said he expects business to remain steady through next near. “By expanding our customer base and sourcing new customers, we are going to be able to keep the same volumes,” Swensen said.

There is plenty of supply as well. Swensen said there is little competition in Wisconsin for scrap tires. Auburndale Recycling Center is the largest scrap processor in the state, processing between 35 to 48 percent of the tires generated in the state.

Supply and demand for scrap tires varies by region of the country, said Michael Blumenthal, vice president of the Rubber Manufacturers Association, a Washington D.C.-based trade group that represents the $21 billion a year rubber industry.

The demand for scrap tires in New England is high, for example, but the demand is mostly for tire-derived fuel, while the demand for tire-derived products in the Southeast is also high, the demand is for ground rubber and tire-derived fuel.

“It is a function of where in the country you are,” Blumenthal said.

Demand for tire-derived fuel is also strong in the North Central and Southwest regions. In the West demand for tire-derived fuel is moderate. “If you look at it from an overall view, demand is very good in most of the country,” Blumenthal said.

There is strong demand for ground rubber from scrap tires in the Southeast, Southwest and the West, Blumenthal said, adding that there is only moderate demand sprinkled around the country for scrap rubber in civil engineering applications.

“We are seeing stronger markets than a couple of years ago,” Blumenthal said. He said he expects the trend to continue, barring any major policy or regulatory changes.

The high cost of energy throughout most of this year has been a major driving factor for demand of tire-derived fuel, Blumenthal said. “What we are seeing in the fuel market is that tire-derived fuel is a very economical fuel. It is a readily available fuel.”

Some large end users of tire-derived fuel have installed permanent feeding systems, driving up demand for scrap tires. “If you install a permanent feeding system, chances are you are going to continue using tire-derived fuel,” Blumenthal said.

“We’re going to see consistent demand, which is great for the industry.”

However, the current turmoil in the financial markets might have an impact on the scrap-rubber market. For example, when property taxes go down, states and cities have less money to spend on schools, which means less money for replacing football fields with artificial turf made from scrap tires. “If it is a question of buying books or replacing a football field, most of the time they are going to buy books,” Blumenthal said.

The slowing economy will also have an impact on households buying mulch made from scrap tires. “This is a luxury product that people use their discretionary income for,” Blumenthal said. “With job losses and housing prices going down, I don’t think people are going to be buying a lot of these types of items, not just mulch.”

The economic turmoil currently underway is not hurting revenue or profit yet at GreenMan Technologies, Inc., which collects, processes and markets scrap tires.

Lyle Jensen, chief executive officer of the Savage, Minnesota-based recycler, said he expects both revenue and profits this year will exceed results recorded last year.

Revenue totaled $7.5 million in the company’s fiscal third quarter, ended June 30, 2008, compared to $5.3 million in the same quarter last year. Net income increased 42 percent to $2.9 million compared to $314,000 during the same quarter last year.

“Supply is steady within our economic circle of collection and demand for our tire-derived fuel and crumb-rubber feedstock remains strong,” Jensen said.

Changes are underway, however, at GreenMan Technologies. The company announced in September that it is selling its tire collection and recycling business to Pittsburgh-based Liberty Tire Services LLC for $26 million. GreenMan Technologies will no longer collect or shred tires in the upper Midwest following the sale.

Instead, it will focus on recycled products, renewable fuel and alternative technologies. “GreenMan will be a consumer of scrap tire feedstock,” Jensen said.

Post divestiture, expected in the fourth quarter, GreenMan Technologies will be based in Des Moines, Iowa and will continue operating its two remaining subsidiaries, Welch Products, Inc., and GreenMan Renewable Fuel and Alternative Energy, Inc.

Jensen said that the divestiture is part of the company’s strategy of realigning its business model to focus on recycled products and other green-based technologies.

“There has been significant global investment made over the past several years in the area of renewable energy and clean-tech technologies,” Jensen said.

“We anticipate devoting increasing resources over the next fiscal year to exploring our heightened participation in this fast growing global initiative.”