Tuesday, January 15, 2008

One Man's Garbage

Landfills are bulging not only with abandoned electronic gadgetry, but with water and food containers. Those of us who live in developed economies are on the move and we eat as we go, buying food at a deli or fast food restaurant. Each item is packaged in a separate container and then deposited usually in a plastic shopping bag.

The Sustainable Packaging Coalition, an industry working group promoting eco-friendly packaging, is a good resource for the facts. Municipal waste, which is where all those deli boxes and grocery bags end up, has more than tripled in the last forty years - well above population growth. One comforting data point - recycling has increased in the U.S. from 10% in 1980 to 30% since the turn of the century.

Polyethylene, a thermoplastic polymer used in everything from plastic bags to electronics products to automotive components, is a big part of the landfill waste. It is popular because it is flexible, durable and has a melting point of 320 degrees Fahrenheit. Unfortunately, all these characteristics make it a Bad Boy in the landfill.

As the saying goes - “one man’s garbage, is another man’s treasure.” There is a business in all that yucky stuff. Hence, we have seen a rise in recyclers.

What about biodegradable substitutes? It seems economically sensible to eliminate the recycling step, but using packaging that breaks down very quickly after it has been used.

Univenture, Inc. in Marysville, Ohio provided the packaging for Al Gore’s movie, “An Inconvenient Truth.” Univenture has developed products using films from polylactic acid and biodegradeable polypropylene. The problem is most these materials are made with corn resin - a resource that requires a significant petroleum inputs and has a number of competing uses. It only takes one look at the corn price chart for 2007 to understand why corn-based products of any kind can be priced out of the market. I would rather eat corn in a muffin than have a my bagel wrapped in a “corn” bag!

The sugarcane biomass called bagasse is a more intelligent alternative to corn. Boulder, Colorado-based Eco-Products, Inc. sells a variety of packaging products for the restaurant and grocery industries. Its product line uses both corn and bagasse resins and includes compostable beverage cups (hot and cold), plates, utensils, and grocery bags, among other typical items. The items have a 45 day to 60 day breakdown rate.

Both these upstarts are private companies and the province of only qualified individual and institutional investors. To make a play on the move to recyclable packaging must turn to the more progressive of the large chemical companies. Dupont (DD: NYSE) is working on biodegradeable packaging with Australia-based Plantic (PLNT: LON). Cargill’s NatureWorks in Minnesota claims to be the largest producer of corn-based polylactic acid (PLA).

Plantic is probably the closest thing to a pure play in bioplastics. Although sales volume increased by 90% in the first half of 2007, Plantic is still operating a significant loss. We are also concerned about their reliance on corn as the resin source. Nonetheless, Plantic appears to be a leader in an investment theme that is likely to gain in prominence.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

1 comment:

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