Metabolix (MBLX)

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See all Bulls Reasons Bulls: Reasons To Buy Benefits from companies wanting to go green 0% agree Benefits from companies wanting to go green A large, substitutable plastic demand will provide Metabolix a pool of buyers looking to lower costs and "green" their production lines. View or Edit Reason 0 votes 0% agree Rising oil prices creates an incentive to use other raw materials to make plastic 0% agree Rising oil prices creates an incentive to use other raw materials to make plastic Rising oil prices will increase incentive to substitute conventional petroleum-based plastics with other types of plastics. View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Rising price of agri-products for biofuel production 0% agree Rising price of agri-products for biofuel production Rising price of agri-products for biofuel production View or Edit Reason 0 votes 0% agree Bioplastics won't meet large-scale demand 0% agree Bioplastics won't meet large-scale demand Bioplastics won't meet large-scale demand View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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While the plastics industry has several well-established players (e.g. Dow Chemical and General Electric), Metabolix will be one of the first firms in the industry to create plastics using corn rather than petroleum.

Because the company uses corn as the base for its plastics, the company's profitability is heavily dependent on corn prices. Thanks to increasing demand for ethanol, the price for a bushel of corn rose by approximately 50% in 2007 alone.

[edit] Company Overview

Increased costs and losses can be attributed to increased spending on research, acquisition of patents, and product development. Metabolix is accruing fixed, one-time costs in order to build a manufacturing plant and begin commercial-scale production. Before production, the company's main sources of revenue are government grants, research and development payments, license fees, and royalty payments. The U.S. Department of Energy, the firm's largest funder, has given $12.2M to date. The firm expects to recognize revenue when they begin commercial sale of their Natural Plastics.

Metabolix total revenue, net income, and operating income from 2005 to 1Q2007‎

[edit] Business and Financial Metrics

^[2]

[edit] Key Trends and Forces

[edit] Rising oil prices make Metabolix's plastics more affordable

Plastics, up until this decade, have been only petroleum-based. As the cost of oil increases, oil-based products increase in price too. The advent of bio-plastics strips away the need for oil in favor of renewable feedstock sources. This benefits Metabolix because it raises demand for their products. Conversely, if oil prices were to fall, so would demand for bioplastics. Crude oil prices have risen from $25 to $72 a barrel from 2002 to 2007 ^[3] resulting in comparable upward shift in plastic prices.

[edit] Rising Corn Prices may hinder profitabilty

Raw materials and feedstock constitute the majority of bioplastic production costs. As corn prices increase, producing bioplastics becomes more costly. From 2004 to 2007, corn prices have risen from $2.50 to $3.50 per bushel; this trend has reduced Metabolix' profitability.

[edit] The corn ethanol debate may weaken demand for biofuels

In February 2008, Princeton economist Timothy Searchinger released a report demonstrating biofuels' increase in greenhouse gas emissions. Forests and grasslands are cut down and replaced by agricultural land. ^[4] The U.S. government support for alternative fuels may overshadow long-term consequences of biofuel production to lower fuel costs in the short-term. In 2007, President Bush set a goal to produce 35 billion gallons of renewable and alternative fuels by 2017; this statement of intent to develop biofuels would favor Metabolix and the growing biofuels market.^[5]

[edit] Rise of carbon trading and emissions regulations benefits "green" companies

Lawmakers are considering creating emission markets which will set limits on the amount of emissions that can be produced in a state. Integral to enforcing such a system is carbon auditing. Carbon auditing, or the process of measuring a company's carbon footprint, has become a powerful means of attracting buyers and investors. As of now, U.S. Energy Regulations and the Kyoto Protocol are two examples of this push toward greener business practices. Companies that are awarded a "green" certification for their business practice can attract investment from those who share their environmental concerns. Therefore, if carbon auditing becomes mandated by law and emissions regulations tighten, such changes will benefit companies that are already based on a products with low carbon footprints. Finally, carbon trading (e.g. a cap-and-trade system) lets companies with good environmental standing to sell "credits" of pollution in an emissions market to other firms to generate revenue. The Regional Greenhouse Gas Initiative and the Global Warming Solutions Act of 2006 (AB 32) are examples of this system's emergence in the U.S.

