- -1riety of issues - including mesh size an^

uality specifications - drive both old and new markets for scrap tire processors.

r

,, gnard Sunthonpagasit and Michael R. ~ u f f y

Resource Recycling April 2003

crumb market. This appears to be one source of difficulty for crumb producers when attempting to forecast market demand and production planning.

A preliminary mapping of the range of cmmb sizes to market segments is summa- rized in Table 1, while Figure 1 illustrates market share by mesh size. Demand is esti- mated at:

14 percent for coarse crumb 52 percent for mid-range crumb 22 percent for fine crumb 12 percent for superfine crumb. Estimations within the different market

-segmentmffuture-crumbmarket-growthare contradictory. Discussions and literature review suggest that 112" - 20 mesh has the most potential growth for the near future for sports, mats, turf, playground materials and molded products. In contrast, other produc- ers stated that the fine size has the highest potential usage, especially in molded rubber and composite products, due to price com- petitiveness with virgin rubber products.

W i n g the best price Figure 2 shows market prices for different sizes of crumb rubber. This piice data is based on national averages, but some producers report regional and month-to-month price instability and shifting demand that is not reflected in the summarized data. In inter-

M arket demand for crumb rubber pro duced from scrap tires has been

increasing due to the growth and variety of various submarket segments. Many prospec- tive investors and government agencies see profit potential in this industry. However, crumb manufacturing and marketing are much more complex than they first appear, accord- ing to many longtime producers. Finding long-term customers, determining quality standards and threats from state-subsidized competitors are among the problems cited.

Industry dynamics InFestfient i-~f~cili~&produce-crumb rub7 her from scrap tires has appeared to be high- ly attractive for many public agencies as well as private investors. Crumb rubber markets, however, are quite complex and are still in a very dynamic evolutionary stage. While crumb rubber markets likely will expand in the future, they probably will continue to expe- rience a high degree of variability.

Many companies start up, often with state subsidies of some type, but fail to maintain markets and are forced out of business over a relatively short time period. Some reasons for the loss of firms' market share and c0rl-e- sponding profit include:

excess production capacity large capital investment lag between investment and return

* umealistic market projections

uncertainties in the quantity and types of scrap tire delivered crumb prices.

Measuring market share Recycled crumb rubber comes from two prin- cipal sources: tire buffings, a retread by-prod- uct; and scrap tire rubber (see sidebar). In the general scrap tire market, there is no signifi- cant difference between buffings and scrap tire rubber. Some traditional markets prefer crumb lubber produced from buffings because of its unifonn chemical characteristics. Whole scrap ties are expected to be the predominant

s m m I m x b b e r i n the fature7j~crethe- buffing market share declined from 62.5 per- cent in 1994 to 33.7 percent in 2001.

Crumb sizes can be classified into four groups:

large or coarse (y and x') mid-range (10 to 30 mesh or 0.~79" to 0.039") fine (40 to 80 mesh or 0.016" to 0.007") superfine (100-200 mesh or ~JlX" to 0.003"). Different crumb rubber market segments

have specific crumb lubber size requirements. Within a specific ciumb market, such as mold- ed products or asphalt modification, different crumb sizes may be required to produce unique products. As a result, it's difficult to generalize particle size requirements in each

cost-ineffective production government policies unfair-market competition

Nongnard Sunthonpagasit, who holds a masters degree in polymer chemistry, recently completed her doctorate in Engineering Management and Systems Engineering at George Washington University (Washington). Michael R. Duffey is an Associate Professor at GWU.

views with crumb producers, one production - manager considered that crumb orices had I *bls r P V , , ~ ~ mamh m i v a in amnh n v t a m h m m v ~ a + I been ;able with an overall slight &crease for the preceding three years, but with temporary minor price&ps due to inventory accumu- I lation. Another producer claimed that the prices of crumb-were generally unstable except for "high-quality" crumb, which has been stable for many years.

The published data for national price aver- ages give only an incomplete picture of a complex, highly regional pricing situation affected by quality, coloration, quantity, com- petitive pricing factors, subsidies and nego- iiations between producers and end-users. 1 Crumb average prices and price ranges in 1 2001 indicate that the greatest variation in 1 prices is for X", %" and 200 mesh. Between 1997 and 2001, it would appear that real-dol- lar national average pricei&opped across all crumb sizes, most significantly for 40,80 and 100 mesh (see Table 2). A perception among many established producers is that new-entrant competitors, importers and producers of low- er-quality crumb are putting downward pres- sure on crumb rubber pricing in order to secure some market share or to sell excess inventory at slashed prices.

