Scrap tires to crumb rubber: feasibility analysisfor processing facilities

Nongnard Sunthonpagasit, Michael R. Duffey∗

Department of Engineering Management and Systems Engineering,School of Engineering and Applied Science, The George Washington University,

Suite 110 1776, G-Street, Washington, DC 20052, USA

Received 7 November 2002; accepted 24 April 2003

Abstract

Crumb rubber can be produced from scrap tires in a wide range of particle sizes and qualitylevels. Ideally, the revenue stream includes tipping fees paid to receive the raw materials; sales ofvariously-sized crumb products to different end-user markets; and potential sales of scrap metal andfiber contained within the tires. General demand has been increasing, and submarkets for crumbproducts are growing in size and variety. However, the optimistic expectations of potential investorsand government agencies contrast sharply with the experiences of many current and former produc-ers. Production planning and operation is complex, real-dollar crumb prices have fallen, and manyproducers recount difficulties finding stable markets and competing against newer, state-subsidizedcompetitors. This paper examines the engineering economics of crumb rubber facilities. Followinga literature review and interviews with producers, a financial model of a nominal processing opera-tion was created to aid the analysis of different market, crumb size, and production scenarios. Theprofitability of a crumb facility appears to be particularly sensitive to crumb rubber prices, operatingcosts, and raw material availability. Better analysis of market and production impacts on financialviability for proposed processing facilities would aid overall market efficiency.© 2003 Elsevier B.V. All rights reserved.

Keywords:Crumb rubber; Engineering economics; Production feasibility; Recycling; Scrap tires

1. Introduction

In 2001, about 281 million scrap tires were generated in the United States. Roughly 75%of these tires were reused in some type of secondary market. The largest reuse market was for

∗ Corresponding author. Tel.:+1-202-994-7173; fax:+1-202-994-4606.E-mail address:duffey@seas.gwu.edu (M.R. Duffey).

0921-3449/$ – see front matter © 2003 Elsevier B.V. All rights reserved.doi:10.1016/S0921-3449(03)00073-9

Fig. 1. Scrap tire utilization alternatives. (Sources:Blumenthal and Serumgard, 1999a,b; Klingensmith et al.,1998RRI, 1998RRI, 2000RRI, 2001Serumgard 1998.)

tire-derived fuel (TDF), principally for use as a supplemental fuel in cement kilns (probablyabout 33% of total scrap tires generated). Civil engineering applications, in which tires areshredded for applications such as leachate collection in landfills and for highway embank-ments, accounted for about 15% of scrap tires. The third major reuse application was crumbrubber, also known as ground rubber. In 1994, only about 2% of scrap tires generated in theU.S. were reprocessed as crumb rubber, but by 2001 this had jumped to about 12% (Fig. 1,sources for above estimates cited in caption). Of all scrap tire reuse options, crumb rubberis probably the most complex but least studied, in terms of both production and markets.Markets for asphalt modifications and molded products each accounted for about 30% ofcrumb rubber usage in 2001. Other markets for sports surfacing, automotive products, ani-mal bedding, etc. have also experienced growth (Fig. 2). A more comprehensive discussionof scrap tire markets can be found inSungthonpagasit and Hickman (2002).

Crumb rubber is described or measured by mesh or inch, and is generally defined asrubber that is reduced to a particle size of 3/8-in or less. Crumb sizes can be classified intofour groups, which are: (1) large or coarse (3/8′′ and 1/4′′); (2) mid-range (10–30 meshor 0.079′′–0.039′′); (3) fine (40–80 mesh or 0.016′′–0.007′′); and (4) superfine (100–200mesh or 0.006′′–0.003′′). Particle size and particle size distribution requirements of crumbrubber depend on the crumb end user (Baranwal and Klingensmith, 1998; CWC, 2002;Higley, 1996; Liaskos, 1994; RRI, 1999). Different producers in the same crumb market(e.g. molded products) may require different crumb sizes to produce their unique products.As a result, it appears to be difficult to generalize particle size requirements in each crumbmarket. This appears to be one source of difficulty for crumb producers when attemptingto forecast market demand and production planning.

