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A National Approach to Waste Tyres

Commonwealth Department of Environment, 2001

3 The Tyre Industry

This section provides an overview of the tyre industry in Australia. The emphasis is on those sectors of the industry that deal directly with waste tyres but, in order to obtain the full picture for the purposes of this study, it is necessary also to consider connections to other parts of the industry.

A key consideration in evaluating opportunities for improvements in the way that waste tyres are managed is the effectiveness of market factors to bring about desired outcomes. This involves an understanding of the nature of the tyre industry and, through this, how the various markets and sub-markets operate. Such an assessment forms the starting point for certain options for government action.

The characteristics of the tyre industry that are considered to be of importance for this study relate to the distribution in size of the entities within each sector (or sub-sector) of the industry and the types of linkages between entities both within a sector and across sectors.

Table 3.1 contains a summary of the number of business entities within each sector by State and Territory.

3.1 Tyre industry associations

The consultancy team is aware of the following tyre industry associations:

There is a wide range in the resources available to individual associations and a consequent variation in the level of activities that they undertake in regard to waste tyres.

3.2 Relationship with other industry sectors

The most direct links between the tyre industry and the rest of the economy are with the automotive industry, and in particular vehicle manufacturers. It is the vehicle manufacturers who specify the sizes of tyres fitted to new vehicles. Tyre manufacturers, as well as tyre importers, are forced to gear their production to meet the demand for tyres fitted to new vehicles (estimated at 4.5 million tyres per year, approximately 25% of the total number of new tyres). The new vehicle market also determines the dimensions of tyres subsequently fitted as replacements.

Thus it is the vehicle manufacturers and importers who hold the dominant power in determining the broad characteristics of tyres in use, and the tyre industry has limited say in these decisions. Decisions by vehicle manufacturers here and overseas on tyre design are likely to be driven by vehicle design considerations, rather than life cycle matters.

Table 3.1 Summary of the tyre industry (estimate)a



ACT NSW NT Qld SA Tas Vic WA Total
Manufacturers
- - - - 1 - 1 - 2
Importers








70b
Retailers

900





3,200
Collectors Large
Other
Total
-
3
3


28c


1
3
20
23
9

9
1

1

2

2


70
Shredders


-
4 -
1
Retreaders Passenger
Truck
Total


3


50
-
3
3


3


7
1
2
3


4


2


75
Reprocessors Rubber crumb - 3 - 2 1 - 2 - 8

Civil engineering - 2 - 1
-
- 2
Energy
- - - 1 - - 1 - 2

Notes:

(a) Blank cells indicate no information; ‘–’ indicates zero facilities
(b) of the 70 or more importers, 13 importers account for in excess of 90% of all tyres
(c) Also approximately an additional 200 who are licensed to transport hazardous materials and tyres.

Source: Consultation with Government agencies and industry representatives

3.3 Tyre manufacturers

Of all the sectors or sub-sectors in the tyre industry, only in regard to manufacturers in Australia is it possible to be confident as to the precise number of firms. Southern Pacific Tyres (SPT) has plants in Victoria and Bridgestone Australia Limited has a plant in South Australia.

3.4 Tyre importers

In total there are estimated to be 70 tyre importers. The thirteen largest tyre importers command in aggregate an estimated 90% of the tyre import market. The largest importers are the two local tyre manufacturers.

As with the manufacturers, the activities of the major importers are national in scope.

3.5 Tyre dealers and retailers

For the great majority of passenger vehicle tyres, and for many truck tyres as well, the tyre dealer is the point in the tyre chain where a tyre becomes ‘waste’. Most of the time, the tyre dealer arranges for the collection of the tyres that have been replaced. The dealer therefore occupies a critical point in the flow of waste tyres, and controls on the arrangements between dealers and collectors can have a major influence on the level of illegal dumping.

There is a large number of tyre distribution outlets in Australia. In 1993, just under half of the outlets were independently owned and a further quarter were members of tyre manufacturer retail chains. The remainder were distributed over a variety of ownership types including manufacturer supported stores, franchised outlets, buying groups and independent retail chains3.

3.6 Collectors/transporters

The tyre collection sector is dominated by a small number of large players, notably Tyrecycle which operates in four States. At the other end of the size distribution, there is a considerable number of small collection and transport operations, particularly in NSW.

Collection of waste tyres is an activity which commercially has low barriers to entry. There is consistent anecdotal evidence that many of the smaller collectors operate on very slim margins, and their continued commercial viability is vulnerable to even relatively minor events. The resulting uncertainty in service provision (and high turnover in business entities) introduces considerable volatility into the waste tyre collection business. When their usual collector is not operating, dealers need to make, as a matter of some urgency, alternative arrangements for getting rid of waste tyres. This can lead to an increase in the use of unsuitable collectors.

Members of an industry with little cohesion and slender margins are also more likely to be tempted by the possibility of increasing profits by illegal practices. For example, ‘fly by night’ operators are reported to collect tyres for opportune purposes such as back loading without proper options for disposal. There have also been a number of well-publicised incidents involving operators who were not able to realise their stated objectives of finding suitable uses or disposal paths for the tyres that they collect. The subsequent business failure leaves the general community with the problems and costs associated with managing warehouses full of tyres or large external stockpiles.

