California Recycler Eco2 Closes Riverbank Plant

Eco2 Plastics Inc. has shuttered its PET recycling plant in Riverbank, Calif., and appears to be running out of time to prove that its water-free recycling process for PET will work.

The financially troubled company laid off 47 of its 58 employees and began dismantling equipment at the plant Sept. 8. Formed in 2000, Eco2 has spent the past five years trying to perfect its process to make it commercially successful.

In papers filed with the Securities and Exchange Commission Sept. 8, the San Francisco-based company now says that it will regroup and hopes to build and open a new plant, most likely in northern California, in the next 6-9 months.

Peninsula Packaging Co. — Eco2’s largest customer, shareholder and investor and a manufacturer of PET thermoformed food packaging containers made with as much as 70 percent recycled content — is headquartered in the northern California town of Exeter in Tulare County. Peninsula accounts for roughly 60 percent of Eco2’s sales.

In its SEC filing, Eco2 conceded that it could have to switch to a conventional water-based process to survive, that it may need to cease operations, and that it needs at least $9 million to build and open another plant — $4 million of which must be raised, they said, “from equity or debt investors, including the company’s principal shareholders.”

Eco2 also said that it will purchase a commercial wash line for the plant and believes that it can adapt a line of that type to use its bio-solvent based cleaning process. But it also said the possibility exists that Eco2 may need to recycle PET conventionally to succeed.

“In the event that the company is unable to achieve expected results from the bio-solvent-based line in the new facility, the new facility should permit the company to switch successfully to a water-based process [as it will have] equipment that has been proven to operate efficiently in a water-based process,” said the company in its SEC filing.

Eco2 had hoped to begin commercial-scale production of recycled PET flake this past June, but the company said that it “had not been able to improve its processes” enough to do that.

The company has “not demonstrated, as yet, the ability to produce product in sufficient volumes, at consistently high quality and at sufficiently low cost for profitable and sustained operations,” despite improvements to drying technologies, improvements that optimized the performance of the bio-solvent and the installation of additional vapor recovery equipment to reduce to bio-solvent evaporation, said the company in its SEC filing.

“The company’s difficulty in achieving sufficient volumes of production has consumed significant capital, with $42 million in capital raised since 2006” alone in an effort to achieve commercial viability, said the company’s SEC filing.

Those realities led Eco2’s board to conclude that the Riverbank plant was “no longer suitable” if the company was to achieve “an efficient flow” to the recycling process, said the filing.

Still, Eco2 said it believes that the planned new facility, by incorporating a new wash line and all the process improvements made to date, “will operate successfully” and be able to produce 100,000 pounds of recycled PET flake daily. “But there can be no assurances” of that, it added.

“The company still has not perfected the overall processes required to produce recycled plastic flake in sufficient volumes, of sufficient quality, and at sufficiently low production cots to support sustained profitable operations,” said the company in its SEC filing. “If the company is not able to improve its processes to achieve such goal, the company will need to cease operations or potentially switch to a water-based process. The potential ability to switch to a water-based process reduces the risk associated with the investment in the new plant.”

Last November, Eco2 laid off 85 of its 120 workers and shut down its batch processing line in order to switch over to its next-generation, continuous-flow, water-free PET washing process. In springtime, it had slowly begun to recall some workers, but couldn’t lower the cost of its operations sufficiently. It had hoped to produce food-grade recycled PET at a rate of 40 million pounds annually.

In the first six months of 2009, Eco2 lost $10.8 million on $1.6 million in revenue, bringing its losses in the past 5½ years to nearly $115.5 million. Eco2 received investments in excess of $15 million from Trident Capital Management and Peninsula Packaging in 2008, and raised another $2 million in funding from existing investors this year.

As of June 30, the company had cash and cash equivalents of $243,000, compared to $1.6 million in cash and cash equivalents at the end of 2008.

Eco2’s water-free technology immerses shredded PET bottles in ethyl lactate, a biodegradable solvent made from beets and corn and then blasts the material with liquid carbon dioxide to remove the solvent. The solvent and liquid CO2 are reused.

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