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Bioplastic Investments

Written By Brian Hicks

Posted October 5, 2009

The 2016 Olympics will deliver a shot of steroids to select Brazilian stocks.

Here’s a sneak peek at the first gold medalist of the 2016 Rio Olympiad and a brand-new materials sector now emerging in Brazil: bioplastics.

Rio 2016’s First Gold Medalist

Braskem (NYSE:BAK) trades on Wall Street as an ADR, but the Brazilian plastics producer gets little attention in U.S. press.

That’s changing, though, because this Latin American petrochemical giant is going green and picking up the pace to become the Usain Bolt of Brazilian stocks.

Today we buy about 2000 percent more plastic each year than people did a half-century ago. That’s when Tupperware parties popped up in suburbs across the United States, so baked goods could stay fresh on long drives to potluck suppers, along roads that linked a new gas-guzzling middle class.

Bountiful cheap oil changed American cities and households. Now that oil is more costly, long commutes don’t make as much sense, and neither do plastic production methods that require two pounds of petroleum for every pound of plastic output. And when black gold gets turned into Tupperware, the air you’re trying to keep off those fresh-baked cookies gets dirtier too — each synthetic unit is worth six times its weight in CO2!

In 2007, Braskem unveiled the first plastics made entirely from locally grown sugarcane ethanol, which itself is nearly twice as efficient as U.S. corn ethanol.

Of course, outside industrial giants couldn’t let the race to revolutionize plastic production go on uncontested. Braskem’s breakthrough quickly drew in Dow Chemical (NYSE:DOW) as a competitor. Dow didn’t have access to the ethanol/ethylene feedstock it needed to set up a bioplastics plant like the $300 million facility Braskem is building, so Dow teamed up with leading Brazilian ethanol producer Crystalsev.

Dow is focusing on end-to-end integration of sugarcane conversion into ethanol and then on to green plastics. A recent report published by the University of Pennsylvania’s Wharton School of Business titled "The Brazilian Bioplastics Revolution" says Dow and Crystalsev will have a fuel and plastic production facility ready to go in 2011.

That’s about a year after Braskem’s 200-ton-a-year plant is expected to come online, but still five years ahead of the Rio Olympiad.

Pole Position for Braskem

Braskem execs are proclaiming their pole position and insist that first-mover advantage is the key to kick-starting a global upheaval in the way plastics are made.

They’re targeting developed European countries and Japan, where Toyota has already joined Braskem in a distribution agreement for bioplastic car parts, and Braskem biopolymer project director Luiz Nitschke says Braskem "expects its biopolymer to sell for 50% more than the conventional petrochemical product."

That premium in wealthier countries could add up to big added revenue for Braskem.

Consumers from Tokyo to Frankfurt see environmental value in bioplastics. From ethylene pellets at the beginning of the plastic production process, used bioplastic products can be burned efficiently in waste-to-energy plants and avoid landfills.

For the purposes of hosting a successful Olympic Games, Brazil needs to maximize space and minimize waste while still generating a massive amount of material for everything from construction to promotion and souvenirs.

As for the athletes, they may end up playing unwitting salespeople for bioplastics. . .
Race car driver Felipe Massa was awarded a Braskem bioplastic trophy for his Formula 1 win in late 2008!

Here’s how the race is being run right now:

braskem share chart

Braskem is leaving the iShares MCSI Brazil Index and Brazilian national oil producer Petrobras in the dust. Dow Chemical is actually up 65% compared to Braskem’s 75% in the same 3-month period, but it’s not as pure of a bioplastics play; Dow does not have the first-mover advantage we’ve already looked at.

Dow is also folding its bioplastics into an existing brand, Dowlex, as opposed to Braskem, which will remind consumers on each bioplastic product they buy. And Braskem has already been promoting green plastics at sporting events. . . Hello, Olympics!

There’s more to this story, too. Over the coming weeks we’ll be exploring the momentum that companies like Braskem are gaining from December’s COP-15 UN Climate Conference and emissions reduction targets. Plastics are a major source of CO2, so government mandates will combine with a more conscious consumer base to bring piles of fresh money into the booming market for bioplastics. In fact, Braskem is already being asked by international companies to ramp up to 300% of its current production!

This is a multi-year winner in the making.


Sam Hopkins
Sam Hopkins

P.S. Brazil’s Green Revolution is real. I’ve seen it myself, and as a Green Chip International reader you can join me as I bring a world’s worth of opportunities to you with on-site updates, exclusive video reports, and of course top stock plays. My colleague Nick Hodge and I have prepared a special report on the COP-15 summit to let you know how big the wave is that Braskem is riding. Click here to learn more.