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Non-Tech : Metabolix [MBLX] a Full Disclosure Thread

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To: richardred who wrote (24)4/19/2007 1:23:27 PM
From: Sam Citron  Read Replies (1) of 78
A Bio-Plastics Revival Makes Gains at Cargill [WSJ]
High Oil Prices Drive Interest in Soy, Corn;
Wal-Mart Wants In
April 19, 2007; Page A1

BLAIR, Neb. -- The huge Cargill Inc. biorefinery here turns 60 million bushels of corn a year into a torrent of sweeteners and ethanol.

Now the giant facility -- whose overhead pipes snake between 50-foot-tall tanks and metal buildings over a square mile -- is also cranking out what could be the next big thing in farming: a new generation of renewable chemicals.

Although most petroleum-based chemicals remain substantially cheaper, high oil prices have bolstered the economic rationale for making plastics, foam and lubricants from plants grown in the Midwest.

Soybeans and corn are showing up in carpets, disposable cups, salad bags, AstroTurf, candles, lipstick, socks, surfboards, cooling fluid in utility transformers, and even the body panels of Deere & Co. harvesting combines. There has also been growing demand from retail giants like Wal-Mart Stores Inc., newly sensitive to environmental pressure, for packaging made from renewable plastic.

[Farm Belt Catalyst]
What's Happening: With oil prices so high, grain-processing giant Cargill and others are turning to corn and soybeans for chemicals.
The Problem: Although technology has improved since bio-plastics flopped in the 1980s, petro-plastics are still cheaper, and any success would tax food supplies.
What's Ahead: With a growing focus on bio-products, consumers could soon see 'vegetarian' car seats, sofas and surfboards.

Cargill, the closely held Minneapolis food ingredients giant, has visions of making billions of pounds of so-called renewable chemicals annually from corn and soybeans. "We have the will to take on the chemical companies on their own turf," says Yusuf Wazirzada, the manager of Cargill's soy-based urethane polyols business.

The diversion of yet more farm products toward the energy and industrial sectors could stretch demand and send commodity prices sky high. Other problems remain: For many manufacturers, adjusting equipment to use renewable chemicals made by Cargill and others is cost-prohibitive.

Still, the use of farm products to replace plastics and other goods is generating buzz in farm circles, where many players are eager to diversify beyond food and ethanol. At the same time, there appear to be market reasons for a move to corn-based chemicals, especially as a hedge against uncertainties in the oil market.

Hickory Springs Manufacturing Co. is replacing some of the petrochemicals it uses to manufacture polyurethane foam with a Cargill soybean compound.

The Hickory, N.C., foam maker turned to Cargill after its chemicals suppliers boosted prices about 50% in the wake of Hurricane Katrina. "We now realize that in everyday life we have to not depend on petrochemicals," says Bobby W. Bush, a Hickory Springs vice president.
[A sofa stuffed with soy-foam]
A sofa stuffed with soy-foam

Retailer Crate & Barrel is beginning to sell a sofa stuffed with Hickory Springs' foam. The Lockport sofa, which is aimed at "green" consumers, has a prize location on its store floors.

Ford Motor Co., in Dearborn, Mich., is considering using soy-containing foam in car seats, armrests and headrests. Now that its scientists have figured out how to use ultraviolet light to eliminate a rancid odor from the foam, the auto maker's appetite for the crop could potentially reach hundreds of thousands of bushels annually.

Battelle, a nonprofit research organization based in Columbus, Ohio, is one of several outfits working on 100% crop-based polyurethane foam. This, potentially, could be a cheap enough alternative to the petro-based material to make a big difference to auto makers, which put 30 pounds of foam into each vehicle they make.

Scientists have long known how to make chemicals from plants. Before the oil age, manufacturers mined carbon and hydrogen in plants to produce all sorts of industrial products. Decades before soybean became a ubiquitous food, it was used to make glue and paint. Celluloid, an early plastic, came from cotton. The diesel engine first ran on vegetable oil.

By the mid-1930s, Henry Ford owned 12,000 acres of farmland with the idea of mass-producing car bodies with soybeans. World War II derailed that dream. In the 1980s, efforts to cash in on the environmental movement with corn-based biodegradable plastics flopped. The materials were costly, melted easily, let the fizz out of carbonated beverages and didn't biodegrade as promised.

