Reality Check: Supply and Demand Challenge Swedish Recycler Renewcell
“Maybe that you’re hopeful and believe in the success?” Shannon Welch, global brand director at Renewcell, prompted Magnus H?kansson, the company’s acting CEO, after a reporter asked if there was anything else he wanted to get across in his interview.
A month into his appointment, H?kansson is indeed hopeful about the beleaguered Swedish recycler, the first-ever to establish chemical textile-to-textile recycling at an industrial scale. He wouldn’t have come on board if he wasn’t. But the retail veteran, who has experience in the pulp industry, has his work cut out for him. The company’s third-quarter sales, which landed in early November following a startling sales warning—the same one that triggered a leadership shakeup and sent shares plunging—showed that it was hemorrhaging cash to the tune of 94.5 million Swedish kronor, or nearly $9 million, contributing to a net debt of 905 million kronor, or close to $86 million.
More from Sourcing Journal
The ramp-up of sales of Circulose, the branded dissolving pulp that Renewcell concocts from cotton-rich castoffs, such as worn-out or surplus T-shirts and jeans, was taking longer than anticipated, H?kansson’s predecessor, Patrik Lundstr?m, said in October. While it had pumped out 2,043 metric tons of Circulose at its year-old commercial facility that month, only 129 metric tons were shipped to customers. The broader outlook was only marginally better. While Renewcell sold roughly 14,400 metric tons of Circulose from January to September, only one-third made it into the hands of fiber producers for transforming into lyocell, modal, viscose and acetate. The bulk of that output is sitting in limbo with a sales agent pending their delivery.
As a result of October’s sluggish sales, Renewcell reduced its production volume in order to preserve its cash flow. The production volume for November is also poised to fall below the production capacity because of lower demand.
While Renewcell peddles its sheets of material to fiber manufacturers like Aditya Birla, Eastman, Lenzing, Spinnova and Tangshan Sanyou, which in turn trade with textile mills such as Artistic Milliners, Arvind, Calik Denim, Cone Denim and Indigo Textile, Circulose’s ultimate customer is arguably the likes of Ganni, H&M Group, Levi Strauss & Co. and Zara owner Inditex, which have been taking the regenerated fiber and incorporating it into capsule collections that can claim a more sustainable profile. What this means is that when those brands and retailers fail to commit to enough of the material to keep the flow going, the pipeline backs up.
Capsules can be as much of a blessing as a curse. Trial volumes are well and good, H?kansson said, but not if they don’t grow beyond that. Since H&M feted an “easy blue day dress” inspired by “carefree days on the C?te d’Azur” for its now-defunct Conscious Exclusive collection in February 2020, Circulose has wended its way into more than 250 styles. At the same time, they haven’t manifested the quantities that would pull Renewcell out of the red.
“We can produce volumes needed to break even for the company, but there must also be demand from the brand side,” he said. “We have underestimated how long it takes for the brands to adopt this new product in their final clothing products. We have sold a lot of volumes to Sanyou and we have discussions with other fiber producers and all of that is quite promising. But we also need the brands to step up to the plate and take on significantly more volume than they do today.”
Following its sales update, Inditex revealed that it has committed to snapping up the first 2,000 metric tons of Circulose and responsibly harvested cellulose-blended fiber from Tangshan Sanyou. Fellow Swede H&M, Renewcell’s largest shareholder with a 10.3 percent stake, also has a multi-year agreement to source thousands of metric tons of the material, or enough to produce millions of garments across its brands.
But H?kansson has done the math. Renewcell needs to move 42,000 metric tons of pulp—the equivalent of between 80,000 and 120,000 metric tons of fiber, depending on the final mix—annually in order to break even. That would require 20 brands or so to commit to 6,000 metric tons of Circulose-incorporating fiber apiece every year—more if the pool is smaller.
If You Build It
Renewcell 1, perched near the water in the sunny coastal city of Sundsvall, a three-and-a-half hour scenic train ride north from Stockholm, can crank out nearly 60,000 metric tons of Circulose on an annual basis at full throttle. Its massive warehouses, which sit on the site of a former paper mill, are stacked with towering bales of garments and textiles—some wrapped in plastic (“not ideal,” said Jenny Fredricsdotter, circular business manager at Renewcell), others bound with metal wires—that can barely prevent their colorful contents from spilling out. These serve as the grist for the gargantuan machines that demand to be fed in the next building over.
The company rents its space from Svenska Cellulosa AB, or SCA, Europe’s largest private owner of forest land and one of Sundsvall’s biggest employers. Renewcell hired many of the operators and engineers who lost their jobs when SCA shut down the paper production line in the location it now occupies. From that vantage point, an eagle-eyed observer might spot a strip of the Baltic Sea and the lofty container cranes that unload ships carrying post-industrial and post-consumer feedstock from textile sorters in Bangladesh, Germany, Pakistan and Turkey. From there, the bales are packed onto trucks that trundle the short distance to Renewcell 1. Eventually, the plan is to construct train tracks to make the journey more efficient.
Sundsvall’s town center is known colloquially as Stone City for good reason. It burned down so many times over the centuries that a decision was made to re-create it in blaze-proof stone. Littered across the townscape are sculptures of dragons, which offer symbolic protection from future conflagrations—fighting fire with fire, as it were.
Renewcell is another kind of first responder. According to the Ellen MacArthur Foundation, less than 1 percent of old clothing is recycled into new garments. The vast majority is downcycled into rags, couch stuffing or wall insulation, buried in a landfill or set ablaze in an incinerator. And those are the best-case scenarios. The beaches of Accra in Ghana and the sands of the Atacama Desert in Chile have crusted over with unwanted garments, primarily from the West, which has turned parts of the developing world into ad-hoc waste management systems, even though few have the infrastructure to deal with the deluge.
