Scrap tires to crumb rubber: feasibility analysis for 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 quality levels. Ideally, the revenue stream includes tipping fees paid to receive the raw materials; sales of variously-sized crumb products to different end-user markets; and potential sales of scrap metal and ber contained within the tires. General demand has been increasing, and submarkets for crumb products are growing in size and variety. However, the optimistic expectations of potential investors and government agencies contrast sharply with the experiences of many current and former producers. Production planning and operation is complex, real-dollar crumb prices have fallen, and many producers recount difculties nding stable markets and competing against newer, state-subsidized competitors. This paper examines the engineering economics of crumb rubber facilities. Following a literature review and interviews with producers, a nancial model of a nominal processing operation was created to aid the analysis of different market, crumb size, and production scenarios. The protability of a crumb facility appears to be particularly sensitive to crumb rubber prices, operating costs, and raw material availability. Better analysis of market and production impacts on nancial viability for proposed processing facilities would aid overall market efciency. 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 (probably about 33% of total scrap tires generated). Civil engineering applications, in which tires are shredded for applications such as leachate collection in landlls and for highway embankments, accounted for about 15% of scrap tires. The third major reuse application was crumb rubber, also known as ground rubber. In 1994, only about 2% of scrap tires generated in the U.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 rubber is probably the most complex but least studied, in terms of both production and markets. Markets for asphalt modications and molded products each accounted for about 30% of crumb rubber usage in 2001. Other markets for sports surfacing, automotive products, animal bedding, etc. have also experienced growth (Fig. 2). A more comprehensive discussion of scrap tire markets can be found in Sungthonpagasit and Hickman (2002). Crumb rubber is described or measured by mesh or inch, and is generally dened as rubber that is reduced to a particle size of 3/8-in or less. Crumb sizes can be classied into four groups, which are: (1) large or coarse (3/8 and 1/4 ); (2) mid-range (1030 mesh or 0.079 0.039 ); (3) ne (4080 mesh or 0.016 0.007 ); and (4) superne (100200 mesh or 0.006 0.003 ). Particle size and particle size distribution requirements of crumb rubber 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 difcult to generalize particle size requirements in each crumb market. This appears to be one source of difculty for crumb producers when attempting to forecast market demand and production planning. Aggregate market data in the crumb industry is scarce, but our bestbut still rough estimate would be that recent demand has been about 14% for coarse sizes, 52% for mid-range sizes, 22% for ne sizes, and 12% for superne 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 and a review of literature suggested that 1/4 20 mesh has the most potential growth for the near future for sports, mats, turf, playground materials, and molded products. In contrast, some other producers stated that the ne size has the highest potential usage, especially in molded rubber and composite products, due to price competitiveness with virgin rubber products. Fig. 3 shows data published for 19962002 for national average prices per ton for different sizes of crumb rubber, as well as price ranges for 2001. It would appear that real-dollar prices dropped somewhat across most crumb sizes, most signicantly for 40, 80, and 100 mesh. A perception among many established producers is that new-entrant competitors, importers, and producers of lower-quality crumb are putting downward pressure on crumb rubber pricing in order to secure some market share or to sell excess inventory at slashed prices. The sparse published data for national price averages provide only an incomplete picture of a complex, highly regional pricing situation affected by crumb quality, crumb coloration, purchase quantity, competitive pricing factors, impact of subsidies, and negotiations between producers and end-users. Crumb average prices and price ranges (low-high) in 2001 (shown in 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 crumb business, currently there are few quality standards for vendors and customers. Denitions of quality appear to be quite diverse and driven by customer specications unique to different market segments. In general, a high quality of crumb means low ber content (less than 0.5% of total weight), low metal content (less than 0.1%), and high consistency. An accepted maximum level of moisture content is typically about 1% by weight; therefore, recycled crumb rubber should be stored in a cool and dry place. Excess moisture content limits the crumb uses in many applications, especially in molded and extrusion markets. Excess heat during 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 very important to specic markets. Some molded market end-users may require all black crumb for their unique products, while for some other molded products there are no preferences. Coloration and ber content specications appear to inuence producer decisions about separate vs. mixed processing of passenger and truck tires. One producer processed truck tires separately from passenger tires only when getting special orders from customers who require all black crumb. Another producer claimed that coloration is not important because after grinding crumb to a small size, white color cannot be seen. Some producers prefer to process only truck tires due to lower textile cord content, which they claim results in higher price and demand (Capelle, 1997). The lack of standards for processing crumb is clearly a barrier to the maturation of a market for recycled crumb as a commodity material. Everyone has his/her own unique system 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 a new tire by reducing tire durability and longevity leading to increased tire replacement frequency (Phillips, 1996; Blumenthal et al., Document Undated). 2. Acquisition of incoming scrap tires Before investing time and money in crumb rubber production, producers must consider strategies for obtaining scrap tires in their acquisition territory with effective tipping fees.