Aggregate market data in the crumb industry is scarce, but our best—but still rough—estimate would be that recent demand has been about 14% for coarse sizes, 52% formid-range sizes, 22% for fine sizes, and 12% for superfine sizes. Estimations within the

Fig. 2. Crumb rubber markets (million pounds): North America. (Sources:RRI, 1998RRI, 2001RRI, 2002.)

different market segments of future crumb market growth are contradictory. Discussions anda review of literature suggested that 1/4′′—20 mesh has the most potential growth for the nearfuture for sports, mats, turf, playground materials, and molded products. In contrast, someother producers stated that the fine size has the highest potential usage, especially in moldedrubber and composite products, due to price competitiveness with virgin rubber products.

Fig. 3shows data published for 1996–2002 for national average prices per ton for differentsizes of crumb rubber, as well as price ranges for 2001. It would appear that real-dollar pricesdropped somewhat across most crumb sizes, most significantly for 40, 80, and 100 mesh. Aperception among many established producers is that new-entrant competitors, importers,and producers of lower-quality crumb are putting downward pressure on crumb rubber pric-ing in order to secure some market share or to sell excess inventory at slashed prices. Thesparse published data for national price averages provide only an incomplete picture of acomplex, highly regional pricing situation affected by crumb quality, crumb coloration, pur-chase quantity, competitive pricing factors, impact of subsidies, and negotiations betweenproducers and end-users. Crumb average prices and price ranges (low-high) in 2001 (shownin Fig. 3) indicate that the greatest variation in prices has been for 1/4′′, 3/8′′, and 200 mesh.

Although a focus on ‘quality’ is described by many as critical to succeeding in the crumbbusiness, currently there are few quality standards for vendors and customers. Definitions ofquality appear to be quite diverse and driven by customer specifications unique to differentmarket segments. In general, a ‘high quality of crumb’ means low fiber content (less than0.5% of total weight), low metal content (less than 0.1%), and high consistency. An acceptedmaximum level of moisture content is typically about 1% by weight; therefore, recycledcrumb rubber should be stored in a cool and dry place. Excess moisture content limits thecrumb uses in many applications, especially in molded and extrusion markets. Excess heatduring processing can degrade the rubber.

Fig. 3. Crumb rubber average prices (current $/ton). (Sources: RRI, 1996;RRI, 1999RRI, 2001RRI, 2002)(Note: Market data for 80, 100, and 200 mesh is incomplete for 1995.)

Coloration appears to be less of a concern than other issues; however, it seems to be veryimportant to specific markets. Some molded market end-users may require all black crumbfor their unique products, while for some other molded products there are no preferences.Coloration and fiber content specifications appear to influence producer decisions aboutseparate vs. mixed processing of passenger and truck tires. One producer processed trucktires separately from passenger tires only when getting special orders from customers whorequire all black crumb. Another producer claimed that coloration is not important becauseafter grinding crumb to a small size, white color cannot be seen. Some producers prefer toprocess only truck tires due to lower textile cord content, which they claim results in higherprice and demand (Capelle, 1997).

The lack of standards for processing crumb is clearly a barrier to the maturation of amarket for recycled crumb as a commodity material. Everyone has his/her own uniquesystem to produce crumb rubber, and quality varies from operation to operation. Moreover,the quality of recycled rubber is in general lower than virgin (natural and synthetic rubber)products. For example, recycled crumb can deteriorate rubber compound properties in anew tire by reducing tire durability and longevity leading to increased tire replacementfrequency (Phillips, 1996; Blumenthal et al., Document Undated).

2. Acquisition of incoming scrap tires

Before investing time and money in crumb rubber production, producers must considerstrategies for obtaining scrap tires in their acquisition territory with effective tipping fees.

Fees, which are effectively a ‘negative cost’ for raw materials, defray operating expensesand impact the producer’s ability to keep crumb selling price competitive with other scrapprocessors and their virgin counterparts. High competition to obtain the raw materials maycause a downward pressure on tipping fees (New York Roundtable, 2000), as well as in-creased transportation costs for a wider acquisition territory. Fees depend on many factors,including scrap tire types (tires containing rims and bias/radial tires), regional conditions,transportation costs, market demand for scrap tires, and state and local environmental reg-ulations. In 2001 the national tipping fees for a passenger car were in the range of $34-300per ton with an average $97 a ton while truck tire fees were in the range of $34-300 per tonwith an average $113 a ton. Fees increased on average by about 32% for passenger tiresand 25% for truck tires during 1993–2001 period (RRI, 2002).