Technological breakthroughs, however, are making a biochemicals renaissance possible. The biodegradable pitch has been dropped: The claim now is the ability to decompose harmlessly in a matter of months in an industrial composting operation. New chemistry, and the genetic modification of crop-eating micro-organisms to make industrial products, are driving down costs and increasing the range of bio-materials.

Although Cargill is hawking its corn-derived plastic as the first new plastic category since the 1970s, the fledgling product is but a tiny part of its business, and will be so for the foreseeable future. Yet the price of oil is high enough that more manufacturers see their dependence on petrochemicals as a liability.

America is beholden to fossil fuel for everything from computers and Barbie dolls to beer cups and diapers. About 10% of petroleum is used to make chemicals.

Renewable chemicals have many of the political attractions of renewable fuel. They reduce dependence on foreign oil, create jobs in the Farm Belt, and produce fewer greenhouse gas emissions -- all without the government subsidies heaped upon ethanol.

At today's prices, a $3.25 bushel of corn can generate $15 worth of bio-plastic -- enough to supply a deli with a day's worth of take-out salad containers -- allowing for much greater profit margins than would come from turning the corn into food ingredients or livestock feed.

The economics of making chemicals from carbohydrates instead of hydrocarbons is also blurring boundaries between industries. Grain-processing companies are making chemicals and chemical companies are processing grain. "If I were Archer-Daniels-Midland or Cargill, I'd be looking at the same areas," says Charles O. Holliday Jr., chairman and CEO of DuPont Co., which is itself moving into crop-derived chemicals.

The Wilmington, Del., chemicals giant opened a plant in Loudon, Tenn., in November with British sugar giant Tate & Lyle PLC that makes a monomer -- a building block for plastics -- from corn. The monomer, produced by genetically modified yeast with an appetite for corn sugar, can be used to make everything from textile fiber to bottles.

Grain-processor ADM, long the nation's biggest ethanol producer, owns a 4% stake in Metabolix Inc., a Cambridge, Mass., firm that has genetically modified a corn-eating strain of E. coli bacteria to make a polymer, PHA. A joint venture of the companies is building a facility near Clinton, Iowa, with the capacity to make 110 million pounds of PHA annually from ADM corn.

While the fledgling biochemicals market is meager, some adherents figure it could be a $150 billion industry if optimistic projections -- that they will replace 10% of the petroleum used to make chemicals globally by 2020 -- pan out. Today, less than 2% of U.S. chemicals come from crops. "Clearly, momentum is building," says Bhima R. Vijayendran, a chemist working on making polymers from crops at Battelle.

Crop supply remains a concern. The oil industry is so large that getting even a small slice of its business could consume a big share of U.S. crops. It's a lesson learned from the ethanol industry, which is using 20% of last year's corn harvest to produce ethanol equal to about 3% of the U.S. gasoline supply. The ethanol industry's appetite for corn has inflated the price of the nation's largest crop by roughly 50% over the past 12 months.

Recently, furniture makers, as well as auto parts rivals Lear Corp. and Johnson Controls Inc., have touted their ability to make environmentally friendly products with soybeans. To make soy-foam attractive, though, scientists are trying to make it as springy as its petro-based alternative.

This is not the first time that agriculture has looked for a better living through chemistry. In the 1930s, with the farm sector sinking under the weight of commodity gluts, intellectuals and business leaders saw a solution in new uses for surplus crops.

The "chemurgy" movement drew Henry Ford, Thomas Edison and William J. Hale, a major Dow Chemical shareholder. Research was funded with income from German chemical patents that had been seized by the U.S. government as reparations for World War I. Gas stations began carrying ethanol and the movement made it onto the big screen in the 1946 movie "It's a Wonderful Life." George Bailey's friend Sam decides there is a fortune to be made from soy-plastic.

But the Roosevelt administration chose to tackle the farm problem by intervening in the market -- a policy that lives on today in federal subsidy checks. Oil discoveries and chemistry advances made synthetic products ever cheaper and stronger.

