08 November 2010 00:00 [Source: ICB]
Market entrance by Brazil's Braskem expected to lead to significant production shift
All eyes are on the Latin American bioplastic market as Brazilian chemical company Braskem successfully starts sugarcane-based polyethylene (PE) production at its Triunfo facility in the Rio Grande de Sol region.
Braskem's 200,000 tonne/year green PE production, currently the single largest bioplastic capacity worldwide, is expected to jumpstart Latin America's nascent bioplastic industry, according to market research firm Frost & Sullivan.
"The Brazilian market for bioplastics shows promising growth projections for the next five years," said research analyst Alessandra Lancellotti. "Key drivers of the bioplastic market in Brazil include the availability of feedstock and a focus on the carbon footprint among key end-user sectors."
In 2009, Brazil's bioplastic market - mainly polylactic acid (PLA), starch-based and polyhydroxybutyrate (PHB) resins - reached a volume of 1,286 tonnes and revenues of $4.4m (€3.2m), Frost & Sullivan estimated. It is expected to reach a value of $618m by 2015, with 250,086 tonnes consumed locally.
"Brazil is the world's leading sugarcane producer, delivering attractive production costs for bioplastic," said Lancellotti. "Constant increase in sugarcane and ethanol production in Brazil will be a competitive advantage for the country to expand bioplastics production based on ethanol."
Among commercial crops, sugarcane ranks as the most efficient in terms of sugar output, and also has a natural advantage over corn-based bioplastic at current yields, said George Rodriguez, director of US consulting firm Argeni. "Even the waste sugarcane bagasse is used to fuel power plants in Brazil," he added.
The strong economic growth in Latin America will also contribute to the bioplastic industry's growth in the region, said Rodriguez. "Latin America has all the elements in place to be a big bioplastic player. Geopolitically, Latin America has lower risks than Asia, where unpredictable flash crises may occur that can impact global trade."
Rodriguez said bioplastics would also benefit from Latin America's rich land and water resources, vast experience with sugarcane, great infrastructure for biomass-derived products and healthy local markets.
Latin America's share of global bioplastic production is estimated to reach 40% by 2013, according to US analyst firm Jefferies & Company. This year, Braskem is expected to account for 25% of global bioplastic capacity.
Braskem's market share is expected to increase, with the company planning to build a second green PE plant with a capacity of 350,000 tonnes/year. No location has been announced.
Since last year, Braskem has established several domestic and international partnerships for its Green PE supply, such as consumer goods manufacturers Procter & Gamble (P&G) and Johnson & Johnson, packaging companies Tetra Pak and Petropack, cosmetic companies Shiseido and Natura, and plastic trading firms Toyota Tsusho and Acinplas.
Braskem is specifically producing high-density polyethylene (HDPE), because there are currently three HDPE lines in Triunfo, according to several consultants. Other variants of PE include linear density (LDPE), linear low-density (LLDPE), medium density (MDPE), very low density (VLDPE), and ultra-high molecular weight (UHMWPE).
"Green PE is identical to oil-derived polyethylene, so it is truly a direct substitute for existing HDPE markets and applications," said consultant Jim Lunt of US-based Jim Lunt & Associates.
"In principle, if you have a cheap source of ethanol and existing PE capacity, anyone can make HDPE. The route to convert ethanol to ethylene was practiced commercially until the 1960s, so I don't think there is any patentable blocking technology in the manufacturing."
Lunt estimated that Braskem's green PE pricing was 15-30% higher than conventional HDPE. As of October 22, ICIS assessed the blow-molded HDPE domestic price in Brazil at $1.02-1.09/lb FOT (free on truck).
"Right now, I believe Braskem can get more in some markets," said Lunt. "Over time, the only limiting factor for economics is the price of ethanol and the cost to convert it to ethylene. All other processing steps are identical to today's processes and should have the same economics."
Armeni's Rodriquez agreed that Braskem's green PE could command a double-digit percentage premium. "Green PE customers plan to get even more value back from the market in the form of higher profit margins, increased market share, loyalty and the priceless brand equity associated with higher renewable resource content," he said.
Over time, competition and innovation would put pressure on green PE producers to reduce prices, Rodriquez added.
Solvay Indupa said it was still committed to a 120,000 tonne/year green polyvinyl chloride (PVC) facility in Sao Paulo, which was originally expected to start up in 2011 but has been delayed.
Dow Chemical also remains interested in a green PE projects, but the US chemical major has not revealed specific plans so far. Plans, announced in 2007, to build a 350,000 tonne/year sugarcane-based PE plant in Brazil with ethanol producer Crystalsev dissolved last year.
In late October Braskem announced plans to build sugarcane ethanol-based polypropylene (PP) plant with a minimum capacity of 30,000 tonnes/year, to be completed by 2013. Braskem did not reveal where the plant would be built.
Argeni's Rodriquez added: "If Braskem can grow the green PE market successfully and demonstrate sustainable golden profit margins, we will witness the frantic eruption of Latin America's green rush, featuring a variety of impactful bioplastics and chemicals from sugarcane."
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