3. Engineering markets and environmental concerns

Aside from the market segments shown inFig. 2, there appear to be many other potentiallypromising market niches which may have future impact. For example, treated plywood roofsheathing is produced by applying a latex emulsion with 20 mesh rubber to one side ofplywood, which is then cured at ambient temperature. A latex emulsion serves as a vaporbarrier, waterproofing, and anti-skid surface that decreases the accident rates caused byslipping (CIWMB, 1997). A new rubberized coating material using 4 mesh crumb and abonding material has been developed which can be sprayed on sound barrier walls to helpeliminate noise from busy roads and highways (RRI, 1999). Another recently developedspray system mixes 1/4′′ crumb rubber and latex fluid in a gun to spray onto a running tracksurface in 1/8′′ layers for sun curing (CIWMB, 1997).

The future of markets that use larger-sized shredded tire pieces, which are less costlyto process than smaller-sized crumb, could also impact scrap tire availability for crumbproduction. One former crumb producer interviewed for this research had re-engineeredhis process for a simpler and lower-cost shredded-tire product for civil engineering appli-cations, especially septic system liners, which he anticipates as an important future market.Currently, the use of scrap tire derived material (STDM) for civil engineering applications(CEA) has primarily been driven by state initiatives. For example, septic applications havebeen approved and used for 10 years in South Carolina, 5 years in Virginia, 2 years inPennsylvania, and approval in Delaware is pending.

Questions are often asked about potential market impact of known and potential environ-mental risks associated with scrap tire materials. The most cited concerns probably relate tocivil engineering applications and the effect of tire materials on water quality. As long as tireshreds are placed above the water table, they appear to pose no significant, known health orenvironmental risks. There is no evidence that tire shreds increase the concentration of metalsof concern in meeting a ‘primary’ drinking water standard (DWS). However, the steel beltsexposed at the cut edges of the tire shreds may increase the levels of iron and manganese, af-fecting ‘secondary’ DWS (Blumenthal, 1997; Blumenthal and Serumgard, 1999a; Kearney,1990; New York Roundtable, 2000). Another environmental consideration that could impactcrumb markets specifically is potential worker exposure to fine respirable particles (<2.5microns) and particle-bound polycyclic aromatic hydrocarbons (PAHs). An EPA-sponsored

study of road paving workers in crumb rubber modified (CRM) asphalt applications indi-cated their potential exposure to ‘elevated airborne concentrations of a group of unknowncompounds that likely consist of the carcinogenic PAHs benz(a)anthracene, chrysene andmethylated derivatives of both’ (Watts et al., 1998). No references were found for similarmonitoring studies for workers at fine mesh-size crumb production facilities, but industrialhygiene and worker liability might be potential future cost issues that bear watching.

4. Production process

Due to the heterogeneous mix of end-user markets, mesh sizes and quality, and productionconfigurations, it is difficult to define hard-and-fast criteria for the engineering economics ofcrumb rubber. To establish a baseline for this study, however, a nominal production processwas synthesized from site visits with producers and a review of the published literature.Ambient grinding (as opposed to cryogenic grinding) is the production process used by themajority of crumb producers.Fig. 4 shows a nominal ambient grinding process that canproduce high quality crumb rubber ranging in size from 3/8′′ to 80 mesh. This nominal

Fig. 4. Nominal ambient grinding process.

crumb process is designed to process passenger tires and truck tires in separate batchesand can alter the mesh size of output depending on customer specifications and marketrequirements. A magnetic metal removal and fiber screening system are incorporated, andmetal and fiber fragments removed at various stages of the process are conveyed to centralcontainers for later sale or disposal.

Visual inspection and sorting is an important first step to ensure that the scrap tires aresuitable for processing. Passenger tires and truck tires are separated; tires containing rims arede-rimmed. The rims are combined with the metal stream (tire wire) from the tire recyclingprocess. The tires are re-introduced to the tire conveying system to reduce the whole tiresthru shredding and granulating down to various sizes, classified into three groups (coarse,mid-range, and fine size). Mesh sizes of 3/8′′ with 95% metal-free products and 5–30 meshwith 90% fiber and 99.9% metal-free products can be either: (1) marketed as-is for numerousapplications; or (2) further reduced to smaller sizes. The powder process can reduce themid-range crumb sizes to 40–80 mesh crumb containing 5% fiber with 0.1% metal. Afterpassing through each process, the rubber waste (i.e. still attached to metal or fiber scrap) isfound to be 8% for the shredding process, 6% for the granulating process, and 4% for thepowder process.

