Tracking Tire Trends

Tire recyclers learned, networked, and generally had a grand time at ISRI’s second annual Tire Recycling Business Summit. This report covers the highlights.

By Kent Kiser

ISRI is on a roll in the tire recycling niche, doubling the number of members in its Scrap Tire Processors Chapter from about 13 last year to 27 as of September. Also, this year’s second annual Tire Recycling Business Summit, held in Chicago in September, attracted 127 attendees—up 20 percent from last year’s total.
   The summit began unofficially on Sunday, Sept. 18, with the first in-person meeting of ISRI’s Scrap Tire Processors Chapter, which usually conducts its meetings via conference call. Officially, the summit kicked off Monday, Sept. 19, with Susan Fignar of Pur*sue Inc. (Chicago) discussing how to communicate better and how to develop successful life skills. Then followed the conference’s business-focused workshops, which continued through lunchtime on Tuesday, Sept. 20. Here, we review the highlights of those workshops, which covered the gamut from rising energy prices to second-stage processors to disaster planning.

The All-Important Energy Question
One trend on every tire recycler’s mind was the rising cost of energy, especially fuel such as gasoline and diesel. “Rising fuel prices have a direct effect on every aspect of our businesses,” said Max Daughtrey of Four D Corp. (Duncan, Okla.), who moderated the energy workshop. “Everything we touch is affected by the price of oil.”
   Why are energy prices rising? For one, demand for energy worldwide is outpacing supply, and there is not enough investment in new energy supplies to keep up. The investment community has also taken a greater interest in energy markets, affecting prices in the process. Global political uncertainty and weather-related supply disruptions have likewise boosted energy values.
   While energy prices spiked after Hurricanes Katrina and Rita, the market was heading toward those prices anyway, said Philip Flynn of Alaron Futures and Options (Chicago). This past summer, expansion in the manufacturing sector was the strongest in 20 years, there was solid GDP growth, and China, India, and other countries continued to escalate their energy consumption, he noted. “So we have set the stage for very strong energy demand going forward.”
   That said, the hurricanes caused an undeniable “emotional reaction” among traders, manufacturers, and citizens around the world. “The shock of Katrina will take some time to overcome,” Flynn said. “We’re definitely going to see a psychological pullback.” Still, he asserted, “this country is not defined by the fact that we’re susceptible to natural disasters. This country is defined by the way we bounce back. In my opinion, that’s going to be the secret to where energy prices are going to go.”
   While the hurricanes will likely cause a short-term dip in economic growth, they could—ironically—bring about “absolutely more growth than we would have had had we not had the storms at all,” Flynn said, urging people “not to underestimate the strength of the U.S. economy.” Also, there’s no denying that “the competition worldwide for energy is only going to heat up. If you think China is going to go away quietly, you’re sadly mistaken. This is going to be a very aggressive, competitive environment for energy over the next few years.”

Assessing the Effects. Rising energy prices have affected the tire business—from recyclers to manufacturers to retailers—in various ways.
   Edge Rubber (Chambersburg, Pa.), a crumb rubber producer, has seen its raw material costs increase due to higher transportation costs faced by its rubber suppliers, Sam Kauffman noted. The firm has also seen price hikes in the petroleum-derived products it uses such as plastic pallets, which have already increased once “with more to come,” he said. In addition, the company uses plastic film to wrap its palleted loads and ships its material in plastic-based bags—both products that have become more expensive.
   Edge Rubber has been unable to pass on these higher costs to its customers, Kauffman said, because it sells its products on calendar-year contracts. As a result, the firm plans to factor in higher energy costs in its 2006 contracts.
   Tire manufacturers are being equally pinched by higher energy prices, which are driving up their raw material costs, manufacturing expenses, and distribution costs.
   For tire producers, raw materials represent about 40 percent of the cost of a new tire, and “all the components that make up a tire are going up,” stated John Sheerin of BFS Retail & Commercial Operations L.L.C. (Bloomingdale, Ill.). Those components include petroleum-based products such as oil, synthetic rubber, and nylon as well as steel and latex.
   Tire producers also face higher in-house costs to operate their manufacturing processes as well as rising distribution expenses to transport their new tires to market. The result, Sheerin observed, is that tire manufacturers have raised their prices, “so clearly the higher costs are being pushed through.” 
   Tire retailers, meanwhile, face the higher prices for new tires as well as steeper heating costs, rising service costs for scrap tire recycling, and fuel surcharges, Sheerin noted. Retailers that have tried to pass on their higher costs to the public have faced “significant consumer resistance,” which has forced the retailers to live with lower margins.
   In conclusion, Sheerin quoted tire executive Edouard Michelin, who stated: “Energy costs are not going to fall and raw materials are not going to revert to five years ago. This is a new reality we must face.”