Fees, which are effectively a negative cost for raw materials, defray operating expenses and impact the producers ability to keep crumb selling price competitive with other scrap processors and their virgin counterparts. High competition to obtain the raw materials may cause a downward pressure on tipping fees (New York Roundtable, 2000), as well as increased 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 regulations. In 2001 the national tipping fees for a passenger car were in the range of $34-300 per ton with an average $97 a ton while truck tire fees were in the range of $34-300 per ton with an average $113 a ton. Fees increased on average by about 32% for passenger tires and 25% for truck tires during 19932001 period (RRI, 2002).

3. Engineering markets and environmental concerns Aside from the market segments shown in Fig. 2, there appear to be many other potentially promising market niches which may have future impact. For example, treated plywood roof sheathing is produced by applying a latex emulsion with 20 mesh rubber to one side of plywood, which is then cured at ambient temperature. A latex emulsion serves as a vapor barrier, waterproong, and anti-skid surface that decreases the accident rates caused by slipping (CIWMB, 1997). A new rubberized coating material using 4 mesh crumb and a bonding material has been developed which can be sprayed on sound barrier walls to help eliminate noise from busy roads and highways (RRI, 1999). Another recently developed spray system mixes 1/4 crumb rubber and latex uid in a gun to spray onto a running track surface in 1/8 layers for sun curing (CIWMB, 1997). The future of markets that use larger-sized shredded tire pieces, which are less costly to process than smaller-sized crumb, could also impact scrap tire availability for crumb production. One former crumb producer interviewed for this research had re-engineered his process for a simpler and lower-cost shredded-tire product for civil engineering applications, 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 have been approved and used for 10 years in South Carolina, 5 years in Virginia, 2 years in Pennsylvania, and approval in Delaware is pending. Questions are often asked about potential market impact of known and potential environmental risks associated with scrap tire materials. The most cited concerns probably relate to civil engineering applications and the effect of tire materials on water quality. As long as tire shreds are placed above the water table, they appear to pose no signicant, known health or environmental risks. There is no evidence that tire shreds increase the concentration of metals of concern in meeting a primary drinking water standard (DWS). However, the steel belts exposed at the cut edges of the tire shreds may increase the levels of iron and manganese, affecting secondary DWS (Blumenthal, 1997; Blumenthal and Serumgard, 1999a; Kearney, 1990; New York Roundtable, 2000). Another environmental consideration that could impact crumb markets specically is potential worker exposure to ne respirable particles (<2.5 microns) and particle-bound polycyclic aromatic hydrocarbons (PAHs). An EPA-sponsored

