Could you give us a sense of HDPE's profit margins? Eg how to translate a oil per barrel cost to a PE per pound cost (is it just converting to a price per carbon?), and also what is HDPE's production cost? Can maybe give some appreciation of how hard that 0.19/lb target for this black box biodegradable polymer is!
With HDPE I think 15-18% EBITDA is likely. Not quite sure on gross margins, but it's a commodity polymer.
All pricing I gave in the post for the hypothetical polymer was just based on a potential spot price for sucrose and using the 60 cents/lb price for HDPE (from 2021) as a comparison. Probably a +/- 5% error at least in most of the numbers. Was meant to mainly illustrate a point on manufacturing costs
I see, if HDPE can get 15-18% EBITDA, then I'm guessing you're probably also looking at (out of an estimated $0.60 price) around $0.5 of feedstock + manufacturing + misc. costs? Google said that ethylene also costs around $0.1-$0.2/lb, so I guess this would mean manufacturing for PE is around $0.2-0.3/lb?
Having come from a job where I worked on developing carbohydrate films as water-soluble packaging material, I feel this down to the ground. No matter how good your science is, Marketing is somehow never prepared for the focus group participant who asks, "But is it safe for me to give my kids plastic to drink?"
Yeah, I think just getting that customer feedback early and often is critical before you start doing a lot of product development.
Like, do people want their food packaging to be degradable around their food? They are usually OK with paper around a sandwich as an example. A degradable polymer coating paper to give it more water resistance might be just fine, especially if its waxy. It's all about how you communicate the value to your consumers.
The neat thing about these films was that they contributed bulk fiber to the final mixture. So, in the case of a powdered drink mix, you'd drop the whole packet into a bottle of water, shake it up, and get your lemonade with a bonus 3 g of fiber.
But it *looked* like plastic, and Marketing was not equipped to explain the difference to them.
One question I’ve been stewing on is the current regulatory environment stance where “all forever chemicals” = bad. I’m not sure that’s the right approach but I’ve got no clue how to answer the question of which/how but it feels like the current stance is “ban all chemicals” first then worry about the consequences later.
Not sure what my question is but I would love engagement on this to help widen my perspective.
The government ran/is running an extensive toxicology program (linked above) and last I checked it didn't appear to be as bad as people had indicated, but that doesn't mean it isn't bad. Having good data to make policy I think is step 1 and sometimes it takes time to get good data.
We can use phosgene for the most part safely in an industrial setting as well as chlorine gas so having the right safety controls in place is important and ensuring that equipment is maintained is also important. Doesn't mean we need to ban it.
The current stuff happening in Ohio is a good example of we are only as good as our infrastructure.
Wonderful post as usual!
Could you give us a sense of HDPE's profit margins? Eg how to translate a oil per barrel cost to a PE per pound cost (is it just converting to a price per carbon?), and also what is HDPE's production cost? Can maybe give some appreciation of how hard that 0.19/lb target for this black box biodegradable polymer is!
With HDPE I think 15-18% EBITDA is likely. Not quite sure on gross margins, but it's a commodity polymer.
All pricing I gave in the post for the hypothetical polymer was just based on a potential spot price for sucrose and using the 60 cents/lb price for HDPE (from 2021) as a comparison. Probably a +/- 5% error at least in most of the numbers. Was meant to mainly illustrate a point on manufacturing costs
I see, if HDPE can get 15-18% EBITDA, then I'm guessing you're probably also looking at (out of an estimated $0.60 price) around $0.5 of feedstock + manufacturing + misc. costs? Google said that ethylene also costs around $0.1-$0.2/lb, so I guess this would mean manufacturing for PE is around $0.2-0.3/lb?
Usually a polyethylene producer is going to be vertically integrated too
Tony -- Excellent post! Thank you for such a clear explanation!
Having come from a job where I worked on developing carbohydrate films as water-soluble packaging material, I feel this down to the ground. No matter how good your science is, Marketing is somehow never prepared for the focus group participant who asks, "But is it safe for me to give my kids plastic to drink?"
Yeah, I think just getting that customer feedback early and often is critical before you start doing a lot of product development.
Like, do people want their food packaging to be degradable around their food? They are usually OK with paper around a sandwich as an example. A degradable polymer coating paper to give it more water resistance might be just fine, especially if its waxy. It's all about how you communicate the value to your consumers.
The neat thing about these films was that they contributed bulk fiber to the final mixture. So, in the case of a powdered drink mix, you'd drop the whole packet into a bottle of water, shake it up, and get your lemonade with a bonus 3 g of fiber.
But it *looked* like plastic, and Marketing was not equipped to explain the difference to them.
"Edible fiber packaging, if you use our drink mix regularly it will help keep you regular."
One question I’ve been stewing on is the current regulatory environment stance where “all forever chemicals” = bad. I’m not sure that’s the right approach but I’ve got no clue how to answer the question of which/how but it feels like the current stance is “ban all chemicals” first then worry about the consequences later.
Not sure what my question is but I would love engagement on this to help widen my perspective.
EPA isn't perfect, but it's mainly based on exposure to humans risk and understanding what safe levels are for people.
BPA is a good example to bring up. For a while it caused a shitload of fear, but now we don't really hear about it anymore (or at least I don't).
https://ntp.niehs.nih.gov/whatwestudy/topics/bpa/index.html
The government ran/is running an extensive toxicology program (linked above) and last I checked it didn't appear to be as bad as people had indicated, but that doesn't mean it isn't bad. Having good data to make policy I think is step 1 and sometimes it takes time to get good data.
We can use phosgene for the most part safely in an industrial setting as well as chlorine gas so having the right safety controls in place is important and ensuring that equipment is maintained is also important. Doesn't mean we need to ban it.
The current stuff happening in Ohio is a good example of we are only as good as our infrastructure.