One rather obvious rule-of-thumb is that production cost and selling price are a functionof crumb size (seeFig. 3). The smaller the crumb size, the higher the investment andoperating costs. Moreover, the type of tire collected (e.g. passenger vs. truck tire) not onlyhas an impact on tipping fees, but also on process costs, end-product yields, quality, andcoloration. Some of the comments from producer interviews and the literature review aresummarized below.

4.1. Capital investment

Market analysis and its implications for product and process specifications and capacityplanning are critical for investment decisions. There are many types of size-reduction equip-ment for scrap tires, but equipment that maximizes flexibility—both for the types of incom-ing scrap tires and changing mesh sizes and quality to meet varying market demand—wasconsidered by most to be the best choice. For example, the surface modification marketrequires small-size crumb with high quality while the animal application market requires alarger-size crumb with lower quality. Producers stressed in their interviews that sustainedthroughput yields are lower and maintenance requirements higher than the optimistic as-sessment of equipment manufacturers. Processing equipment suitable for passenger cartires may not be suitable for truck tires even at low volume because steel-belted truck tirescontaining high percentages of reinforcing wire are considerably more difficult to processthan passenger tires (Gray, 2000).

4.2. Operation and maintenance (O&M)

O&M costs relate to processing equipment, rolling stock, and auxiliary equipment re-quired for the nominal facility. Maintenance costs can reportedly be higher in practice thanthe costs claimed by equipment manufacturers by up to 200–300%. Worn equipment canreduce processing capacity and production rate, increase particle size fraction, and requires

a lot of money for rebuilding (Capelle, 1997). Service lives of perishable items, such asshredder knives, are generally shorter than those projected by the manufacturers. One pro-ducer claimed that his shredder machine processes 10 tons per hour when the knife is new,but only 5 tons per hour when near the end of the knife’s life. Capelle claimed that shredderknives have to be replaced after 60,000 car tires or 10,000 truck tires while toothed rolls inthe ambient grinding process have to be recoated after processing about 1500–2000 tires(Capelle, 1997). The balance point between costs of changing knives and maintenance andthe processing rate appears to be one important operational secret to keep the costs down.One crumb producer claimed that tooling and expendable material costs are about $27.4 aton and labor costs are about $11.3 a ton. One chip producer stated that the cost for replacingknives after 200,000 tires is about $10,000, or 5 cents a tire, not including labor and othersignificant costs.

The front-end of processing is the most labor-intensive and significantly affects down-stream operations. Most producers separate passenger and truck tires due to different fiberand steel compositions which affect end-product quality and coloration. Also, tires contain-ing rims and beads are sometimes sorted for de-rimming and de-beading operations. Tirescontaining rims can cause excessive wear on the shredder knives. With poorly maintained de-beading equipment, the removed beads contain too much attached recyclable rubber causingpoor quality scrap metal and lower recycled rubber yields. In general, energy, labor, and othervariable costs are largely a function of the product mesh size, quality and quantity. A generalobservation in crumb production is that finer particle sizes have greater surface area andcleaner crumb rubber, but require longer processing time and hence more power and labor.

4.3. Product yields

One scrap Passenger Tire Equivalent (PTE)= 20 lbs, and before processing each PTEcontains on average 86.0% rubber compound (including chemicals, oils, and pigments)while one scrap truck tire (nominally 100 lbs) contains 84.5% rubber compound. In general,scrap passenger tires have more fiber (4%) and less metal (10%) as opposed to truck tires thathave almost no fiber (<0.5%) and much more metal (15%) (Dufton, 1995; Hershey et al.,1987; MES, 2001; RMA, 2001). After processing, the relative percentages of the recyclablematerials will change. The change depends on many factors, such as working experience,processing types and separating systems. Generally, a magnetic system is used to removesteel fragments. Some rubber particles remain attached to steel fragments, which affectscrumb rubber end-product yields. For example, at the 1×1 in particle size, the rubber isexpected to lose as much as 20–40% of material by magnetic separation systems (Astafan,1996). Capelle stated that the metals screened out in a shredding operation contains looseand adherent residual rubber (or waste rubber) in amounts of 5–8% while the rubber wastefrom a granulating operation is about 5–6%. Producers and some industry references statedthat about 50–60% of a scrap passenger tire can be processed as crumb rubber, dependingupon the sizes of crumb (Gray, 2000; RMA, 2001; TNRCC, 1999; UNEP, 2000). This wassomewhat lower than yields cited by some manufacturers of state-of-the-art size reductionequipment (Fig. 5).