A TDF Perspective. Rising energy prices are actually benefiting tire-derived fuel (TDF), as consumers seek fuel alternatives to manage their costs. “The main reason why these companies use alternative fuels is that they’re saving money,” said Mike Sorcher of M.A. Associates Inc. (Overlook Park, Kan.). “That’s the bottom line—everybody’s got to save money.”
   Companies that use boilers and cogeneration units—such as pulp and paper mills, utilities, and industrial plants—are exploring alternative fuels like TDF, railroad ties, recycled oil, plastics, and paper/plastic pellets—“basically anything they can get their hands on and can get permitted for from an air-quality standpoint without creating operational problems for their boiler,” Sorcher noted.
   Alternative fuels like TDF generally sell at a discount to traditional fuels, with all fuels purchased based on a per-million-Btu basis, Sorcher said. “The customer considers how tough it is to burn the specific fuel,” he observed, “and there must be enough savings to pay for any drawbacks to using the fuel.”
   Higher energy prices are also allowing TDF and other alternative fuels to travel longer distances. “Instead of being about 200 miles out from your plant,” Sorcher explained, “you can go 400 to 600 miles from your plant and cover that freight because the customer still has a cost savings from burning that fuel.”
   Tire processors considering the TDF market must understand the above issues and not be afraid “to ask for the price your product deserves,” he said. “At the end of the day, TDF is still a low-cost alternative fuel source for the customer.”
   Managing the Energy Monster. What can tire recyclers do to manage their energy costs, especially electricity and natural gas? There are several options, noted Andrew Thomas of WorldEnergy Solutions (Worcester, Mass.). 
   First, you must collect data on your energy usage to get a picture of your past, current, and expected future consumption, he advised. Next, identify your preferred terms and requirements—for instance, do you want a 12-month fixed price, an indexed price, or a combination of both? Do you want 15-day or 30-day payments? Then you’re ready to provide your requirements to different energy suppliers and compare their offers.
   Two novel ways to purchase energy, Thomas said, are by using a reverse-auction bidding process and organizing a group of users to buy power through aggregation.
   In a reverse auction, energy suppliers log on to a specific auction Web site and bid for your business. They can see the lowest price offered by other suppliers, but they can’t see which company made the bid or how many suppliers are bidding overall. “They will compete for the business,” Thomas said, “and drive down each other’s price until the auction is closed.”
   To ensure maximum participation from suppliers, Thomas recommended starting out with a price that’s 15 to 20 percent higher than your target contracting price. You can also conduct a series of auctions covering different amounts of your energy needs, then accept the best arrangement and bid. “The way the auction is structured is encouraging suppliers to give you their best price,” Thomas said.
   Aggregation is based on the concept that combining the energy needs of multiple users can give you contracting leverage. In such cases, “suppliers might accept terms they wouldn’t normally accept,” Thomas said, adding that “they might take a lower per unit margin for a larger net profit.”
   On the downside, the aggregation process requires considerable administration and coordination, and one buyer often ends up subsidizing the other buyers, Thomas stated. To avoid such problems, identify each participant’s market appeal. Also, hold a series of auctions on the individual facilities to see what the market will bear, then price the group, he suggested. “Most of the time, a bigger group yields the best price.”