study of road paving workers in crumb rubber modied (CRM) asphalt applications indicated their potential exposure to elevated airborne concentrations of a group of unknown compounds that likely consist of the carcinogenic PAHs benz(a)anthracene, chrysene and methylated derivatives of both (Watts et al., 1998). No references were found for similar monitoring studies for workers at ne mesh-size crumb production facilities, but industrial hygiene 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 production congurations, it is difcult to dene hard-and-fast criteria for the engineering economics of crumb rubber. To establish a baseline for this study, however, a nominal production process was 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 the majority of crumb producers. Fig. 4 shows a nominal ambient grinding process that can produce 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 batches and can alter the mesh size of output depending on customer specications and market requirements. A magnetic metal removal and ber screening system are incorporated, and metal and ber fragments removed at various stages of the process are conveyed to central containers for later sale or disposal. Visual inspection and sorting is an important rst step to ensure that the scrap tires are suitable for processing. Passenger tires and truck tires are separated; tires containing rims are de-rimmed. The rims are combined with the metal stream (tire wire) from the tire recycling process. The tires are re-introduced to the tire conveying system to reduce the whole tires thru shredding and granulating down to various sizes, classied into three groups (coarse, mid-range, and ne size). Mesh sizes of 3/8 with 95% metal-free products and 530 mesh with 90% ber and 99.9% metal-free products can be either: (1) marketed as-is for numerous applications; or (2) further reduced to smaller sizes. The powder process can reduce the mid-range crumb sizes to 4080 mesh crumb containing 5% ber with 0.1% metal. After passing through each process, the rubber waste (i.e. still attached to metal or ber scrap) is found to be 8% for the shredding process, 6% for the granulating process, and 4% for the powder process. One rather obvious rule-of-thumb is that production cost and selling price are a function of crumb size (see Fig. 3). The smaller the crumb size, the higher the investment and operating costs. Moreover, the type of tire collected (e.g. passenger vs. truck tire) not only has an impact on tipping fees, but also on process costs, end-product yields, quality, and coloration. Some of the comments from producer interviews and the literature review are summarized below. 4.1. Capital investment Market analysis and its implications for product and process specications and capacity planning are critical for investment decisions. There are many types of size-reduction equipment for scrap tires, but equipment that maximizes exibilityboth for the types of incoming scrap tires and changing mesh sizes and quality to meet varying market demandwas considered by most to be the best choice. For example, the surface modication market requires small-size crumb with high quality while the animal application market requires a larger-size crumb with lower quality. Producers stressed in their interviews that sustained throughput yields are lower and maintenance requirements higher than the optimistic assessment of equipment manufacturers. Processing equipment suitable for passenger car tires may not be suitable for truck tires even at low volume because steel-belted truck tires containing high percentages of reinforcing wire are considerably more difcult to process than passenger tires (Gray, 2000). 4.2. Operation and maintenance (O&M) O&M costs relate to processing equipment, rolling stock, and auxiliary equipment required for the nominal facility. Maintenance costs can reportedly be higher in practice than the costs claimed by equipment manufacturers by up to 200300%. Worn equipment can reduce 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 as shredder knives, are generally shorter than those projected by the manufacturers. One producer 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 knifes life. Capelle claimed that shredder knives have to be replaced after 60,000 car tires or 10,000 truck tires while toothed rolls in the ambient grinding process have to be recoated after processing about 15002000 tires (Capelle, 1997). The balance point between costs of changing knives and maintenance and the 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 a ton and labor costs are about $11.3 a ton. One chip producer stated that the cost for replacing knives after 200,000 tires is about $10,000, or 5 cents a tire, not including labor and other signicant costs. The front-end of processing is the most labor-intensive and signicantly affects downstream operations. Most producers separate passenger and truck tires due to different ber and steel compositions which affect end-product quality and coloration. Also, tires containing rims and beads are sometimes sorted for de-rimming and de-beading operations. Tires containing rims can cause excessive wear on the shredder knives. With poorly maintained debeading equipment, the removed beads contain too much attached recyclable rubber causing poor quality scrap metal and lower recycled rubber yields. In general, energy, labor, and other variable costs are largely a function of the product mesh size, quality and quantity. A general observation in crumb production is that ner particle sizes have greater surface area and cleaner 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 PTE contains 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 ber (4%) and less metal (10%) as opposed to truck tires that have almost no ber (<0.5%) and much more metal (15%) (Dufton, 1995; Hershey et al., 1987; MES, 2001; RMA, 2001). After processing, the relative percentages of the recyclable materials will change. The change depends on many factors, such as working experience, processing types and separating systems. Generally, a magnetic system is used to remove steel fragments. Some rubber particles remain attached to steel fragments, which affects crumb rubber end-product yields. For example, at the 11 in particle size, the rubber is expected to lose as much as 2040% of material by magnetic separation systems (Astafan, 1996). Capelle stated that the metals screened out in a shredding operation contains loose and adherent residual rubber (or waste rubber) in amounts of 58% while the rubber waste from a granulating operation is about 56%. Producers and some industry references stated that about 5060% of a scrap passenger tire can be processed as crumb rubber, depending upon the sizes of crumb (Gray, 2000; RMA, 2001; TNRCC, 1999; UNEP, 2000). This was somewhat lower than yields cited by some manufacturers of state-of-the-art size reduction equipment (Fig. 5). The method used to calculate the product yields for each process step is shown in Fig. 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 in Fig. 4) assumes that after passing through the shredder, 95% of metal is removed and 6% residual rubber is lost. If the total weight of an incoming batch of scrap passenger tires is 1 ton, then the output after the shredding process will contain 0.83 tons of rubber compound, 0.095 tons of metal, and 0.068 tons of rubber waste. As this nominal process is exible in output sizes and percentages, the 3/8 crumb mesh size is an optional product, and the percentages can be varied. If X% of 1 Ton PTE is removed after the shredding process, only (1 X%) 1 Ton of raw materials is next transported to the granulator process. At the nal stage of the process, 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 costs and 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. Gray stated that average one-way trucking costs in 2000 were about $20 per ton for each 300 miles covered and would be double if the truck returns unloaded. A 1993 EPA report indicated that transportation charges for whole tires averaged 1520 cents per ton-mile if hauled within