The method used to calculate the product yields for each process step is shown inFig. 6.After passing through each process (shredding, granulating and powder process), the relative

Fig. 5. Crumb rubber plant cost model.

percentages of end-product compositions will change. The nominal process (shown inFig. 4)assumes that after passing through the shredder, 95% of metal is removed and 6% residualrubber is lost. If the total weight of an incoming batch of scrap passenger tires is 1 ton, thenthe output after the shredding process will contain 0.83 tons of rubber compound, 0.095 tonsof metal, and 0.068 tons of rubber waste. As this nominal process is flexible in output sizesand percentages, the 3/8′′ crumb mesh size is an optional product, and the percentages canbe varied. IfX% of 1 Ton PTE is removed after the shredding process, only (1− X%)× 1Ton of raw materials is next transported to the granulator process. At the final stage of theprocess, only (1− X%− Y%)× 1 Ton of crumb rubber is available.

Fig. 6. PTE end-product yields.

4.4. Transportation

Typically, recyclers need to be near the raw material to decrease transportation costsand guarantee procurement. Hauling costs depend on many factors, including truck size,sizes of scrap tires, labor costs, fuel costs, and distances from recyclers to collectors. Graystated that average one-way trucking costs in 2000 were about $20 per ton for each 300 milescovered and would be double if the truck returns unloaded. A 1993 EPA report indicated thattransportation charges for whole tires averaged 15–20 cents per ton-mile if hauled within

an 100-mile radius; however, sources of pre-shredded scrap tires can reduce transportationcost by 30–60% (USEPA, 1993). Hershey stated that the hauling costs for an 100-milerun are approximately $10 a ton for a 12-ton load of whole scrap tires and $21 a ton for a25-ton load of 2-in chunks (Hershey et al., 1987). The Texas Natural Resource ConservationCommission found that transportation costs are generally affordable within about 100 milesof a processing facility while Hershey found that the rule of thumb for hauling costs is notto haul more than 150 miles (Hershey et al., 1987TNRCC and TXDOT, 2001). In somedeveloped regions, there is a high competition to obtain the scrap tires. This may affectconsistency of scrap tire supply, decrease tipping fees, and increase transportation costsrequired to obtain raw materials outside of the immediate acquisition territory.

5. Engineering economics

The preceding sections presented some of the production process issues relevant to theconflicting perceptions and evidently high number of business failures experienced by newcrumb processors, particularly those encouraged and supported by state governments. Therest of this paper explores aspects of the engineering economics of crumb processing, usingthe data gathered from processors and public sources. A discounted cash flow model ofa rubber reprocessing facility was created as a means to help analyze different marketand production scenarios. A baseline scenario, variations and assumptions were developed,using data collection, document reviews, interviews, and surveys of crumb rubber producersand crumb rubber end-users. It should be noted that much of the underlying financial andengineering data in this model have been reviewed by several industry experts, but they arenonetheless a subjective amalgamation of different sources.

The model was created to be able to examine different processing capacities (up to 15,000tons a year), different crumb size capabilities (3/8′′ up to 80 mesh), different sources of scraptires (truck and car tires), different machine specifications (% yields of end product), anddifferent market crumb price and size requirements. A decomposition of cost and revenuesources is shown inFig. 5. Variable costs are calculated using weight as the cost driver (i.e.variable cost per ton for labor, energy, etc.) for each mesh size.

Table 1shows industry estimates for a 15,000 tons/year production facility that canprocess crumb mesh sizes down to 80-mesh. As a simplified approximation, the relationshipbetween mesh size and some types of variable costs (e.g. energy) roughly follows the numberof ‘cuts’ required to reduce a cubic volume of raw material to its final particle size. Sincethree slices through a cube with side lengthL are required to cut it into 8 smaller cubes, thetotal number of cuts required to reduce the original cube to smaller cubes with side lengthSis.

Number of cuts= 3(L/S − 1). (1)

The more the number of cuts, the longer the processing time, the more the energy and laborconsumption, and the higher the selling prices. This crude approximation seemed reason-ably consistent with, for example, energy usage and processing rate data for size-reducingequipment, but obviously ignores complications due to stress theory, mass-specific break-age energy on particle size, crack propagation in particles, and types of cutting materials(crushing resistance of the roll and knife strength, etc. seeBearman et al. (1991)).