Entering the Second Stage
Second-stage processing is the most challenging step of the tire recycling process, but it can also open up many business opportunities, agreed three manufacturers of second-stage processing equipment—Charles Astafan of Columbus McKinnon Corp. (Sarasota, Fla.), Mike Hinsey of Granutech-Saturn Systems Corp. (Grand Prairie, Texas), and Tom Wendt of Wendt Corp. (Tonawanda, N.Y.).
   In tire processing, the first stage involves running scrap tires through a primary shredder. At the second stage, the tire shreds or chips are processed by a medium-speed grinder. The goal is “to maximize revenue from tire shreds by producing wire-free rubber chips and clean, salable steel,” Wendt explained.
   Second-stage processing is “an interim step to crumb rubber production,” Astafan said, offering the following reasons why this stage is worth pursuing:
• It reduces or eliminates the waste streams generated at the primary processing stage;
• It enables recyclers to expand and diversify their product line, which can help stabilize their business;
• The diversified products can create new revenue streams, especially by separating and recovering the clean tire wire, Astafan asserted; and
• It can increase recyclers’ profit margins. “You’ll be expanding your revenue potential and creating more value-added products,” he said. “Therefore, you should see higher revenue for these products.”
   Clearly, Astafan added, “there are a lot of advantages to it, though it is a very involved process.” To illustrate the process, Astafan and Wendt reviewed the basic components of a second-stage processing system, which can be set up in different ways. 
   In general, the second stage is meant to be a standalone system, not run in-line with the shredder due to the shredder’s faster output. A medium-speed grinder, the centerpiece of the second stage, takes tire shreds or chips—with four-inch clean material being optimal, Wendt said—and reduces it to 4/8 up to 2 inches in size while separating the steel wire.
   “The feeding of this type of machine is very important,” Wendt stated, noting that “machines that are fed better tend to produce more.” The grinder, for instance, can be fed by a metered feed bin, a creep feeder, or a tumbleback conveyor.
   After the grinder, processed material exits onto a metal conveyor (Wendt recommended a stainless steel vibrating model) and passes under magnets that separate the rubber and wire fractions. “You need two or more stages of magnetic separation,” with each magnet more sensitive than the last, Wendt advised. The first magnet’s goal is to remove steel without taking rubber with it. The second magnet’s goal is to pull all metal out, with or without rubber. “A common mistake is trying to obtain both goals in one step,” Wendt said. “That’s where you get cross-contamination and poor quality.”
   The clean rubber is then sized through screens, removing fines and oversized pieces to yield a good target size of 3/8 to 3/4 inch, which can be used as playground material or mulch. The recovered tire wire, meanwhile, is baled or briquetted to make it easier to handle and transport while also increasing its density and yield for steel mills.
   Two red flags in second-stage processing are dust and fire. “All points beyond the second-stage processor create dust,” Wendt said. As a result, the panelists advised installing a dust-collection system after the grinder to create a clean workplace and improve the quality of the end products.
   As for fire, Astafan said, “if you are doing this process, you are creating sparks. You have to be very, very cognizant about fires.” To minimize the risks, the manufacturers recommended a water spray system within the grinder to create a moist cutting chamber. That’s not foolproof, however, so they also advised installing a fire detection and suppression system after the grinder.
   Before jumping into second-stage processing, recyclers must realize it entails a large investment, with overall system costs around $700,000, Astafan said. “We see a lot of people who don’t fully understand the total capital cost of this.” Beyond the equipment costs, there are also hidden costs for building upgrades, installation, electrical, compressed air, fire suppression and air quality controls for the building, taxes, and freight.
Other key issues to consider include:
Feedstock: Will you be processing passenger or truck tires?
Regulatory Issues: Second-stage processors “give you some other challenges that shredders don’t,” Astafan said, noting that “they’re loud, they vibrate, they create dust, and there’s the potential for fires.” These issues can create regulatory issues that you must address.
Infrastructure Requirements: This equipment can pose considerable building and installation demands, said Astafan, adding that “it’s a much more involved business.”
Maintenance: These machines require daily maintenance, the panelists said.
Markets: Where will you sell both your rubber and your tire wire? “At the end of the day,” said Granutech’s Hinsey, “you need to have a market.”
   Recovered wire represents 15 to 20 percent of second-stage production, and there are several factors that affect the value of that material, including its quality, how far the buyer is located from your plant, and in what form the buyer wants the material, he noted.
   Rubber is the other 80 to 85 percent of second-stage production, Hinsey said. The three main markets for this material are high-quality TDF, soil amendments or modifiers, and feedstock for crumb rubber. 
   “As with most businesses,” Hinsey concluded, “the keys to success are to provide quality products, reliable supply, and exceptional service.”

