For Dennis McGrew, chief executive of NatureWorks, the high price of crude oil and natural gas is not unwelcome news.
NatureWorks, formerly Cargill Dow, produces a plastic made from plant stalk, not fossil fuel. McGrew, a former plastics executive at Dow Chemical, says that as prices for fossil fuels soar and as the environment becomes an ever larger concern, ecofriendly plastics are becoming increasingly competitive, though they still remain a niche market.
That bioplastics are trending upward is clear. In the past month, a number of large chemical concerns have increased their commitment to market segment, including Braskem, the largest Brazilian petrochemical group, and Dow Chemical. In September, Plantic Technologies of Australia announced that DuPont would market its starch-based resins and sheet plastics in North America, a new market for a company previously limited to selling in Europe and Australia.
Investors looking for an early upside in this emerging market have their work cut out for them, as the near-term profit potential is uncertain.
"I think what you are seeing is a more pull-driven event, where a lot of different companies in materials and packaging are looking to green up their own operations using alternatives to hydrocarbon plastic materials - hence the pull on the Dows and DuPonts of the world," said Ben Johnson, lead chemistry industry analyst for Morningstar, the equity research company.
Robert von Goeben exemplifies that market pull. Early next year, von Goeben, who went from the world of venture capitalism to become a toymaker in San Francisco, is scheduled to launch Green Toys, a line of plastic toys including a 17-piece tea set that would sell for upwards of $20, made from bio-based renewable plastics.
Though he admits that bioplastics are a "challenging technology" in that their quality is not always consistent, von Goeben sees a pull in the consumer market for plastic goods, toys included, that do not wreak havoc on the environment. He said his risks were reduced because he was able to step into an established product category.
"We don't have to convince people to buy a tea set," he said. "When you can apply new technology to existing demand - or in our business, an existing play pattern - that's where you have a win."
To date, Johnson at Morningstar said he had found no conclusive evidence in the financial data of the companies he tracked to suggest that bioplastics was making or losing them money. "In terms of scale, this is not a very large commercial activity for the chemical companies," he said.
For newly public bioplastic companies like Cereplast of the United States, which will supply von Goeben, the stakes are much higher. Cereplast and Plantic, both of which went public in the past 12 months and sell biodegradable starch-based resins, have no choice but to run headlong into the market.
It is a tall order. As Johnson noted, there are currently a lot of "little niches" within the bioplastics arena filled with companies pushing intermediary polymer products that "are the same in spirit and may even be derived from the same source."
Potential investors will want to familiarize themselves with the competing technologies as well as their environmental impact. Despite what the marketers imply, bioplastics are not an environmental panacea.
While bioplastics afford the opportunity for less dependence on fossil fuels and sometimes lower emissions of carbon dioxide, they typically need exposure to some form of industrial composting to degrade.
Steve Mojo, founder of Biodegradable Products Institute, a New York-based company that promotes the use and recycling of biodegradable polymeric materials through composting, pointed out that a cup made from cornstarch acts no differently than one made from petroleum when buried beneath the surface of a landfill: Without air and heat, it stays intact.
To the investor eager to own stakes in companies making plastics that are compostable as well as petroleum-free, Mojo suggested digging into company information. The American Society for Testing and Materials Specifications has been approving bioplastic products for composting in the U.S. market since 1999.
When oil prices hit $40 a barrel, NatureWorks found that its pricing could be competitive with polyethylene terephthalate plastics. Its polymers remain 10 percent to 15 percent more expensive than polystyrene or polyvinyl chloride plastics, according to a company spokeswoman, Mary Rosenthal. NatureWorks contends that its polymers take 68 percent less fuel to produce than conventional plastics.
NatureWorks, which has expanded its production capacity 35 times since 1999, is on track to generate more than 150,000 tons of its polymers by the end of this year, the bulk of which would be spread across some 45,000 retail shelves worldwide, from Marks & Spencer in England to E-Mart in South Korea.
Sony is using polymers by NatureWorks for Walkman casings; Wal-Mart uses them to produce packaging worldwide. The French retailer Carrefour sells nonwoven commercial products using its corn-based polymer fibers.
The Japanese chemical company Teijin bought a 50 percent stake last month in NatureWorks, McGrew said, with the express intent of expanding its global production capacities.
Based on developments like these and data collected from its 75 members, the 14-year-old trade group European Bioplastics recently projected that annual bioplastic production capacity - biodegradable as well as non-biodegradable - would more than triple to 1.5 million tons in 2011. By comparison, in 2006 the U.S. plastics industry produced an estimated 57 million tons of conventional plastic resins like polystyrene and polyethylene, according to the American Chemistry Council.
Reference:Hearld Tribune International - www.iht.com
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