Brazil's 'Organic' Plastics

Business Week
06/24/2008

Media Contact: Joshua Schneyer


As Oil Prices Soar, The Country Is Aiming To Become A Global Hub For Plastics Made From Plant-Based Materials, Including Sugar Cane



Try to imagine a plastics factory. You're probably seeing an industrial eyesore belching smoke and fire into the sky at a city's edge. But Dow Chemical (DOW) and other large plastics makers have a more bucolic vision of what some plants will look like in the future, and they're heading to Brazil to build them.

The "factories" they have in mind are more like farms: A sugar cane plantation, with 11-foot stalks for miles around, surrounding a plastics plant that runs entirely on cane, emits a fraction of the greenhouse gas spewed by conventional plants, and, by the way, generates enough extra electricity to light a city of 500,000. Dow plans to open its first such Brazilian plant in 2011, and says its cane-based product will compete favorably with conventional petroleum-based plastics if oil stays above $45 a barrel, just a third of its current price. So Paulo-based Braskem (BAK), Latin America's top plastics maker, is building its own plant for 2010 and expects its "green plastics" to sell for 30% more than conventional varieties.

Today about 9% of the world's oil production is burned making plastics, which itself is a $350 billion-a-year business. But as oil prices soar, Brazil, a country where sugar cane ethanol already fuels most cars, is aiming to become a global hub for organic plastics -- that is, those made from plant-based materials. Brazil's organic plastics are often labeled "bioplastics" since they are made from plants, but while recyclable, they don't melt into the environment when discarded, like biodegradable plastics [BusinessWeek.com, 6/19/08] do.

No Replacement for Traditional Plastics

Already the No. 8 producer of petro-based plastics, Brazil will soon be the largest producer of organic ones, according to Dow and Braskem. Both companies say they've mastered technologies to turn sugar cane into polyethylene, the most popular plastic. By 2012, about 10% of Brazil's plastic will come from cane instead of petroleum.

To be sure, the bioplastics business won't displace traditional plastics anytime soon. The 1.2 billion pounds of organic plastic that Dow and Braskem plan to produce in Brazil by 2012 will meet less than 1% of world plastic demand, which itself is growing by 5% a year. But both companies, along with Belgium's Solvay (SOLB.br), Canada's Nova Chemicals (NCX), and Brazil's Petrobras (PBR), hope to build more such plants [BusinessWeek.com, 5/28/08] in the country.

The drive for alternative plastics is being fueled by oil prices, eco-minded consumers, and the economic success of oil substitutes such as Brazilian ethanol. Organic plastics have been around for ages, but high costs and pesky features in some of them -- such as a tendency to melt when exposed to low heat -- meant they posed little threat to the petroplastics that are used in everything from Zip-Loc bags to Barbie dolls and condoms.

"Out of the Boutique and into the Mainstream"

Jeff Bishop, an analyst at San Francisco's Beacon Equity Research, believes alternative plastics may quickly capture 20% of the market if oil prices continue rising. Braskem has a more conservative outlook, seeing them taking over perhaps 10% by 2020.

Dow raised its global plastics prices by 20% on June 1, blaming high costs of its energy and feedstocks, which rose 42% in the first quarter. Those items account for about half of plastic's manufacturing costs. As oil trades near $135 a barrel, local sugar cane ethanol, a basic ingredient of Brazil's new plastics -- sells for around half that, or $70 a barrel. By converting ethanol to plastic for export, Brazil could also avoid steep tariffs imposed on its biofuels in the U.S. and Europe, where ethanol from grains costs more than twice as much to make as it does in Brazil. "Brazil will bring green plastics out of the boutique and into the mainstream," says Paulo Schirch, Brazil director for Solvay, which plans to make some of its own plastic in Brazil using ethanol, sea salt, and hydropower.

At Dow, the process involves fermenting cane juice into ethanol and heating it into a gas. The gas then undergoes polymerization, which is the chemical reaction that creates plastics. Sugar cane leftovers known as bagasse are burned to power the plant and generate surplus electricity to power towns nearby. A natural fertilizer byproduct, known as vinasse, helps grow more cane.

Should Sugar Be Used for Plastics?

Not everyone believes that sugar cane should be used for plastics. Dow and Braskem plan to burn 300 million gallons of ethanol in 2012, around 6% of Brazil's current output. Critics say using edible crops for energy has fueled the runup in global food prices. Some say cane farming is pushing Brazil's agricultural frontier north into the Amazon forest, and that pre-harvest cane-burning, a common practice, lifts Brazil's carbon emissions.

And, like conventional plastic, Brazil's cane plastic won't break down easily in the environment. That which isn't recycled may end up in landfills, or worse, swirling around the Great Garbage Patch, a Pacific Ocean vortex that eventually sucks in large volumes of plastic floating at sea.

Dow and Braskem defend their plans. "Our whole industry agrees that plastics have to be more sustainable," says Mauro Gregorio, head of alternative feedstocks at Dow. "There's no effort to fool the public."

Wall Street: Already a Player

At least for now, Brazil's green plastics enjoy several advantages over other bioplastics. The plant-based materials are as resilient as petroplastic and may cost significantly less to make, while many other bioplastics are far more expensive, says Antonio Morschbaker, a chemical engineer at Braskem. Bioplastics like Mirel, made by Cambridge [Mass.]-based Metabolix (MBLX), are painstakingly cultivated from vats of mutant bacteria that consume corn. Mirel, which decomposes nicely in most environments, is expected to cost around $2 per pound, while Brazil's green plastic may sell for less than 40% per pound.

Dow plans to team with Crystalsev, a Brazilian cane processor partially owned by Goldman Sachs (GS), to build a 770 million-pounds-per-year green plastics plant in southeast Brazil. The companies won't discuss cost, but Brazilian press reports put the figure at close to $1 billion. Braskem says its first plant, in Rio Grande do Sul State of southern Brazil, will cost up to $300 million and make 440 million pounds a year. Braskem says its customers, ranging from toy companies to water bottle makers, have already asked to buy three times more sugar cane plastic than its first plant will produce.

The tough part, Gregorio says, may be cutting and pasting the Brazilian model to other regions where ethanol is expensive. Dow is experimenting with bio-engineered crops to see if that's possible, but Gregorio thinks the biggest nonfossil fuel plastic works will be built in tropical countries, at least in the near term.

"Energy Cane"

Morschbaker has a longstanding connection to cane: His family owned Brazil's first mechanized sugar mill in the 1870s in Rio de Janeiro. But the Braskem engineer has always been drawn to uses of the plant beyond sweetener. "It should really be called energy cane," he says.

He thinks concerns about Brazil's cane farming have been overblown. By converting just 5% of lands now used for cattle grazing to sugar cane, he claims, Brazil could make enough plastic to fuel a sixth of world demand without sacrificing any trees. Producers in So Paulo State, Brazil's sugar cane heartland, say they have been mechanizing the harvest and will entirely phase out crop burning by 2017.

Morschbaker muses about some of the oddities that could result from organically derived plastics: Astroturf made of actual grass, for instance. Liquor bottles made of alcohol, gas tanks fashioned from ethanol, even bulletproof vests that originate in a garden. Brazil President Luiz Inacio Lula da Silva has suggested an even more ambitious goal: In April, he challenged the nation's automakers to make a roadworthy car from sugar cane plastics. The only drawback he mentioned: "People may try to lick it."

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