Table 1Baseline costs for nominal 80 mesh crumb rubber production

Year 0

Investment costsCrumb rubber plant (million $) 3.80Transportation equipment (million $) 0.60Project costs (million $) 2.00

Variable costsDirect operating expensesTotal operating labor (included benefits) ($/h) 269.00Variable overhead (%) 25.00Variable facility operating expensesDisposal costs ($/ton) 52.00Packaging costs ($/ton) 13.00Maintenance costs ($/ton) 14.23Transportation cost ($/ton) 8.00Electricity price ($/kW h)1 0.05

Fixed costsAdministrative expenses (included benefits) (million $/year) 0.39Other administrative expenses (million $/year) included Product marketing+ travel, Misc

office expense, and Professional service+ others0.15

Building Lease+ tax + insurance (million $/year) 0.19Lease escalation per year (%) 2.00Fixed power costs (million $/year) 0.10

OthersWorking capital ($/ton) 27.85Labor availability (%) 85.00

Sources:Dexter (2002), USDE (1999) and USDL (2002). Note: All costs are varied with general inflation overthe 10-year study period.

Where possible, cost-capacity factors derived from actual data were used in power sizingtechniques to model variations in equipment investment and some fixed and variable costs fordifferent plant capacities and mesh-size capabilities. The power sizing technique assumesthat cost (C) varies as some power of change in size or capacity (S). The power sizingequation is shown below whereX is a cost-capacity factor.

CA/CB = (SA/SB)X (2)

Some examples of estimation equations for energy and labor were

Energy consumptionPTE (kW h/ton) = 97.91× Crumb size(inch)−0.222 (3)

Energy consumptionTruck (kW h/ton) = 103.5 × Crumb size(inch)−0.211 (4)

Labor hoursPTE (h/ton) = 0.27× Crumb size(inch)−0.0319 (5)

Labor hoursTruck (h/ton) = 0.28× Crumb size(inch)−0.0212 (6)

For the baseline scenario, a production ramp-up of three years was assumed to gainprocess familiarity and obtain market share. The quantity of scrap tires in the first year isassumed to be 12,000 tons with arithmetic growth to plant capacity (15,000 tons) by theend of Year 3. The nominal process consists of two shifts; one for passenger tires and theother for truck tires. Roughly 16% of the number of scrap tires generated in the U.S. aretruck tires (average 100 lbs each) and 84% are passenger tires (average 20 lbs each). Thebaseline scenario assumes incoming tonnage is 50% from passenger tires and 50% fromtruck tires. The minimum attractive rate of return (MARR) is assumed to be 10% (includinginflation) while the marginal tax rate is 45%. The study period is 10 years. A simplified10-year straight-line depreciation is assumed for the plant equipment and rolling stockinvestments, with zero salvage value. This seems a reasonable assumption, but it should benoted that possible legislation that would allow accelerated depreciation or tax credits forcertain types of recycling projects could potentially have a significant impact on short-termliquidity. Only equity financing is assumed as is typical for this type of preliminary feasibilityanalysis. Other considerations such as zoning regulations and permits, state regulations,worker safety, and environmental regulations are not addressed. The nominal scrap facilityis assumed to be located in the U.S. Mid-Atlantic region, and the defined market area andsources of scrap tires for the nominal facility is the Atlantic seaboard (Table 2).

Other equations to calculate revenues and costs are described inTable 3. Revenues forthe scrap tire recycling facility come from two sources: (1) tipping fees; and (2) productrevenues, which include: (a) sales of recycled crumb rubber; (b) sales of scrap metals;(c) sales of scrap fiber. One uncertainty factor for product revenues is the price of scrapmetal and fiber. When market prices for scrap steel or fiber drop to zero (as in the baselinescenario), disposal costs must be assumed. The selling prices of crumb rubber from trucktires (black crumb) are assumed in the baseline to be higher than those from passenger cartires (because of black with white speckles) by 20%, consistent with some of the crumbproducers interviewed. The baseline prices of scrap metals, fibers, tipping fees, and crumbproducts and the percentage of scrap tire delivered and processed to various products areshown inTable 2. The baseline price escalation assumption reflected the perception in

Table 2Baseline prices and quantity information for all scrap tire products

Revenue types Prices in yr 0 ($/ton) Quantity

Tipping fees: PTE 115.55 600 000–750 000 car tiresTipping fees: truck 155.78 120 000–150 000 truck tiresScrap metal 0 SeeFig. 6Scrap fiber 0 SeeFig. 61/4′′ crumb: PTE 221 SeeFig. 6X = 9%

