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Melts in the Ground, Not in Your Hand

Cereplast manufactures inexpensive biodegradable plastic

It’s plastic that even Al Gore would approve of — biodegradable and made primarily from starches.

Compostables™, manufactured by Cereplast (OTCBB: CERP), combine starch from tapioca, corn, wheat and potatoes with other biodegradable materials to form 15 unique resins, used for injection molding, thermoforming, extrusion coating and blow molding — in other words, everything and anything.

What’s more, Cereplast Compostables™ break down in less than 180 days in industrial compost facilities, thereby restricting the emission of carbon dioxide into the atmosphere.

And it’s not just the vice president that is going green these days.

According to The Freedonia Group, a market research firm, “US degradable plastic demand will grow 16.8 percent annually through 2010.” That’s higher than the growth in demand for oil, which has averaged only about one percent per annum in recent years. 

No doubt fueled by escalating oil prices and growing discomfort with foreign suppliers — as well as environmental concerns — many consumers are now actively searching for petroleum alternatives.

Government legislation is also helping to spur the demand for ecologically conscious goods.

In September 2006, the Corporate Social Responsibility Newswire reported that the USDA had designated 20 (of an eventual 1,500) bio-based products as “preference” items for procurement by federal agencies.

“Among those twenty items, three are currently being made from bio-based resins,” the CSR wire noted.

Obviously, that’s good news for Cereplast and a primary reason that its gross sales jumped by 258 percent to $1.6 million in the first nine months of 2007.

Although Cereplast attributes most of that growth to the commercial launch of its Compostables™ resins line in November of ’06, the company also has a hybrid product, Biopropylene™, that was introduced with much fanfare last October. Cereplast officials stated that “in excess of 25 companies have requested samples for testing and many major trade magazines have published articles on the properties and commercial benefits of the new resin.”

Add to that existing customers such as Alcoa (NYSE: AA), Genpak, InnoWare (formerly Duni Corporation) and SoloCup, and it’s plain to see that Cereplast is becoming a bio force to reckon with, especially now that its conversion from distribution to manufacturing is complete.

CERP recently announced plans to open a new production facility in Indiana as well, which the company says “will add half a billion pounds a year to Cereplast’s bio-plastic resin production capacity” when it is fully developed in early 2010.

Beacon Equity Research Disclosure

The companies that are discussed have not always approved the statements made in this opinion. These reports are for informational purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities mentioned. We are not a licensed or registered broker dealer, investment advisor, analyst or underwriter. Please consult a registered broker before purchasing or selling any securities viewed or mentioned here. Beacon Equity Research has been compensated fifteen thousand dollars directly from the company for enrollment of CERP in this research program.
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