Dealing With Disaster
Did you know that 50 percent of firms that experience a disaster never open again, or that 29 percent of stricken companies that reopen close within two years? Those sobering statistics stress the importance of disaster planning in your company, noted John Gilstrap, ISRI’s director of safety, and Barney Boynton of RecycleGuardsm (Portsmouth, N.H.), the ISRI-sponsored insurance program.
There are four principal steps to disaster planning:
Loss Control and Mitigation —preventing disasters from happening or, as Boynton put it, “keeping the genie in the bottle.”
Emergency Preparedness—being prepared for disasters.
Emergency Response —what to do when a disaster occurs.
Disaster Recovery —how to revive your business after a disaster.
To begin planning your loss control program, ask yourself the following questions, Boynton said:
• What disasters would put me out of business fastest?
• What’s the probability of them occurring?
• How bad will it be if they do occur?
   At this stage, try to “think the unthinkable,” paying greatest attention to those risks with the highest probability and biggest effect on your business, Boynton noted. 
   In your day-to-day operations, you can reduce your disaster risks by following a few simple activities:
Continuous Self-Inspection: All of your employees—not just supervisors and managers—must take responsibility for ensuring the safety of the company’s operations, all the time. “Make your employees part of the solution,” Boynton said. “If you include them, it will increase the scope of what you can see every day.”
Smart Layout: You can minimize some risks by how and where you lay out your operations and equipment, such as not putting operations in a potential flood area.
Housekeeping and Equipment Maintenance. A clean and tidy workplace is a safe workplace, while well-maintained equipment is less likely to cause a disaster or pose safety hazards. “Most major losses seem to relate to these two items,” Boynton stated. “Focusing on these can make a huge impact on your company’s loss control.”
Best Practices. Tire processors can minimize risks by following best industry practices such as the Annex F guidelines on the outdoor storage of scrap tires developed by the National Fire Protection Association (www.nfpa.org).
   Of course, no loss control program can prevent all disasters, so how can you prepare? “When the smoke is going up in the sky and the fire trucks are lined up out in the street, that’s a bad time to start planning,” Gilstrap said. “You have to have this plan in place before then.” You must be prepared because “the first two minutes of any emergency response are crucial,” he noted. “It’s in the first two minutes that lives will be saved or lost.”
   To begin, you have to think about what preparations are needed both internally and externally. For instance, which employees, facilities, and equipment are most likely to be involved in incidents? Do your employees know what to do in an emergency? Are they supposed to address the emergency, sound the alarm, call 911, or evacuate? If they evacuate, where should they go, who should they report to, and how do you know they are there? Have you trained them and had drills about their response? Who’s in charge? Does that person know they’re in charge? Who has the responsibility for critical decisions in the owner’s absence? Who is your media voice?
   Similarly, which external people, facilities, and equipment are most likely to be involved and where? How will you tell neighbors about your emergency? How will you inform local, state, and federal authorities?
   Answering the above questions will prepare you to respond properly, both internally and externally, in the event of a disaster. Keep in mind, though, that “your initial response is doomed to failure unless you practice it regularly,” Gilstrap stated. “There’s a certain muscle memory that comes out of practice. If I know precisely what I’m supposed to do, I will do it. If I don’t know precisely what to do, I will panic.”
   To ensure the best response from emergency professionals, invite them to tour your facility so they know the layout and potential dangers in your plant in advance, advised Gilstrap, a former emergency responder. Drawing from his personal experience, he explained that the “true mission of emergency response is not to put your fire out or save your facility. The true mission is to control the scope of the emergency to the smallest possible scale.”
   So, let’s say your company experiences a catastrophe. How does it recover and get back to business as usual?
   First, you have to assess the damage, determining what is a total loss and what can be salvaged and restored to operation. Do you need to conduct any environmental testing before reopening? What post-disaster health and safety concerns exist in your damaged operation? Who will do the necessary cleanup, both inside your plant and in the neighboring area? Do you have all of your original employees? If not, where will you get new ones? Do you have extra equipment that can replace ruined units as well as backup utilities like generators if your power is disabled?
   Disaster planning may not be easy but it is essential, so “start building your plan today,” Boynton said, urging recyclers to “have a living plan—not a plan that’s just a piece of paper.”

