Calif.-based bioplastic producer Cereplast Inc. has announced a three-year distribution agreement with GAMA Plastik AS to supply bioplastic resin in Turkey. According to information released by the company, GAMA Plastik plans to purchase 200 metric tons a month of the biobased resin next year, with a significant purchasing increase in 2013. Cereplast anticipates generating revenue from the agreement within the next 90 days.

Nicole Cardi, Cereplast’s vice president of marketing and communications, said GAMA Plastik will be purchasing bioplastic resin from both Cereplast’s compostable and sustainable lines of materials. The ability to purchase both types of materials from Cereplast was very important to the customer, Cardi said. GAMA Plastik, a leading plastic trader located in Istanbul will use the biobased resins to produce films and injection molded products.

According to Cardi, the resin material to fulfill GAMA Plastik’s orders will initially be produced at its Indiana factory. Cereplast is also working to develop a factory in Europe. “We have secured the financing and started to do the work to open a factory in Italy,” Cardi said. That facility is expected to be operational by late 2012. Once the new production facility comes online, Cardi said it will likely be used to fulfill orders coming out of Europe.

“Over the last 15 years we have developed industry expertise and a knowledgeable customer base regarding sustainable plastic raw materials,” said Aydemir Esencan, CEO of Gama Plastics Group. “We are very excited to start this partnership with Cereplast and all our customers are ready to use our products containing Cereplast’s raw material. Turkey has a young and dynamic population and market strength in Europe. Cereplast’s name and quality in compostable and sustainable bioplastics will help both companies increase their market share.”

Cardi noted that the majority of current demand for Cereplast’s products comes from the European market. Legislative initiatives, such as those banning plastic bags, as well as an extensive composting infrastructure, have helped drive that demand, she said. “There definitely is a lot of awareness and demand for bioplastic resins in Europe, and it’s growing exponentially,” Cardi added. “We expect to continue to see that type of growth, and hopefully the U.S. will catch up.”

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Image Credit: Biorefining Magazine.

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Horizon European Petrochemicals Outlook

Calling Time on Plastic Bags in Europe

As countries ban them or incentivize users to seek other options, Nandita Lal talks to Frederic Scheer, CEO of US-based Cereplast, about the impact of the phase-out and the alternatives

As of January 1, 2011, Italy banned the use of non-biodegradable plastic bags, going further than many other EU countries which have been looking at ways of reducing the proliferation of the ubiquitous item. The most common type of plastic bags are made from high density or low density polyethylene, both of which are oil-based plastics or petroplastics. HDPE “singlet” bags are the thinner type used by over 80% of retailers; LDPE bags are the much thicker version used by boutiques and department stores. Following the plastic bag ban, local converters are seeking environment-friendly alternatives to comply with the legislation. One of the solutions has been biodegradable bioplastics.

According to Cereplast CEO Frederic Scheer, “The current demand for bioplastics in Europe is growing exponentially. The growth of the bioplastics market is really not affected at all by what is going on in the financial markets around the world, especially in what I call the ‘compostable bioplastics’, where we have seen growth beyond belief.”

He says one of the major problems the bioplastics industry in Europe is facing is production capacity. “When you look at the different regulations passed in various countries, you can see a correlation between the legislation and the demand for bioplastics. One of the most recent ones has been the one in Italy, which calls for a ban on polyethylene film carrier bags. This has caused a very large demand for alternatives and bioplastics is part of the alternative.”

Now, Scheer says, if you look at the Italian market with respect to blown film, it is a 250,000 mt/year market, and if you look at the companies ready to provide plastic alternatives, there are very few of them. Stores in Italy use around 20-24 billion plastic bags each year, a fifth of the total plastic bags consumed across Europe. The average price of one ton of bioplastics is between $3,500 and $4,000/mt, which is the equivalent of a potential $1billion plus bioplastics market in Italy.

“There are three big companies – Novamont, Biome and Cereplast. And the three of us together cannot entirely fulfill the needs of the market. Collectively, we have a share of 100,000-120,000 mt/year of capacity and we are all running at full capacity. The challenge is to build out additional capacity. Currently, the only way to fully meet the demand for bioplastic resin in the European market is to import product.”

And regulation continues to evolve and increase. “In Europe, I anticipate that new regulation in various countries will go way beyond PE blown film,” says Scheer. “Legislation that mandates the use of bioplastics blown film for shopping bags and trash bags is just the tip of the iceberg. I anticipate that bioplastics will enter the market for flexible and rigid packaging. At the same time, we also see developments in India, Brazil and even in the African continent.”

Europe is a region of importance to Cereplast. “Being present in Europe is critical for us. It is a burgeoning market and we want to be close to our client base. We believe that the capacity at our Italian plant will be able to serve the explosive European demand.”

