Rubber recycling industry expects stability
U.S. tire and rubber recyclers can expect a more stable future after being buffeted by the ebbs and flows of economic recession and recovery in the last few years. The $1 billion industry had a 25 percent drop in revenue in 2009 followed by an increase of 26.9 percent in 2010, according to a recent report by market research firm IBISWorld. Overall, from 2007 to 2012, the industry averaged growth of 1.7 percent per year.
Now, however, demand for recycled rubber from construction and other industries is increasing. As a result, researchers are predicting more robust 2.4 percent growth in 2012, followed by an extended period of even better times. “We expect the industry to experience steady growth over the next 5 years, averaging 3.7 percent annually during that period,” said IBISWorld analyst Dale Schmidt.
That’s good news for the industry, which IBISWorld estimates to consist of 175 companies employing some 3,000 workers. These firms collect and shred used tires and rubber, then separate the shredded rubber from steel wires and other materials. Shredded tires may be used for fuel, or as aggregate for construction and roadway projects. Ground crumb rubber is employed to make rubberized asphalt and other paving materials, and is also incorporated in flooring, school playgrounds, running tracks and other applications.
Fuel is the dominant application. In 2003, according to the Environmental Protection Agency, almost 45 percent of scrap tires were used for fuel. Another 19 percent went to civil engineering projects, 8 percent was converted to ground rubber and made into products, 4 percent was employed in rubber-modified asphalt, 3 percent was exported and about 2 percent each was used to make stamped products and employed in agriculture, where they are used for mulch and other miscellaneous uses. The balance, about 20 percent, was disposed of in landfills in 2003, but today about 90 percent of scrap tires are recycled one way or another.
The supply of tires is steady, at about one scrap tire per American per year, and the industry’s recent volatility is due to slumping demand as the construction and manufacturing industries retreated during the recession, IBISWorld said. Schools and highway departments, two of the major users of recycled rubber for building, also retrenched.
Since the industry’s biggest revenue source is tire-derived fuel, sales to industrial markets is key. When used as fuel, each scrap tire produces as much energy as an equivalent amount of oil and 25 percent more than coal. Schmidt’s growth forecast is based largely on increasing employment of tires as fuel for industrial users.
The industry’s brighter outlook as seen by IBISWorld is based on a return to moderate growth in the key markets served by rubber recyclers. However, Michael Blumenthal, vice president with the Rubber Manufacturers Association in Washington, D.C., said it’s more complicated than that, and the outlook is far from clear.
“Will better times come around?” Blumenthal asks. “I don’t know.” Blumenthal said the prospects for a stronger market are clouded by the lack of Congressional action to significantly increase use of rubberized asphalt for building roads or to spur construction in general. While residential construction is looking healthier, he said horticultural markets have recovered little.
“Schools are holding off on large-scale purchases like a new synthetic sports field, departments of transportation are still being impacted and there’s a lot less construction today than four or five years ago,” he added. Generally, while Blumenthal said things might get better, it will be better only in comparison to the way things are now and have been in the recent past. The industry still is considerably below the peak of a few years ago, he noted.
There are a few wild cards. For instance, Schmidt notes that with about 90 percent of the scrap tires produced by the U.S. already being recycled, growth is limited by supply. If recyclers can’t get more tires, they can’t easily justify developing new markets or even necessarily satisfy demand from existing markets.
Blumenthal said the U.S. supply of recycled rubber could get a boost from a European company that is contemplating building a large recycling center here. On the other hand, the quantity of tires that are exported may rise as well. A temporary supply shortage in some regional markets occurred from roughly early 2011 to mid-2012, as exports of U.S. scrap tires to China through Vietnam boomed and then, when China eventually restricted scrap tire imports, busted. But Blumenthal said now Korea has begun taking U.S. tires and selling them to China, raising the possibility of another limiting factor on supplies for U.S. recyclers.
Blumenthal believes that two keys to sustainable growth will be for recyclers to develop new markets for existing uses, as well as new uses for recycled tires. Developing new uses is already happening. Some companies are exploring ways to use ground tire rubber in lieu of virgin rubber or plastic in products such as garbage cans, soundproofing, carpet backing and seedling containers for plant nurseries.
Developing new markets can take time as recyclers work with product manufacturers to get their recycled materials approved and accepted for widespread use. “There are an awful lot of things that can use recycled content,” Blumenthal said. “Once these get ratcheted up, they can be significant users of rubber.”
Another long-term trend is consolidation. Schmidt said a combination of rising costs, increasing regulation, environmental concerns and a search for more efficient use of capital are all driving consolidation as smaller regional and local firms are acquired by larger competitors.
Blumenthal sees a similarly complex mix of forces working to help support a healthy forecast for rubber recycling. “The future of the product side is going to be a function of looking at different ways of seeing the same products, as well as an improving economy and finding new avenues to sell into,” Blumenthal said. “It’s a combination of those three.”