Do you remember the scene in the classic 1967 movie The Graduate when Dustin Hoffman is advised that the best opportunity for the future is in "plastics"? Well, today, the future looks even brighter -- but for a new generation of green chemical additives that make poly vinyl choride (PVC) more bio-based and fully biodegradable.
PVC is widely used in construction -- roofing, flooring and electrical cable insulation materials. But, PVC is also used in electronics, clothing and upholstery as well as for inflatable toys and pools. Interestingly, 50% of the world's PVC resin manufactured annually is used for producing pipes for industrial applications.
Thus, this is massive market -- to say the least.
2.5 Million Bottles Thrown Away per Hour
The problem is that regular, petroleum-based plastic don't biodegrade, and can be toxic when burned. People often lose their lives in a fire not because of the smoke but the toxic fumes of their plumbing. The biomass race has been on to find the optimal plant-based plastics. Finding the winning formula has led to a number of new companies that could also solve the problems of plastic bags choking our oceans and plastic water bottles our landfills. People in the US now collectively throw away 2.5 million plastic bottles every hour!
The specialty chemicals addressable market for green chemical additives to reduce phenols and other toxicity is $70 billion. From the soles of sports running shoes to "greening up" cleaning products, there's a $300 billion potential market out there-and growing.
Of course, most environmentalists are in favor of bioplastics regardless of price fluctuations in petroleum. The manufacturing process for bioplastics produces fewer greenhouse-gas emissions than that for petroleum-based plastics, and the biomaterials don't contain an allegedly hormone-disrupting chemical, bisphenol A (BPA), that some regular plastics do.
Why Metabolix Could Benefit
There are promising new varieties of bioplastics: proprietary platform technologies for producing plastics, chemicals and energy from crops such as switchgrass, oilseeds and sugarcane are just a few of many.
These new plastics provide a very attractive alternative to traditional, oil-based plastics -- especially today. Starting in 2006, the perfect storm hit; creating mass interest in going green that hasn't been seen since the 1970's. High energy prices have now combined with the world waking up to the realization that the emerging markets are creating an environmental disaster as their development also has brought global pollution and toxins in ever-increasing levels. In 2008, the price of oil spiked to $140 a barrel -- that was the straw that broke the camel's back.
Although it's not just corn-based additives that are being considered, companies like Metabolix (MBLX) are testing switchgrass programs that are still in development stages, having only been grown under greenhouse conditions. However, proof-of-concept bioplastic was made from plants composed of up to 3.7% polyhydroxalkanoates (PHA) molecules. PHAs are renewable, plastic-like molecules. Metabolix's commercial target is to use about 7.5% of the switchgrass plant in making bioplastic and to recycle the remaining plant matter into biofuel.
B2B Companies Could Also Benefit
There's also a question of the B2B companies that might benefit from the products that companies like Metabolix have to offer. What choices will they make when it comes to making their plastics green and biodegradable? Generally, we are seeing a shift in focus to newer and more advanced technologies -- there are many options in this space. Metabolix's plastic is a good example, one of many evolving products in the so-called "clean-" and "green-tech" spaces. And biomass, for example -- lignin, that is gleaned from wood waste from sawmills, or forestry -- is quickly becoming a rising star in the constellation of green options.
Take, for example, Toronto-based Vertichem. Currently a private company with large institutional investors behind it, the company aims to take now-valueless waste streams from the forestry industry and use them to create green alternatives for the specialty chemicals market -- biochem being a primary application. Vertichem owns two exclusive U.S.-based patents that cover the conversion process for this technology, which is able to offer specialty chemical companies renewable alternatives to petroleum-based additives for chemicals and consumer goods. By example, Vertichem is one strong contender in leading the charge of the green movement's next big push. In fact, one of the largest global consumer package good companies is ready to test the lignin additive in its household cleaning product.
It's companies like these that are making up the new generation of companies in the burgeoning bio-plastics space.
Nevertheless, identifying the next big idea in the green space -- whether it's biomass or bioplastics -- is proving increasingly complex as our society continues to develop an ever-increasing demand for what is clean and green. Stay tuned because we are about to see a new subsector of cleantech -- bioplastics -- grow into a formidable powerhouse of revenue and profitability.
Hilary's target price on Metabolix MBLX: $18.00 within the next 12 months.