But will it be possible to replace petro- plastic bags with bioplastics bags in Europe?

“The very blunt answer is no, it is not achievable. Let’s try to be very honest about it. Not only is not achievable, but we have toaskifitmakessensetodoso.Itisnot achievable today because we do not have the production capacity. We may develop it over a number of years, but we don’t have it right now. Then production facilities will come up not only by us but others too.”

“The second thing is does it makes sense to change traditional polyethylene bags to compostable bags? If it does make sense, do you have an infrastructure in place to accept those bags? For Italy, for instance, it does make a lot of sense because they have an established composting infrastructure in place. It also works in Germany. In the UK, however, you don’t have a composting infrastructure, and in France it’s only partial.”

Using compostable shopping bags in a country where you have a composting infrastructure so people can use the bag from supermarket to their home and then transform their bag into a trash bag for their organic material, and then that bag ends up in a composting site, makes plenty of sense. If you have no way of composting those products, and if those bags end up in a landfill, then it is a waste of resources.”

It’s also expensive. As Scheer says, the costs of bioplastics bags are substantially higher than the traditional HDPE and LDPE bags. So from a financial angle it makes no sense to use them if you don’t have a composting infrastructure.

“If they are composted, then it saves money when you look at all of the factors involved. Yes, the cost of the resin is more expensive: HDPE is probably half of the price of bioplastics resin, which costs $3,500- 4,000/mt. But, on the flip side, the cost of cleaning up litter consisting of traditional LDPE and HDPE is substantially higher.”

“What I see moving forward is that, in contrast to the United States, Europe has been spending a lot of money on composting and a bio-solid infrastructure which is clearly opening the market for bioplastics, substantially so. In the US, we have that on the West Coast and in New England, but in middle America, there is no composting infrastructure in place.”

Another challenge is the question of feedstocks. In Scheer’s view, we will see the price of bioplastics going down over the years as a result of economies of scale. And, “Slowly but surely, the type of feedstock we are using for bioplastics will change. Bioplastic companies are small companies compared to the chemical companies. But the reality is when we start to become a large industry, if we do not move away from food crop-related feedstocks, we will end up in way that ethanol did a few years ago. We could potentially wreak havoc on the food crop market.”

“Therefore it is very important that we start to move away from that. There is a lot of research right now at Cereplast on cellulosic material. One of the materials we have introduced is using an algae by-product. Those are horizons that we anticipate would come to fruition over the next three to 10 years.”

And finally there is the challenge of customer awareness. Says Scheer, “We want customers to know what they are buying; bioplastics are not a panacea resolving all the problems. Compostable bags and products make sense when you have a composting infrastructure and are looking for a better carbon footprint. But if you want to use bioplastics to reduce littering, it is a wrong choice. It might promote the misuse of a bag and lead to more littering. A lot of education needs to be made: I encourage my industry to educate the consumer properly on what the terms like biobased, compostable and biodegradable mean.”

Ultimately, Scheer believes that the market share of bioplastics in specific areas in Europe with composting infrastructures will grow and replace certain traditional plastics. “This will be a long-term movement I anticipate to occur over the next 3-10 years. In the meantime, we will see a major increase in market share. The bioplastics industry is in a very good shape.”

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Los Angeles Business Journal

Los Angeles Business Journal

Europe In The Bag

Plastic bans boost Cereplast resin sales By James Rufus Koren Monday, September 12, 2011

Are government regulations good for business? They’ve been good for Cereplast Inc.’s business, at least.

The El Segundo company makes resins, which are the building blocks of plastics. But its resins are made of plant material, which means they are biodegradable. The company has seen its sales skyrocket over the past year as new regulations in Europe have prompted businesses there to move away from oil-based resins.

In the first half of this year, Cereplast sold $15.4 million of its resins. That nearly matches the company’s sales for the previous four years combined.

“I would say 90 percent of that is due to the regulatory environment we have seen,” said Cereplast Chief Executive Frederic Scheer. “The whole ban on plastic bags has been fueling the growth of our company and of the bioplastics industry.”

Case in point: Italian companies didn’t buy a nickel’s worth of Cereplast resins in 2009 or the first half of last year. But in the second half of last year, leading up to an Italian ban on standard nonbiodegradable plastic bags that took effect in January, Italian companies bought $3 million of the company’s resins for biodegradable plastic. This year, they took an additional $7 million.

There’s more growth on the way. Shomik Majumdar, a vice president at Mountain View-based consulting firm Frost & Sullivan who follows the bioplastics industry, said Europe’s consumption of bioplastics is expected to climb 15 percent to 20 percent annually over the next several years.

“The whole pie is getting bigger,” he said.