Who's buying Of the total 996 million pounds of crumb pro- duced in 200 1, asphalt modifications and

inarket Aolded products 307 kphalt modification 292 ;port surfacing 141 'ire and automotive oroducts 112

iurface modification: truction

Recycling Research Institute, 1998, 2C3Gi. : - molded products consumed almost equal amounts of the market share, and combined had approximately 60 percent of the total mar- ket, with the remaining 40 percent going into the manufacturing of new products. Although consumption by all crumb rubber markets increased from 1997 to 2001, the crumb rub- ber market share of animal bedding, con- struction, plastic blends and sport surfacing increased, while the crumb rubber market share of asphalt modification, molded prod-

ucts and tires/automotives decreased. The future of markets that use larger-sized shred- ded tire pieces, which are less costly to process, also could affect scrap tire availabil- ity for crumb production.

Aside from the market segments men- tioned above, several other market niches may have future impact. Treated plywood roof sheathing, for example, is produced by apply- ing a latex emulsion with 20 mesh rubber to one side of plywood, which then is cured at

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ambient temperature. A latex emulsion serves as a vapor ban-ier, waterproofing and anti-skid surface that decreases the accident rates caused by slipping. A new rubberized coat- ing material using 4 mesh crumb and a bond- ing material has been developed that can be sprayed on sound barrier walls to help elim- inate noise from busy roads and highways. Another recently developed spray system mix- es %" crumb rubber and latex fluid in a gun to spray onto a running track surface in !4" layers for sun curing.

A bloated market Although the crumb mbber market continues to grow, the prices for the crumb lubber did not trend upwasd as the industry hoped. The main reason for this contradiction is proba- bly overcapacity or oversupply, meaning that supply exceeds demand. Reasons for this overcapacity include:

New entrants. Due to the profitable tirne- line for a new company, it takes up to three years to develop a new end-use market and become profitable. As a result, new entrants typically have put tremendous downward pressure on crumb rubber pricing to secure some masket share.

Failed enterprises. Since the beginning of 1999, at least four new crumb lubber gen- erators have started operations and at the same time at least one major producer has gone out of business. The crumb rubber market remains dominated by eight to 10 companies, which sell 80 to 85 percent of the supply. The rest are simply fighting for market share. Failed operations sell their liquidated remain- ing inventory at virtually any price just to move the material.

Imports. Imports undercut the local market to the detriment of pricing in the U.S. market.

Paving markets. Federal legislation enact-

- --

C f a ~ 1 Market share bv mesh size

Crumb size

ed in 199 1, The Intermodal State Trans- portation Efficiency Act, mandated states to use scrap tires in paving applications in order to receive federal highway funds. However, ISTEA's repeal in 1995 left many fledgling crumb producers without paving-related mar- kets, and many state highway departments are not yet convinced to process subberized asphalt. The majority of rubberized asphalt usage is done in California, Arizona, Texas and Florida. Companies now are looking else- where to sell their product with aggressive pricing to secure their market share.

Buffings. Because they are more easily processed, tire buffings from retreading operations can depress the tire c~umb lubber market.

Glut. Glut is a substandard crumb or low- er quality material. Some companies just throw every tire together and grind them up.

Howeves, the crumb rubber market is increas- ingly differentiated by product quality and size, and there is high demand for top quali- ty crumb in several areas.

Material specifications and quality requirements The lack of standards for processing crumb is clearly a barrier to the maturation of the crumb market. Everyone has a unique sys- tem to produce crumb rubber, and crumb qual- ity varies from operation to operation. More- over, the quality of recycled rubber is lower than virgin (natural and synthetic rubber) products. For example, recycled cmmb can deteriorate tubber compound properties in a new tire by reducing tire durability and longevity leading to increase tire replacement frequency. Producers claimed that high qual- ity of crumb is a higher-priced and more in-

Imp ion I l u v n n T A u r a :

Lower operating cost Low maintenance

Energy efficient nds the test of time

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Real-dollar national Table 2 average per-ton

prices, 1997 and 200

Percent 1997 2001 chanae - - 206 200 -2.75

2 205 -3.25 10 mesh?% 229 206 -10.15 20 mesh'" '' 260 242 -6.96 30 mesh 332 281 -15.32 40 mesh 474 324 -31.57 80 mesh 546 381 -30.30 100 mesh 712 498 -29.99 200 mesh 1400 1,155 -17.49

Source: Recycling Research Institute, 1996,

demand product; the tighter the specifications, the more difficult to make and prices and costs increase.