The closely held nature of Cargill -- which generated fiscal 2006 revenue of $75.2 billion -- has allowed it to nurture the idea of renewable chemicals. Free from the quarterly demands of Wall Street, the commodity-processing giant is able to invest in agriculture without buffeting from impatient shareholders.

Cargill was spending heavily to develop corn-derived plastic more than a decade ago, but its customers were mostly Asian manufacturers experimenting with the material. Although the company is tight-lipped about the current size of its renewable chemicals businesses, it likely won't be more than a blip on its income statement for several years.

"This is the emerging business opportunity of this company," says K. Scott Portnoy, Cargill's corporate vice president. "This is all part of diversifying and spreading our bets."

Cargill feeds the sugar it makes from corn to micro-organisms that convert it into lactic acid, the building block for polylactide, which can mimic many of the properties of polystyrene and polyethylene, two of the most common disposable plastics.
[James Stoppert]

By 1997, Cargill had lowered the cost of making polylactide, or PLA, enough to persuade then-Dow Chemical Co. executive James Stoppert to bring Dow into a joint venture. Dow managers figured they could improve Cargill's processing methods and find plenty of customers.

After years of financially draining work, Dow Chemical's enthusiasm for corn plastic evaporated and it sold its stake in the venture to Cargill in January 2005. Cargill's corn-plastic was still more expensive than competing synthetic plastics, and couldn't handle the temperatures withstood by petro-plastics. "PLA is an inferior product with a cost problem," says William F. Banholzer, Dow Chemical chief technology officer.

Several Dow Chemical managers, however, stayed on with Cargill, whose $1 billion complex in Blair employs 530 people and is the world's biggest maker of renewable plastics. Mr. Stoppert, now senior director of Cargill's Industrial Bio-Products division, envisions 20 bio-refineries across the Midwest someday. "I have the opportunity to be a pioneer," he says.

The stamina of Mr. Stoppert and other former Dow Chemical managers is beginning to pay off. Swelling oil prices are lifting the cost of some synthetic plastics closer to that of PLA. A green campaign by Wal-Mart, the world's biggest retailer, is fueling demand for packaging made from renewable plastic. Some California cities are banning Styrofoam containers for take-out food.

Cargill won't disclose income figures for its bio-plastics business, but annual sales have doubled every year since Dow dropped out of the joint venture, and volume is now nearly 150 million pounds.

"What ethanol is doing to the gasoline market, PLA is doing for the packaging business," says Joe Selzer, vice president of marketing and sales at Wilkinson Industries Inc., a small maker of plastic food containers in Fort Calhoun, Neb., just 10 miles down the road from Cargill's biorefinery.

A small player in the U.S. packaging industry, with annual sales of about $75 million, Wilkinson's managers were looking to diversify when they read a story in the local newspaper about corn plastic. As part of a deal to be acquired by a Chicago private investment group, Mid Oaks Investments LLC, Wilkinson was able to raise $1.5 million for modifying part of its factory to use PLA.

Now, Wal-Mart's embrace of PLA is fueling a stampede to Wilkinson's door. Produce firms, anxious to keep their place on Wal-Mart grocery shelves, are placing so many orders for corn-plastic food containers that Wilkinson has hired 50 workers, increasing its payroll to 325 people.

PLA is also becoming a factor in the coffee business. Some small coffee retailers are swearing off disposable coffee cups of the sort used by Starbucks Corp. and McDonald's Corp. Roughly 15 billion of the disposable coffee cups used annually in the U.S. have a moisture barrier made from petrochemicals.

International Paper Co., of Memphis, Tenn., is using Cargill's plastic to make an eco-friendly paper hot cup for small coffee retailers such as Vermont's Green Mountain Coffee Roasters Inc. Solo Cup Co. is testing a PLA-lined hot cup that its executives want to launch this year.

Coca-Cola Co., too, is investigating whether Cargill's plastic could be composted on a large scale, thus cutting the garbage-hauling costs of food-service customers. In an experiment, the company used a film made of PLA to decorate its Coke bottles in Mexico last year with a Christmas scene.

"We've got a lot to learn," says Scott Vitters, director of sustainable packaging at the Atlanta beverage giant. "But this field finally has a lot of potential."
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