an 100-mile radius; however, sources of pre-shredded scrap tires can reduce transportation cost by 3060% (USEPA, 1993). Hershey stated that the hauling costs for an 100-mile run are approximately $10 a ton for a 12-ton load of whole scrap tires and $21 a ton for a 25-ton load of 2-in chunks (Hershey et al., 1987). The Texas Natural Resource Conservation Commission found that transportation costs are generally affordable within about 100 miles of a processing facility while Hershey found that the rule of thumb for hauling costs is not to haul more than 150 miles (Hershey et al., 1987TNRCC and TXDOT, 2001). In some developed regions, there is a high competition to obtain the scrap tires. This may affect consistency of scrap tire supply, decrease tipping fees, and increase transportation costs required 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 the conicting perceptions and evidently high number of business failures experienced by new crumb processors, particularly those encouraged and supported by state governments. The rest of this paper explores aspects of the engineering economics of crumb processing, using the data gathered from processors and public sources. A discounted cash ow model of a rubber reprocessing facility was created as a means to help analyze different market and production scenarios. A baseline scenario, variations and assumptions were developed, using data collection, document reviews, interviews, and surveys of crumb rubber producers and crumb rubber end-users. It should be noted that much of the underlying nancial and engineering data in this model have been reviewed by several industry experts, but they are nonetheless a subjective amalgamation of different sources. The model was created to be able to examine different processing capacities (up to 15,000 tons a year), different crumb size capabilities (3/8 up to 80 mesh), different sources of scrap tires (truck and car tires), different machine specications (% yields of end product), and different market crumb price and size requirements. A decomposition of cost and revenue sources is shown in Fig. 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 1 shows industry estimates for a 15,000 tons/year production facility that can process crumb mesh sizes down to 80-mesh. As a simplied approximation, the relationship between mesh size and some types of variable costs (e.g. energy) roughly follows the number of cuts required to reduce a cubic volume of raw material to its nal particle size. Since three slices through a cube with side length L are required to cut it into 8 smaller cubes, the total number of cuts required to reduce the original cube to smaller cubes with side length S is. Number of cuts = 3(L/S 1). (1)

The more the number of cuts, the longer the processing time, the more the energy and labor consumption, and the higher the selling prices. This crude approximation seemed reasonably consistent with, for example, energy usage and processing rate data for size-reducing equipment, but obviously ignores complications due to stress theory, mass-specic breakage energy on particle size, crack propagation in particles, and types of cutting materials (crushing resistance of the roll and knife strength, etc. see Bearman et al. (1991)).

Table 1 Baseline costs for nominal 80 mesh crumb rubber production Year 0 Investment costs Crumb rubber plant (million $) Transportation equipment (million $) Project costs (million $) Variable costs Direct operating expenses Total operating labor (included benets) ($/h) Variable overhead (%) Variable facility operating expenses Disposal costs ($/ton) Packaging costs ($/ton) Maintenance costs ($/ton) Transportation cost ($/ton) Electricity price ($/kW h)1 Fixed costs Administrative expenses (included benets) (million $/year) Other administrative expenses (million $/year) included Product marketing + travel, Misc ofce expense, and Professional service + others Building Lease + tax + insurance (million $/year) Lease escalation per year (%) Fixed power costs (million $/year) Others Working capital ($/ton) Labor availability (%) 3.80 0.60 2.00