[edit] Competition

Plastics, fuels, and chemicals produced by Metabolix will compete with other technologically innovative products as well as conventional petroleum-based plastics, fuels, and chemicals.^[6] Firms producing bioplastics compete to offer materials with similar applications and strengths as conventional, petroleum-based plastics.

• Kaneka, a multi-industry Japanese firm, reported roughly $4.4 billion in net sales and $340M in income in 2007. The firm produces pharmaceuticals, plastics, foodstuffs, electronics, and synthetic fibers. New to their line is also a plastic that serves as a solar cell.
• Cargill, under the name NatureWorks, is producing a corn-based plastic to be used in everything from packaging, to consumer goods, to fiber for apparel. In 2005, mega-corporation Wal-Mart announced that it would transition 114 million fresh produce grocery packages to NatureWorks' bioplastic.^[7] Cargill is a multinational firm that produces food, agricultural and risk management products and services; it reported $954M in net earnings for the second quarter of 2008, up 44% from one year ago and currently has projects in the U.K., Brazil, Spain and Vietnam. The firm has entered a joint venture with Teijin Limited of Japan.^[8]
• Mitsui Chemical is a materials and chemicals firm based in Japan, servicing the automotive, packaging, energy, information and electronics industry. In competition with Metabolix, however, is its feedstock production. In 2007, Mitsui Chemical reported $491M in net income.
• Toyota, the popular automaker, has begun using recyclable plastics in its car production. The automotive industry uses 4.3 billion pounds of plastic on products such as dashboards and exterior trim. Metabolix's product may suffer from Toyota's competition or may benefit from other car companys' desire to make their own models with environmentally friendly materials. Toyota's bioplastics have been ranked above those of General Motors, Ford Motor Co., DaimlerChrysler AG, Honda Motor Co., and Nissan Motor Co. by Ann Arbor non-profit, Ecology Center.^[9] In 2007, the company reported $14 trillion in net income.
• Novamont produces and markets a bioplastic called Mater-Bi®, a 90% biodegradable plastic that decomposes in 180 days. The firm won several Outstanding at Bioplastics Awards in 2007.
• Stanelco uses bioplastics to produce flexible films, moulding plastic, sheet plastic, and food packaging made from starch. U.S. food container demand is expected to exceed $23 billion in 2011, which will help develop competition among companies like Metabolix and Stanelco.^[10]

[edit] Market Share

Biodegradable market share (% of capacity), 2008E

Cargill and Novamont are clear leaders in the biodegradable plastics market with nearly 40 percent of market share, while Metabolix remains competitive with 9 percent of market share, equal to that of Toyota Motors:^[11]

• ADM/Metabolix- 9%
• Toyota- 9%
• Procter & Gamble- 4%
• Novamont - 15%
• BASF SE (BASFY) - 3%
• Stanelco - 4%
• Rodenberg - 7%
• National Starch - 4%
• Cargill - 24%
• Other- 21%

[edit] References

1. ↑ MBLX, 2007, 10-K, page 40
2. ↑ 2006 10-K Item 6: Selected Consolidated Financial Data, Page 43
3. ↑ Energy Information Administration
4. ↑ Mongabay.com, Biofuels are worsening global warming
5. ↑ The White House, Twenty in Ten: Strengthening America's Energy Security
6. ↑ MBLX 2006 10-K Item 1A: Risk Factors, Page 32
7. ↑ Cargill News Releases
8. ↑ Cargill Earnings Releases
9. ↑ MSNBC, Toyota tops in 'green' plastics use
10. ↑ Food Production Daily, Market Reports
11. ↑ Jeffries & Company Analyst Report, Page 13