10 mesh crumb: PTE 227 SeeFig. 6, Y = 64%,A = 33%20 mesh crumb: PTE 267 SeeFig. 6, Y = 64%,B = 33%30 mesh crumb: PTE 310 SeeFig. 6, Y = 64%,C = 33%40 mesh crumb: PTE 358 SeeFig. 6, Z = 27%,D = 80%80 mesh crumb: PTE 420 SeeFig. 6, Z = 27%,E = 20%

All size crumbs: Truck Higher than PTEs 20% Same as PTE

Source:RRI (2002).

Table 3Revenue and expense equations

Revenues/Expenses Equations

Disposal costs ($/year)∑

(Disposal fees ($/ton)× Waste (ton))+IF the prices ofmaterialij ≤ 0 (

∑(Disposal fees ($/ton)× Materialij (ton))

Electricity price1 ($/year) Electricity price ($/kW h)× ∑(Crumb productij (ton)×

Energy consumption2ij (kW h/ton))Maintenance expenses1 ($/year) Maintenance costs ($/ton)× Qin (tons/year)Packaging expenses ($/year) Packaging costs ($/ton)× ∑

Crumb productj (ton)Quantity of scrap tires (tons/year) For Year 1:Qfirst = Quantity of scrap tires in first year= 12,000,

For Year 2–10: Arithmetic growthG = (Qmax−Qfirst) ÷ 2 thru Year 3Operating labor costs1 ($/year)

∑(Crumb productij (ton)× Operating labor expenseij ($/ton))

Operating labor expenses1 ($/ton) Total variable labor costs ($/h)× Labor hours3ij (h/ton)÷ Laboravailability (%)

Output revenues ($/year)∑

(Price of materialij ($/ton)× Scrap tire delivered and processedinto the materialij (%) × Scrap tire deliveredi (%) × Qin (tons/year))

Tipping fee revenues ($/year)∑

(Scrap tire deliveredi (%) × Qin (tons/year)× Tipping feesi ($/ton))Transportation costs ($/year) Transportation cost ($/ton)× Qin (tons/year)Variable overhead costs1 ($/year)

∑(Crumb productij (ton)× Variable overhead expenseij ($/ton))

Variable overhead expense1 ($/ton) Variable overhead (%)× Operating labor expenses ($/ton)

Note: i, scrap tire types (PTEs and truck tires); j, crumb sizes (1/4′′, 10 mesh, 20 mesh, and. . . ); 1 = varies withmesh size and quantity; 2= seeEq. (2)and 3; 3= seeEqs. (4) and (5).

producer interviews that real prices would stay flat (this was more optimistic than the slightlydownward-trending real price projection that might be assumed from the historical data andis addressed in the alternate scenarios). The impact of quality variations was addressed inthe scenario analysis. After processing, crumb rubber is assumed to be bagged in industrystandard ‘super sacks’. The capacity of one super sack is 1 ton. The packaging costs includethe unit price of a super sack and pallet. The baseline transportation cost is $8 a ton for anacquisition radius of less than 300 miles.

6. Financial feasibility of facilities

The base case, analyzed in the spreadsheet model over its 10-year study period, assumescrumb prices and tipping fees both increase with 3% general inflation. Equipment costs andyields used data cited from state-of-the-art suppliers. The analysis showed a profitable facil-ity with an internal rate of return (IRR) of 19% and positive NPV of about $3 million for theassumed 10% opportunity cost of capital. The payback period, including discounting effects,was 5 years to recover the initial investment. Sixty-three percent of annual revenues camefrom crumb rubber sales and 37% from tipping fees. For levelized costs over the 10-yearperiod, variable costs were 62% (reflecting their importance in profitability); fixed costswere 11%; and investment costs were 27%. Excluding amortized investment and financing,the breakdown for combined fixed and variable operating costs is shown inFigs. 7 and 8.

The effects of± 50% changes in the nominal values for the most sensitive variables,along with their break-even points (at NPV= 0) are shown in a tornado diagram inFig. 9.Variables which did not cross the breakeven threshold within this±50% range included

Fig. 7. Relationships of cumulative numbers of cuts and selling prices to product sizes.

energy and transportation costs, yield (% change for all crumb sizes) and the total priceescalation rate for crumb (% change for all crumb sizes). The importance of market factors(for crumb prices) and facility location (regional competition for scrap tires and other localdifferentials, especially for tipping fees and labor costs) are highlighted by this analysis.