At the other end of the initial transport leg for waste tyres is the receiving facility. In the case of certain reprocessing applications and tyre-derived fuel, the receiving facility is likely to have invested substantial funds. Such facilities need a reliable supply of tyres to meet their operational needs and for their continued commercial viability as well as making an adequate return on the owner’s investment. The basic requirements for an orderly market are problematic under current arrangements. To ensure supplies of the energy feedstock, Queensland Cement Limited, through its wholly owned subsidiary Geocycle, administers the collection and delivery of tyres to its Gladstone cement kilns, subcontracting the physical collection to local operators. In the north Queensland region, Geocycle has entered agreements with local councils, who operate landfills, to set the landfill gate fee for waste tyres at a level that allows Geocycle to charge a fee for accepting tyres high enough to make the waste to energy process commercially viable.

3.7 Retreaders

The retreading sector should in fact be regarded as two separate sub-sectors: retreading of passenger vehicle tyres (including tyres from light trucks) and retreading of heavy vehicle tyres. For reasons that are discussed in more detail elsewhere in this report, truck tyres are a much more attractive proposition to retread than are passenger vehicle tyres.

It is known that retreading is common in the aviation industry but this study has not been able to collect any information for Australia.

The Independent Retreaders Association reports that they represent 30 independent retreaders with coverage of a reported 90% of all passenger vehicle retreads and 10% of all truck retreads. The large multinationals, and in particular the two Australian tyre manufacturers, account for a substantial proportion of the retreading of large truck tyres. In some of the States and Territories with smaller populations there is no retreading of passenger vehicle tyres, though casings suitable for retreading are transported to larger centres in other States.

Closely linked to retreaders are the casings dealers. Casings dealers operate in the collection/transport sub-sector. While the number of casings dealers is unknown, it is understood that in both NSW and Queensland the market is dominated by one enterprise by means of agreements with major tyre retail chains. However, tyre casings are also separated from other waste tyres by collectors (or in some cases by the waste generator), and supplied directly to retreaders.

3.8 Reprocessors

Within the definition of waste tyre reprocessors one could include shredders. While shredding is as much a materials handling activity as it is ‘reprocessing’, in terms of the industry groupings it fits more easily with reprocessors who operate dedicated equipment, than with the collection and transport phase (where many operators own only a truck).

The next stage is the production of rubber crumb. Since this is a capital intensive activity there is only a small number of plants, and these are located in the more populous States where large numbers of waste tyres are generated as feedstock. The rubber crumb is then made into other products such as mats or used in basketball courts. It has not been possible to ascertain how many such downstream manufacturing operations exist in Australia.

Rubber crumb is also mixed with bitumen and sprayed onto roads. NSW and Victoria are making substantial use of this technology, and it is also under consideration in other States. Waste tyres also have application in civil engineering structures such as retaining walls.

3.9 Tyre derived fuel

The two Australian operations for burning tyres as fuel are both in the cement industry. In Victoria, Blue Circle Southern Cement has used waste tyres as fuel for their cement kilns near Geelong since 1993. Queensland Cement has commenced operations in Gladstone, Queensland and is expected, according to the Queensland Waste Tyre Strategy, to dramatically increase their use of waste tyres in the near future. It is understood that the cement industry in other States (notably NSW and South Australia) is keen to investigate further the use of waste tyres for fuel.

3.10 Discussion

In industry analysis and the evaluation of the effectiveness of markets, the factor of prime importance is the level of competition. There is broad-based agreement on the benefits that effective competition can generate for consumers and the economy in general, and major national reforms have been undertaken in this area.

There is no evidence that the tyre industry as a whole suffers from low levels of competition and the indications in fact suggest the opposite. While there are only two tyre manufacturers operating in Australia, strong competition from tyre imports prevents the formation of a duopoly in relation to the market for new tyres. Also, while the tyre industry has both horizontal integration (for example, dealer chains) and vertical integration (manufacturers are also importers, dealers and retreaders), it is not clear how these factors might affect the management of waste tyres.

A characteristic of the collection/transport sector is the existence of a relatively small number of business entities that control a significant volume of activity in this sector, offset by a large number of small operators. While it is true that the small operators ensure a certain level of competition, this structure may be considered to be far from ideal in view of the pivotal role of the collection function. The small operators in the past have been able to escape controls and accordingly face reduced incentives to observe good practice. At the delivery end there are further downside effects of untrammelled competition in relation to reliability of supply to meet the needs of recycling facilities.

Special note should be made of the arrangements made by the cement manufacturers to provide security of supply for tyres to be burnt in the cement kilns. In Victoria, Blue Circle Southern Cement has contracted Tyrecycle to deliver a minimum number of tyres each year. In Queensland, the cement manufacturer directly controls the supply of tyres for fuel as recent increases in gate fees at landfills now allow the cement kiln to be competitive. The consequence of these arrangements is that a significant proportion (currently over 50% in the case of Victoria) of the waste tyres generated in each of these two States are now reserved for use in one application. Since the supply of waste tyres generated in Australia is largely fixed, this means that emerging uses needing large numbers of waste tyres may face restrictions on access to the resource.

There are also close links between major industry players, such as in the case of Tyrecycle, the largest waste tyre collector in Australia sharing common ownership with Encore Rubber, which produce rubber crumb. Such vertical integration at the collection end of the waste tyre chain may be of little importance at the moment, but leaves the industry vulnerable to anti-competitive activities if the demand for waste tyres approaches the level of supply.

Finally, the end-users of waste tyres (including processors, retreaders and tyre derived fuel facilities) are currently in a most dynamic situation and it can be expected that there will be significant developments in regard to individual firms and the overall structure of this sector in the short to medium term. Ideally, these developments will result in a strong and diverse market for waste tyres representing a sufficiently large number of entities selling their products into a variety of end-markets so that fluctuations would be evened out.


3 Stanton and Blyth (1995).