Definitions of quality appear to be quite diverse and driven by customer specifications unique to different market segments. In gen- eral, a high-quality crumb means low fiber content (less than 0.5 percent of total weight), low metal content (less than 0.1 percent) and high consistency. The accepted level of max- imum moisture content is about 1 percent by weight (excess moisture content limits the

HQure 2 Crumb rubber average prices, per ton

$11500 r - 2001

- ----

- w Z' 600 - L

2 300 -

O K' ' X" ' 10 ' 20 ' 30 ' 40 ' 8 0 ' 100 ' 2 0 0 '

mesh mesh mesh mesh mesh mesh mesh

crumb uses in many applications, especially in molded and extrusion markets). Excess heat during processing also can degrade the rubber.

Coloration appears to be less of a concern, but important to specific markets. Some molded market end-users may require all black crumb for their unique products, while

others have no preference. Coloration and fiber content specifications can influence pro- ducer decisions about separate versus mixed processing of passenger and truck tires.

For example, one producer processed truck tires separately from passenger tires only when getting special orders from customers who require all black crumb. Another pro-

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T ~ P cnin nn crvan f ivpc 7 I To examine crumb rubber markets, three sources of scrap tire g e r

eration must be considered: + passenger car tire equivalents, which constitute 84 percent of

units, or 65 percent of total weight of U.S. scrap tires + truck tires, which make up 15 percent of units, or 20 percent

by weight + off-the-road tires, which account for 1 percent of units, or

15 percent of weight. Passenger, light truck, truck and off-the-road tires have differer constructiop, 'strength and weight that affect end-product yield! revenues and operation costs in different ways. Normally, 10 to 1 pbundS of crumb rubber cap be deiived from one scrap passengt tire. On average, howevet: a scrap tire cojtains (by weight); + 70 percent recpv81rab[sSrybbe * 14 perce~t'steel ' + 13 pqrcgntwaste + 3 percent fiber.' In 2001: an estiq'atea bb percenr ot annual generatton, or i tr/.s rnl lion of the 283 million newly generated scrap tires, were consume in recycling applications for tire derived fuel, civil engineering appl cat~ons, crumb rubber, export, agricultural and other niiscellaneotr uses. Another 34 percent of annual generation e~ther was betn

ducer claimed that coloration is not important because after grinding crumb to a small size, white particles from sidewalls cannot be seen. Some producers prefer to process only truck tires due to lower tex- tile cord content, which some claim results in higher price and demand.

A shred of truth Crumb rubber processors should consider c&efully customer needs and crumb quality specifications, competitors' products and pric- ing sensitivities, projected markets, government policies, scrap tire availability and uncertainties of operating and capital costs. State subsidies of processors have been tried by several states, but results have been mixed at best, with some evidence of subsidized processors failing within a few years. Many industry profession- als believe that subsidy programs, if appropriate at all, would be best used to promote the growth of end-user markets.

Perceptions of pricing, quality, coloration and mesh size require- ments of end-user markets seem to vary considerably among proces- sors and, in general, -- there are few standards for this growing industry, -- - -- - - -- - -- -- -- - ~ - ~ ~ ~ f i g ~ ~ - ~ - b - & ~ - ~ f l t ~ ~ ~ ~ ~ ~ t ~ ~ ~ - ~ f t h - ~ ~ ~ ~ b ~ ~ k ~ t . - ~ ~ ~ ~ c ~ d z .-

user respondents indicated that they would be eager to use more recy- cled crumb rubber when it becomes less expensive and higher quality.

Mid-range, fine and superfine crumb sizes, and chips for civil engi- neering applications, have the most potential growth for the near future. Integrated firms - crumb processors using their rubber to make end use products -might be expected to have significant poten- tial in the future due to the greater control of quality and price for a single unique product. Overproduction, however, may cause the crumb producers to sell their remaining inventory at virtually any price just to move the material; on a national level, this may contribute to the fact that crumb prices have been relatively stagnant.

High-quality crumb is a higher-priced and more in-demand prod- uct. Fiber, metal and moisture content, consistency, packaging, con- taminants, types of raw materials, length of time in storage, particle shape and surface morphology should be considered to obtain better quality crumb. Coloration also is important to certain customers, a reminder that the quality requirements differ between end-user mar- kets. As a result, crumb ~roducers must consider the markets for the materials they will be geierating and must meet the requirements that customers specify. RR

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