6.1. Scenario analysis

Some of the complex issues faced by existing processors were cited earlier for market as-pects of crumb quality and mesh size, equipment selection and maintenance, etc. These were

Fig. 8. Operating costs in baseline scenario ($NPV).

Fig. 9. Tornado diagram.

used to develop scenario analyses which might be useful for private and public investors.Four of these scenarios are described below.

6.1.1. Variations in demand for specific mesh size and price fluctuationsThe nominal facility could process mesh sizes down to 80 mesh, and the base case

assumption was for crumb sales distributed across sizes, from 3/8′′ to 80 mesh. Under thebaseline price assumptions, production and sales exclusively for one size of crumb particlewould still result in profitability for the smaller mesh sizes (30, 40, and 80 mesh). However,if these sizes were not in demand, exclusive sales of 3/8′′, 10 or 20 mesh would not beprofitable). However, a 30-mesh facility, with its lower investment cost, would be profitableunder these larger-mesh-size demand scenarios. Also, smaller mesh sizes have historicallyseen a greater drop in real prices. Unless there is solid evidence of sustained markets forsmall size crumb demand, investment in a 30 mesh facility (as opposed to an 80-meshfacility) might appear to be a better choice.

6.1.2. Scrap tire availabilityHigh competition for obtaining scrap tires could affect not only consistency of supply

of raw materials, but could also put downward pressure on tipping fees and increase trans-portation costs for obtaining tires outside the nominal acquisition territory. In one scenario,for example, the facility barely broke even if tire availability was limited to 14,000 tons per

year, tipping fees dropped by about 1/3, and transportation distances exceeded about fourtimes the nominal acquisition radius. The correlation between less raw material availability,lower tipping fees, and higher transportation costs should be noted.

6.1.3. Lower yields and pricesWhat if production yields are lower than the optimistic assessment of equipment manu-

facturers (60% instead of 69%) and prices for most mesh sizes decrease slightly in constantdollars, using time series forecasting based on historical patterns of the 1997–2001 years?In this scenario, the nominal facility would be unprofitable, with an NPV of−$1.7 million.

6.1.4. State-subsidized competitorsSome existing crumb producers perceived the entry of new state-subsidized competitors

as a threat. They cited examples of subsidized facilities, often in a neighboring state but withoverlapping end-user markets and acquisition areas, which had impacted their businesses.Consider a scenario in which a new competitor in the nominal territory receives a subsidyequivalent to $22.5 per ton. Assume that: (1) due to higher crumb supply in the territory, boththe crumb prices and quantities sold are 5% lower than the base case values; and (2) due tohigher competition to acquire the raw material, tipping fees and incoming scrap quantitiesare also 5% lower. In this scenario, the nominal facility (i.e. an unsubsidized plant) wouldsee a decrease in NPV from $3 million to $0.94 million.

7. Conclusions

Commercially sustainable facilities for processing crumb rubber from scrap tires requireanalysis of complex interactions between demand and production factors. Perceptions ofpricing, quality, and mesh size requirements of end-user markets seem to vary considerablybetween processors, and in general there are few standards for this growing industry. In thepast, state subsidies of processors have been tried by several states, but the results have beenmixed at best, with some of these processors failing within a few years. Subsidy programs, ifappropriate at all, would be best used to promote the growth of end-user markets, accordingto survey respondents and interviewees.

While there are certainly opportunities for new-entrant competitors, there are consider-able uncertainties which warrant careful analysis. Analysis methodologies should modelthe impact of mesh size on production cost, pricing, quality, and end-user markets. Whilethe analysis of the ‘nominal facility’ described above is based on a hypothetical and gen-eralized case, it appears to support the perceptions of many industry participants contactedduring the research. The underlying analysis methodology, though still crude, can perhapsprovide a starting point for public and private ventures exploring this segment of the scraptire recycling industry.

Acknowledgements

The authors wish to particularly thank H. Lanier (Lanny) Hickman, and the HickmanInternship Program of the Solid Waste Association of North America (SWANA); Gregorio

L. Africa (Maryland Environmental Service); Michael H. Blumenthal (Scrap Tire Manage-ment Council); and the crumb producers and end-users consulted for this research.

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