What’s Blocking the Rise of More Sustainable Materials? #818


Weaker-than-expected demand for Swedish textile recycler Renewcell’s first commercial volumes of recycled cellulose pulp has sent the company’s stock price plummeting and highlighted broader hurdles challenging efforts to lessen fashion’s environmental footprint.

Since Swedish textile recycler Renewcell began operations at its first commercial-scale recycling plant last year, its biggest focus has been ramping up supply.

But the only thing investors wanted to hear about when the company’s third quarter results landed on Tuesday was how it planned to tackle an unexpected challenge: a lack of demand.

The company, which has developed technology to recycle used cotton textiles into a feedstock for yarns like viscose and lyocell, is among a cohort of material innovators in the process of moving from pilot to commercial scale production.

It’s a significant development for the industry, which is relying on the evolution of emerging recycling technologies, bio-fabricated materials and a shift to greener agricultural practices to help meet incoming government sustainability regulations and brands’ own climate commitments.

But last month, Renewcell provided an unsettling update: while production was continuing to ramp up, the anticipated demand wasn’t there; just 129 tonnes of Circulose — the branded cellulose pulp it produces — was delivered in October, a sharp drop off from 1,500 tonnes in September.

The news blindsided investors, sent the company’s stock plummeting and prompted the abrupt departure of former CEO Patrik Lundström. But beyond that, it highlighted the precarity of fashion’s ambitions to bring materials with lower environmental impact to market, underscoring structural market challenges facing the whole sector.

“When you try to do something in a different way than what has been done before and change a process that involves so many people and so many parts of their organisations, it takes a lot,” Renewcell acting CEO Magnus Håkansson told analysts during a call for the company’s third quarter earnings on Tuesday. The bottom line: “Do the brands want this to happen?”

Complex Supply Chains and Mixed Signals

Though big brands need materials like Renewcell’s Circulose to scale to meet sustainability commitments, the industry is poorly structured to translate that intention into real demand.

Supply chains are fragmented and opaque, meaning innovators need to convince a complicated web of players to buy into what they’re bringing to market. Meanwhile, sourcing teams, who make purchasing decisions about brands’ material mix for each season, are typically disconnected from sustainability strategies — more focused on lowering costs than environmental impact.

Renewcell has tried to make strategic moves to overcome these supply chain hurdles, signing offtake agreements with fibre producers like Lenzing and Sanyou and forming a supplier network of more than 100 yarn and textiles manufacturers who have committed to offer products made with Circulose.

But brands are the ultimate power players here, with suppliers focused on delivering products that meet their requirements. And big brands’ buying teams are ultimately looking to secure material as efficiently as possible at the lowest possible price. That leaves little space for the additional complexity and price premiums that come with working with new innovations.

“There is such a gap between top management and leadership on sustainability,” said Nicolas Prophte, a member of the steering committee for The Denim Deal, a Dutch initiative focused on increasing the proportion of post-consumer recycled content in jeans. “[It’s] disconnected from the business.”

Brand’s including Zara-owner Inditex, Levi Strauss & Co and H&M Group (a major investor in Renewcell) have already worked with feedstock supplied by the recycler’s pilot plant to develop capsule collections. But that hasn’t translated into sales as commercial supply has ramped up.

While the company has sold some 14,000 tonnes of Circulose to date, most of that is still sitting with a sales agent. Only a few thousand tonnes has been delivered to fibre producers and hardly any finished material has reached brands. A commitment from Inditex late last month to buy 2,000 tonnes of fibre containing Circulose was a positive signal to the market, but it’s not enough for Renewcell to live on, Håkansson said in an interview.

“The real demand has to come from the big brands,” he told analysts on Tuesday’s earnings call. “We are ready. We have the production capacity, we have ramped up sufficiently to serve the market, we have the commitment from the fibre producers. But we need more commitment from the brands.”

A Tricky Market

These structural challenges might be less acute if the market weren’t so uncertain at the moment.

Demand for cellulose-based fibres has been down all year and is taking longer to recover than many had anticipated. Apparel retail sales dropped 5 percent in Europe and 3 percent in China in the third quarter, Lenzing said on an analyst call for its third quarter results last week. Heightened geopolitical tensions have dampened any optimism that things could turn around swiftly. Even luxury is feeling the chill.

Those market dynamics are ricocheting through the sector, discouraging suppliers from taking on the risk of devoting time and capacity to producing and marketing new materials that retail at a higher price point, aren’t well known in the market and may require additional spend and effort to incorporate into the production process and meet quality requirements.

“The current environment doesn’t help: There’s a lot of restructuring, it’s extra difficult to absorb premiums and that further triggers short-term thinking,” said Katrin Ley, managing director at sustainable fashion incubator Fashion for Good. “Money isn’t flowing as easily.”

Circulose is roughly 50 percent more expensive than conventional wood pulp, according to a presentation delivered by the company at its capital markets day in May.