269.00 25.00 52.00 13.00 14.23 8.00 0.05

0.39 0.15 0.19 2.00 0.10

27.85 85.00

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

Where possible, cost-capacity factors derived from actual data were used in power sizing techniques to model variations in equipment investment and some xed and variable costs for different plant capacities and mesh-size capabilities. The power sizing technique assumes that cost (C) varies as some power of change in size or capacity (S). The power sizing equation is shown below where X is a cost-capacity factor. CA /CB = (SA /SB )X Some examples of estimation equations for energy and labor were Energy consumptionPTE (kW h/ton) = 97.91 Crumb size (inch)0.222 Energy consumptionTruck (kW h/ton) = 103.5 Crumb size (inch)0.211 Labor hoursPTE (h/ton) = 0.27 Crumb size (inch)0.0319 Labor hoursTruck (h/ton) = 0.28 Crumb size (inch)
0.0212

(2)

(3) (4) (5) (6)

For the baseline scenario, a production ramp-up of three years was assumed to gain process familiarity and obtain market share. The quantity of scrap tires in the rst year is assumed to be 12,000 tons with arithmetic growth to plant capacity (15,000 tons) by the end of Year 3. The nominal process consists of two shifts; one for passenger tires and the other for truck tires. Roughly 16% of the number of scrap tires generated in the U.S. are truck tires (average 100 lbs each) and 84% are passenger tires (average 20 lbs each). The baseline scenario assumes incoming tonnage is 50% from passenger tires and 50% from truck tires. The minimum attractive rate of return (MARR) is assumed to be 10% (including ination) while the marginal tax rate is 45%. The study period is 10 years. A simplied 10-year straight-line depreciation is assumed for the plant equipment and rolling stock investments, with zero salvage value. This seems a reasonable assumption, but it should be noted that possible legislation that would allow accelerated depreciation or tax credits for certain types of recycling projects could potentially have a signicant impact on short-term liquidity. Only equity nancing is assumed as is typical for this type of preliminary feasibility analysis. Other considerations such as zoning regulations and permits, state regulations, worker safety, and environmental regulations are not addressed. The nominal scrap facility is assumed to be located in the U.S. Mid-Atlantic region, and the dened market area and sources of scrap tires for the nominal facility is the Atlantic seaboard (Table 2). Other equations to calculate revenues and costs are described in Table 3. Revenues for the scrap tire recycling facility come from two sources: (1) tipping fees; and (2) product revenues, which include: (a) sales of recycled crumb rubber; (b) sales of scrap metals; (c) sales of scrap ber. One uncertainty factor for product revenues is the price of scrap metal and ber. When market prices for scrap steel or ber drop to zero (as in the baseline scenario), disposal costs must be assumed. The selling prices of crumb rubber from truck tires (black crumb) are assumed in the baseline to be higher than those from passenger car tires (because of black with white speckles) by 20%, consistent with some of the crumb producers interviewed. The baseline prices of scrap metals, bers, tipping fees, and crumb products and the percentage of scrap tire delivered and processed to various products are shown in Table 2. The baseline price escalation assumption reected the perception in

Table 2 Baseline prices and quantity information for all scrap tire products Revenue types Tipping fees: PTE Tipping fees: truck Scrap metal Scrap ber 1/4 crumb: PTE 10 mesh crumb: PTE 20 mesh crumb: PTE 30 mesh crumb: PTE 40 mesh crumb: PTE 80 mesh crumb: PTE All size crumbs: Truck Source: RRI (2002). Prices in yr 0 ($/ton) 115.55 155.78 0 0 221 227 267 310 358 420 Higher than PTEs 20% Quantity 600 000750 000 car tires 120 000150 000 truck tires See Fig. 6 See Fig. 6 See Fig. 6 X = 9% See Fig. 6, Y = 64%, A = 33% See Fig. 6, Y = 64%, B = 33% See Fig. 6, Y = 64%, C = 33% See Fig. 6, Z = 27%, D = 80% See Fig. 6, Z = 27%, E = 20% Same as PTE

