Bioplastics supplier Cereplast Inc. will stop production at its California plant and will not open a recently completed plant in Indiana.
Officials with Hawthorne, Calif.-based Cereplast announced the move in a May 19 news release. The firm now will have its products produced by compounders on a toll basis. Cereplast had operated about 45 million pounds of compounding capacity in Hawthorne for bioplastic compounds based on polylactic acid resin sourced from NatureWorks LLC.
The Seymour, Ind., plant representing an investment of between $3 million and $4 million was set to employ 15 and have annual production capacity of 50 million pounds.
This is the painful part of growth, Cereplast Chairman and CEO Frederic Scheer said in the release. Unfortunately, we will not be able to include many of our manufacturing employees as we move forward.
To accelerate our growth, Cereplast will focus its efforts on the product development and marketing core strengths that have propelled us into a leadership position in proprietary bioplastics, he added.
Cereplast reported sales of $4.6 million for 2008 double its 2007 total but the firm still lost almost $13 million after losing almost $12 million the year before.
Production in Hawthorne will continue until Cereplast reaches an agreement with an outside compounder, senior Vice President Philippe Ravera said in a May 19 phone interview. The firm is negotiating with two or three firms, but Ravera declined to identify them.
Cereplast has 20 manufacturing employees in Hawthorne and an additional 10 there in administrative and R&D positions. The non-manufacturing employees will not be affected by the manufacturing switch.
Cereplast officials also are hopeful that an outside compounder will buy or lease the 105,000-square-foot Seymour plant. Pilot work has been done at the plant, but no commercial runs. Ravera said that the new plant is ready to go and that Cereplast has the volume and customers all lined up to use output from the new plant.
The manufacturing move was prompted by a lack of new investors in the firm, Ravera added. In December, private equity firm Cumorah Capital Inc. of Bainbridge Island, Wash., agreed to invest $20 million in Cereplast over a two-year period, but no new investors have emerged in 2009.
We still need cash to operate the [manufacturing] sites, but we're not cash-rich enough to do it, Ravera said. We've been looking for investors, but nobody's able to invest right now.
News of the manufacturing shutdown comes only a day after Cereplast announced a deal to supply its Compostables-brand bioplastics to paper and construction products giant Georgia-Pacific LLC for use in Dixie EcoSmart-brand paper cups. In a news release, Scheer described the Georgia-Pacific deal as the largest contract in the history of Cereplast and our most important commercial achievement to date.
Earlier in the month, Cereplast also announced a deal with Dorel Industries Inc. to use Cereplast's Hybrid-brand bioplastics in bathtubs, step stools and other juvenile products.
In the May 19 release, Scheer said that working with outside compounders will provide sufficient capacity to service substantial new contracts with major customers such as Georgia-Pacific and Dorel.
Cereplast also plans to exhibit at NPE2009 in Chicago next month. Company officials previously said its NPE focus would be on four new material grades commercialized since late 2008, as well as on two additional grades set to launch later this year.
Shares in publicly held Cereplast are traded over the counter. Its per-share stock price was above 50 cents in early 2008 but stood at 12 cents in early trading May 22.