Addressing Tire Recycling Challenges
The Scrap Tire Work Group, part of U.S. EPA’s larger Resource Conservation Challenge environmental stewardship effort, has two main goals:
• divert 85 percent of newly generated scrap tires to reuse, recycling, or energy recovery by 2008; and
• reduce by 55 percent the number of stockpiled tires by 2008, noted Tabitha Tesnau of U.S. EPA’s Office of Solid Waste.
   The work group is composed of five subcommittees that focus on specific areas to help accomplish the two main goals. The five subcommittees and their current efforts are:
Goals and Tire Pile Reduction. This group has four priorities, including working with the Rubber Manufacturers Association (RMA) and states to glean better figures on tire recycling and stockpiles when RMA conducts its next scrap tire survey. The group also seeks to promote resources—such as the recently developed Scrap Tire Cleanup Guide—that states and others can use for scrap tire cleanups.
   Other goals include talking with states that have large stockpiles to gain a better understanding of the resources they need to address those piles. One idea is for stockpile states to be adopted by a neighboring state that could help resolve their problem.
Civil Engineering. This subcommittee plans to compile water quality and toxicology data to show the effect of using scrap rubber in civil engineering projects. It is also creating a proposal on the use of tire-derived aggregate in road construction for the National Cooperative Highway Research Program.
   Other projects include creating a Web-based compendium of successful civil engineering projects and developing a civil engineering application DVD that promotes the use of tire-derived aggregate.
Ground Rubber. This group seeks to encourage cooperative marketing to promote the use of ground rubber in sports surfacing, playgrounds, and colored mulch applications. There is also a need to compile success stories about ground rubber from the trade press, industry associations, universities, and scrap tire processors as well as to create abstracts of technical reports to be posted on the Web.
Rubberized Asphalt. Priorities for this subcommittee include compiling a list of states that have used rubberized asphalt and reporting on the material’s performance; identifying perceived obstacles to using rubberized asphalt and recommended solutions; maintaining a list of state contacts; and promoting and showcasing the process.
Tire-Derived Fuel. This group plans to assemble air, water, and product data from industries that are using TDF into a compendium to assist new TDF users and permitting agencies. Its goals also include identifying barriers to TDF use and articulating the benefits of properly using TDF to assist those interested in using the product.
   Tesnau closed by referring attendees to EPA’s Web site for scrap tires at www.epa.gov/epaoswer/non-hw/muncpl/tires/index.htm.

On the Road to Best Practices
ISRI has developed recommended best practices for scrap tire management to help private enterprises as well as local, state, and federal governments achieve and maintain high levels of scrap tire recycling, reported Steve Hirsch, associate counsel/director of state and local programs for ISRI.
   ISRI’s recommendations address each step of the scrap tire cycle, including generation, collection, and recycling. Collectors, Hirsch noted, handle a large volume of scrap tires, but they are generally the least regulated link in the scrap tire management chain. It would be beneficial, he said, if they had to attain an operating license and insurance, demonstrate financial assurance, and maintain adequate information on the scrap tires they handle. Generators should ideally not sell scrap tires to collectors that do not meet these basic requirements, Hirsch suggested.
   Throughout the process, tracking is an essential component, including collection of information on the generator and the facility that receives the scrap tires. While providing sufficient information to state regulators, the tracking system should not put undue burden on any party—the generator, collector, or processor—in the scrap tire chain.
   At the processing stage, ReMA supports “responsible operations,” with recyclers required to provide financial assurance and retail reporting while also submitting to periodic inspections, Hirsch said.
   ReMA supports the use of tire fees to fund scrap tire recycling activities at the state level, though such fees “should only be used for scrap tire programs and not diverted to other programs,” Hirsch stated.
   Currently, ReMA has received comments on its proposed best practices from U.S. EPA as well as tire-related groups such as the Tire Industry Association and the Rubber Manufacturers Association. Based on these comments, ReMA is amending its document and will show all stakeholders the final draft to make sure it meets all needs. As Hirsch concluded, “We’re working to promote tire recycling and to influence and improve state regulations on scrap tire management. We want your involvement and your help.”
   To participate in ReMA scrap tire activities, contact Steve Hirsch at 202/662-8516 or stevehirsch@isri.org. For information on joining ReMA and its Scrap Tire Processors Chapter, contact Amy Carey at 202/662-8538 or amycarey@ isri.org. 

Thanks to Our Exhibitors and Sponsors
ISRI thanks the following companies for being exhibitors and/or sponsors of its second annual Tire Recycling Business Summit. We appreciate your support:
Artech Reduction Technologies, B&J Manufacturing, Bi-Metal Corp. ,Cincinnati Reclamation Systems, Columbus McKinnon Corp., Common Ground Recycling Inc., Financing for Industry Inc., Granutech-Saturn Systems Corp., Liberty Tire Services L.L.C. , Logus Inc., Scrap Tire News, ShredderHotline.com, Wendt Corp., Zenith Cutter Co.

Kent Kiser is publisher and editor-in-chief of Scrap.