Table 3 Revenue and expense equations Revenues/Expenses Disposal costs ($/year) Electricity price1 ($/year) Maintenance expenses1 ($/year) Packaging expenses ($/year) Quantity of scrap tires (tons/year) Operating labor costs1 ($/year) Operating labor expenses1 ($/ton) Output revenues ($/year) Tipping fee revenues ($/year) Transportation costs ($/year) Variable overhead costs1 ($/year) Variable overhead expense1 ($/ton) Equations (Disposal fees ($/ton) Waste (ton)) +IF the prices of materialij 0 ( (Disposal fees ($/ton) Materialij (ton)) Electricity price ($/kW h) (Crumb productij (ton) Energy consumption2 (kW h/ton)) ij Maintenance costs ($/ton) Qin (tons/year) Packaging costs ($/ton) Crumb productj (ton) For Year 1: Qrst = Quantity of scrap tires in rst year = 12,000, For Year 210: Arithmetic growth G = (Qmax Qrst ) 2 thru Year 3 (Crumb productij (ton) Operating labor expenseij ($/ton)) Total variable labor costs ($/h) Labor hours3 (h/ton) Labor ij availability (%) (Price of materialij ($/ton) Scrap tire delivered and processed into the materialij (%) Scrap tire deliveredi (%) Qin (tons/year)) (Scrap tire deliveredi (%) Qin (tons/year) Tipping feesi ($/ton)) Transportation cost ($/ton) Qin (tons/year) (Crumb productij (ton) Variable overhead expenseij ($/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 with mesh size and quantity; 2 = see Eq. (2) and 3; 3 = see Eqs. (4) and (5).

producer interviews that real prices would stay at (this was more optimistic than the slightly downward-trending real price projection that might be assumed from the historical data and is addressed in the alternate scenarios). The impact of quality variations was addressed in the scenario analysis. After processing, crumb rubber is assumed to be bagged in industry standard super sacks. The capacity of one super sack is 1 ton. The packaging costs include the unit price of a super sack and pallet. The baseline transportation cost is $8 a ton for an acquisition 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, assumes crumb prices and tipping fees both increase with 3% general ination. Equipment costs and yields used data cited from state-of-the-art suppliers. The analysis showed a protable facility with an internal rate of return (IRR) of 19% and positive NPV of about $3 million for the assumed 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 came from crumb rubber sales and 37% from tipping fees. For levelized costs over the 10-year period, variable costs were 62% (reecting their importance in protability); xed costs were 11%; and investment costs were 27%. Excluding amortized investment and nancing, the breakdown for combined xed and variable operating costs is shown in Figs. 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 in Fig. 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 price escalation 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 local differentials, 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 aspects 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 specic mesh size and price uctuations The 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 the baseline price assumptions, production and sales exclusively for one size of crumb particle would still result in protability 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 be protable). However, a 30-mesh facility, with its lower investment cost, would be protable under these larger-mesh-size demand scenarios. Also, smaller mesh sizes have historically seen a greater drop in real prices. Unless there is solid evidence of sustained markets for small size crumb demand, investment in a 30 mesh facility (as opposed to an 80-mesh facility) might appear to be a better choice. 6.1.2. Scrap tire availability High 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 transportation 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 four times 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 prices What if production yields are lower than the optimistic assessment of equipment manufacturers (60% instead of 69%) and prices for most mesh sizes decrease slightly in constant dollars, using time series forecasting based on historical patterns of the 19972001 years? In this scenario, the nominal facility would be unprotable, with an NPV of $1.7 million. 6.1.4. State-subsidized competitors Some 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 with overlapping 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 subsidy equivalent to $22.5 per ton. Assume that: (1) due to higher crumb supply in the territory, both the crumb prices and quantities sold are 5% lower than the base case values; and (2) due to higher competition to acquire the raw material, tipping fees and incoming scrap quantities are also 5% lower. In this scenario, the nominal facility (i.e. an unsubsidized plant) would see a decrease in NPV from $3 million to $0.94 million. 7. Conclusions Commercially sustainable facilities for processing crumb rubber from scrap tires require analysis of complex interactions between demand and production factors. Perceptions of pricing, quality, and mesh size requirements of end-user markets seem to vary considerably between processors, and in general there are few standards for this growing industry. In the past, state subsidies of processors have been tried by several states, but the results have been mixed at best, with some of these processors failing within a few years. Subsidy programs, if appropriate at all, would be best used to promote the growth of end-user markets, according to survey respondents and interviewees. While there are certainly opportunities for new-entrant competitors, there are considerable uncertainties which warrant careful analysis. Analysis methodologies should model the impact of mesh size on production cost, pricing, quality, and end-user markets. While the analysis of the nominal facility described above is based on a hypothetical and generalized case, it appears to support the perceptions of many industry participants contacted during the research. The underlying analysis methodology, though still crude, can perhaps provide a starting point for public and private ventures exploring this segment of the scrap tire recycling industry. Acknowledgements The authors wish to particularly thank H. Lanier (Lanny) Hickman, and the Hickman Internship Program of the Solid Waste Association of North America (SWANA); Gregorio

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

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