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There is a growing consensus to develop alternatives for plastics, in order to alleviate our dependency on fossil fuels and decrease our ecological footprint. If we can manufacture plastics from non-petroleum feedstock we will cut our dependency on oil and decrease our production of waste streams in one fell swoop. This is easier said than done; with current petroleum prices this is certainly not an effortless economical endeavor. However, with on-going research and potentially higher feedstock prices, the dynamics of this pendulum could shift.

Enter Metabolix Inc. (NASDAQ:MBLX), a freshly IPO'ed biotechnology company developing alternatives to petrochemical-based plastics. In the 1980s, Metabolix's founders Oliver Peoples and Anthony Sinskey demonstrated an enzyme's ability to integrate into microscopic biofactories capable of manufacturing useful polymers such as Polyhydroxyalkanoatesas.

PHA, as they are commonly referred to are "linear polyesters produced in nature by bacterial fermentation of sugar and lipids." In a controlled environment these biofactories, through photosynthesis, combine carbon dioxide,water and sunlight to create a biodegradable, renewable alternative to petro-plastic. The potential adaptations for this technology are indeed vast. Their use could range from disposable eating utensils to orthopedic sutures and fasteners.

In 2007, Metabolix received attention after they re-announced a 50-50 joined venture to build the world's first plastic biorefinery in Clinton, Iowa. The venture, under the name Telles after the Roman goddess of the earth, is scheduled for completion in the 3rd or 4th quarter of 2008 and targeted to produce 110 million pounds of plastic resin per year. Telles plans on distributing the resin for $1.50/pound, which compares to 70 cents on the dollar for traditional plastic.

While these prices reflect a cost bias in favor of traditional plastics, the company believes customers striving for a greener persona will pay the premium. Additionally, "analysts at Jefferies & Co. see Metabolix carving out a niche in the market for disposable plastics, which is roughly 20% of the entire plastics market."Where there is a need there is a way, and Metabolix is not alone in its undertaking to alter plastic consumption habits. Companies such as DuPont (NYSE:DD), BASF (OTCQX:BASFY), and agricultural giant Cargill are all in the process of developing bio-based plastic resins.

Most interestingly however, are the developments at a microcap company, by the name of Cereplast Inc.[CERP.OB].Cereplast was founded in 2001 and is engaged in the development and commercialization of bio-based resins in the United States, Europe, and Asia. Earlier this month, the company reported record revenues of $1.6 million, a 258% increase year over year. The company attributed this predominantly to the commercial launch of Cereplast Compostables.

While these earnings are encouraging, the company is still in the red and continues to issue shares as a means to finance operations. Total outstanding shares for the third quarter were 258.2 compared to 200.4 million during 2006.Cereplast's line-up consists of two proprietary products: Cereplast Compostables and Cereplast Hybrid Resins. The Compostables are slightly self-explanatory. They consist of certifiable, biodegradable plastic alternatives derived from starch-based feedstock such as potatoes, corn and wheat. The Hybrid resin is identical, except they are a neatly package 50-50 mixture of starches and petroleum.

Unlike the Compostables, the Hybrids do not meet biodegradable and compostable standards in the United States and Europe. However, according to the company’s website, they are "cost competitive with traditional petroleum-based plastic resins."The company seems to be poised for growth and has the approval by several industry leaders, including a notable, multi-year supply contract with Alcoa-Kama, a subsidiary of Alcoa (NYSE:AA). Furthermore, the company claims that more than "65 prospective customers are evaluating more than 100 different potential product applications" for both the Hybrid and Compostable bioresins.

Both Metabolix and Cereplast could prove to be speculative companies worth watching in the wake of 90-dollar oil. Furthermore, with the U.S. consuming 7.5 billion barrels of oil a year and about 254 million barrels dedicated to plastics and chemical production it could prove wise to protect our planet and pocketbooks by developing these increasingly cost effective, biodegradable alternatives.

Source: Metabolix: Profitable Plastic Production