Cereplast makes its plastic resin with starch from corn, potatoes and other food crops instead of with petroleum-based products such as polyethylene. It also makes long-lasting plastic resins using a combination of plant starch and petroleum products.

Despite the increased sales, the 10-year-old company has yet to turn a profit since going public in 2005. It lost $7.5 million last year and has lost $4 million in the first half of this year. The company has sustained itself on equity offerings and debt, most recently selling $12.5 million in convertible notes in May, which raised its long-term debt to more than $16 million.

Scheer projects that Cereplast should start turning a profit in 2012.

Jinming Liu, a senior analyst with Ardour Capital Partners in New York, said that sounds like a realistic goal.

Meanwhile, the company is on track to hit its consensus estimates of a $7.3 million loss, 47 cents per share, on revenue of nearly $32 million this year.

Scheer said he can’t put a number on next year’s earnings, but he expects to see sales at least double or perhaps quadruple.

European expansion

Italy, with its ban on nonbiodegradable bags, is Cereplast’s biggest customer, but the company is expanding into other countries as well.

In the first half of this year, 95 percent of sales have been abroad, with some German companies being among its biggest customers. That’s a big change for Cereplast, which sold 90 percent of its products in the United States in 2009.

Late last month, Cereplast also signed a distribution deal with Swedish company Mastercolor AB to supply resins to manufacturers in Sweden, Denmark and Norway. That’s the latest step in Cereplast’s European expansion.

So far this year, the company has signed distribution deals with companies in Turkey, Croatia, Slovenia, Romania and Poland; it opened an office in Germany; and it announced plans to start manufacturing resins in Italy. The company used to make its resins in Hawthorne but moved U.S. production to Seymour, Ind., last year because costs are lower there.

Despite growth plans, distribution deals and sales figures, Cereplast’s stock price is down 32 percent from the beginning of the year, closing at $3.08 on Sept. 7.

Liu said Cereplast is still a young company that hasn’t proved itself to the market. He also noted that Wall Street is concerned about the company’s collection practices.

“Accounts receivable are a problem,” he said. “They need to send products over to Europe, and in Europe they pay relatively slowly. That’s one thing they need to improve.”

The company reported net accounts receivable of $15.8 million at the close of the second quarter, up from $11.7 million at the end of the first. Liu said the company’s high accounts-receivable balance was a big reason Cereplast sold notes this spring.

“They had to do it because of accounts receivable. They had to fund their working capital,” he said.

Scheer acknowledged that Cereplast carries a high accounts-receivable balance, but he also said that was only one factor in the company’s financing this spring. He said Cereplast is too small for traditional big banks, and can’t work with small banks because they don’t handle international work.

More expansion

Scheer said he was not concerned about the stock price, adding he is hopeful that “the market will reward us down the road” as more plastic regulations create more opportunities for Cereplast.

The current regulations are mostly taxes or outright bans on standard plastic grocery bags. But Cereplast stands to gain even more from planned European Union regulations on food packaging.

In the United States, the bioplastics market isn’t doing as well, and the company expects growth at a slower pace than in Europe. That’s partly because Europeans will pay extra to be green.

“They’re more willing to try out biodegradable products,” said analyst Majumdar. “Here, consumers are more price-conscious. They’re not going to give up a cheaper product in favor of a biodegradable product so easily.”

Also, many California cities, including Long Beach, Malibu and Calabasas, have banned plastic bags outright, without an exception for biodegradable bags, which need to be disposed of at composting sites.

“There’s not a lot of composting going on in Long Beach,” Scheer said. “Europeans started the whole movement of composting years and years ago. It is just starting in our country.”

But Cereplast also expects domestic bioplastics demand, which Scheer described as minimal, to start increasing in the next year or two.

“I think that movement on bag bans will push the use and demand for bioplastics,” he said. “I’m expecting to see a growth and demand coming from the U.S.”

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Frederic Scheer, CEO of Cereplast, explains the process for making bioplastic resin, how his products can be safely composted, and how the bioplastics industry contributes to the green economy.

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In this edition of energyNOW!, Cereplast shows off different products that are made from bioplastic resin.

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Bloomberg.com - Cereplast Inc., the U.S. maker of plant-derived resins, said it may be profitable by the end of the year because of “exploding” European demand for environmentally friendly shopping bags.

The company will meet its forecast for sales rising to as much as $34 million this year, from $6.3 million in 2010, Chief Executive Officer Frederic Scheer said today in a telephone interview. Revenue may climb to $100 million next year, he said.

Cereplast, based in El Segundo, California, will be profitable at an annual sales rate of $35 million and with a 25 percent gross margin, which should occur in December or early in 2012, he said. Cereplast rose as much as 9.5 percent in Nasdaq Stock Market trading, the most since Dec. 17.

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