Burgeoning Bioplastics: Metabolix's Breakthrough

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 |  Includes: DOW, MBLX, MZDAF
by: Vincent Fernando, CFA

Despite my career in finance, in college I was studying biology in order to enter the Biotech industry, mainly due to Biotech's potential for manufacturing materials (rather than in regards to drugs). While I am confident that fields of plants commercially creating complete plastics will be a reality, we still have some time. Yet a more basic form of plant-based plastics, those made from vegetable products such as vegetable oil or corn starch, is starting to peek its head out. This bioplastics industry has increased its optimism lately since the technology is continuing to develop well, despite remaining challenges and false hopes in the past.

The polymer’s time may have come at last, as early performance problems have been addressed, and manufacturing has become more efficient.

One example is the possible introduction of plant-derived non-biodegradable that are said to be “functionally and chemically identical to their oil-derived counterparts”, such as Brazilian bio-propylene from sugarcane ethanol. Such materials would be able to fit into existing processing and recycling structures, EDS notes.

Another is a polylactic acid (PLA) product from Natureworks in the US, which launched new fermentation technology in 2008 that significantly reduces carbon emissions in line with those of recycled polyethylene terephthalate (rPET). Moreover its lower density is said to mean less material is needed for the same strength product.

Major hurdles include risk of consumer backlash due to issues such as the risk for food price inflation, similar to what happened with Ethanol. Yet with some in the industry expecting cost to be competitive by 2015, one could imagine that premium products could use bioplastics packaging as an eco-friendly selling point as long as the production process is able to avoid the perception that it inflates food prices substantially.

While food price inflation might be a short term risk, due to agricultural supply misjudging demand from this nascent industry one day in the future, it seems there should be enough environmental credentials for bioplastics to command a social-responsibility premium from products which use it. For example, it appears that at least some varieties are compostable.

Well in any case, Mazda (OTCPK:MZDAF) seems to be on board to some degree, given plans to create a car using some bioplastics by 2013, and Dow Chemical (NYSE:DOW) will have a Brazilian bioplastics facility by 2011.

Being an investment-related site, I'll also note that there's a small US-listed $160m bioplastics player called Metabolix (NASDAQ:MBLX). They recently announced a breakthrough producing biodegradable plastic, in switchgrass. So perhaps my dream will come true sooner than expected. It appears to even have half its market cap in net cash, though it probably will need it as the company might not be profitable for a few years. I'm just throwing the reference out there, haven't looked at it yet properly.

Disclosure: No direct exposure to the stocks mentioned.