“We’re trying to do things better,” Fredricsdotter said. “We want to do things in a different way…to be part of the change.”
Then there’s the looming threat of legislation, particularly in the European Union, which is poised to set requirements to make textiles last longer, easier to repair and recycle. Brands clamoring to position themselves as a solution to the climate crisis rather than one of its causes also have their own sustainability ambitions to phase out conventional materials in favor of more so-called “preferred” content, including recycled fibers. But intent doesn’t always translate into fast enough action, especially in today’s uncertain and cost-sensitive landscape. This is a problem, according to a recent analysis by the Boston Consulting Group, Textile Exchange and Quantis, which concluded that fashion will face a 133 million-ton shortfall in preferred materials by 2030 if its current trajectory continues.
“Where will the brands be [when] they suddenly need all these materials?” asked Tricia Carey, chief commercial officer at Renewcell. “I mean, typically they don’t go from zero to 200, right? By 2030, I think this industry has a lot to do to change. I’m not that optimistic that this will happen. I think even if legislation comes in, I think some brands are going to say, ‘Well, how was it monitored and enforced?’ And perhaps paying a fine or not complying might be cheaper.”
“Business isn’t good; cost is different than virgin,” Karla Magruder, founder of Accelerating Circularity, an initiative that is working to drive fashion’s circular transition, said of why brands just aren’t biting—or biting enough—when it comes to innovations like Circulose. “Of course, the cost is different than virgin; there’s always a cost to innovation,” she said. “They’re new technologies but they’re new technologies specifically designed to reduce our environmental footprint. Polyester, I mean, my God, we run it in such huge quantities; it’s incredibly efficient, but I don’t know if it’s necessarily what we want to keep doing.”
H?kansson declined to put a number on how much more Circulose costs compared with conventional wood pulp, only saying that there needs to be a premium for the company’s finances to make sense. It also depends on the volume uptake since economies of scale can drive down the price. But the final cost to the consumer is more or less a rounding error, he said. Using Circulose in a pair of jeans, for example, would add less than 0.5 percent to the ultimate sticker price.
Commercial Innovation
Change is key, said Allan Andersen, chief sales officer at Spinnova, a Finnish materials company that in September revealed it would be making Spinnova fiber using 100 percent Circulose, with the first consumer products expected to hit the market by the close of 2024.
“To have a significant impact on the materials sector, we need to rapidly scale up material innovations and widely introduce them to the market, which requires investments,” Andersen said. “To change an industry that accounts for an estimated 4 percent of global greenhouse gas emissions, we need to reconfigure the entire system, which requires efforts from policymakers and legislators.”
On a day in early June, the hulking apparatuses that slice, dice, brew and bake textile scraps to create thick white sheets of Circulose were still, if not completely quiet. The smell of ozone, which allows Renewcell to work its magic with minimal chemicals, hung in the air. The behemoths grumbled and groaned, like dragons struggling to stay watchful.
Nicole Rycroft, founder and executive director of environmental nonprofit Canopy, admits that “next-gen”—the term she uses as a shorthand for next-generation alternatives to virgin, more environmentally problematic textiles—can sound futuristic. With companies like Renewcell out of the commercial pilot phase and ready for the market, it’s time for brands to be “actually placing orders” and displacing an explicit percentage of incumbent materials, even if it’s a modest 5 to 10 percent to begin.
Though letters of intent from buyers signaling an interest can “prime the pump” for next-gen innovations from an investor and community confidence perspective, Rycroft said, they’re not legally binding and need to be translated into purchase orders so producers can not only pay their existing bills but also expand. Renewcell 1 was so named because it was intended to be the first—a “blueprint,” as the company has said.
“There’s a lot of support in the early angel and venture capital investment stages,” she said. “But then as soon as you build a commercial-scale facility, all of those formal support mechanisms disappear. The paint is barely even drying at the Renewcell mill—they literally turned the switch last November, and they’re still optimizing and commercializing the facility. And that just takes time…[they’re] just hitting spec.”
Katrin Ley, managing director at Fashion for Good, an Amsterdam-based innovation platform, expressed her concern that Renewcell’s troubles would cause “real worry” about the credibility of the industry’s sustainability commitments, as well as innovators’ “ability to succeed.” She said that the success of Renewcell—as well as that of fellow textile-to-textile recycling platforms like Circ, Evrnu, the Infinited Fiber Company and Worn Again—hinges on having “all hands on deck”: brands, suppliers, investors and consumers. Some $400 billion of financing is still needed to scale and commercialize the innovations required to achieve fashion’s net-zero aspirations, according to a report published in October by Fashion for Good and Spring Lane Capital.
“We call on all: do not wait on the sidelines,” Ley said shortly after Renewcell’s profit warning. “Step in with orders to drive the economies of scale and enable widespread adoption.”
Renewcell has already tried to course correct, inking supply agreements with Tangshan Sanyou and Lenzing and tweaking the efficiency and capacity of its production processes, such as the bottlenecks it was facing in its shredding area. In July, it launched the Circulose Supplier Network, featuring more than 100 yarn and textile producers across 12 countries that have pledged to promote the delivery of Circulose throughout the value chain.
“It’s a signal to the market that we’re open,” Carey said of the network. “Before the network, it was all market-back. So, when we only had limited fiber coming from the pilot line, we would say, ‘OK, if you’re a brand, you need to tell us exactly where it’s going and we would portion off just that amount of fiber. With the supplier network, and we keep repeating this, it’s open, it’s accessible, it’s there. The fiber is there now.”
Carey said that when she’s meeting brands there’s always an “aha moment” when designers scan the list of Circulose-offering mills on the screen and realize that they’re already working with them.
“We’ve been doing a lot to market those suppliers so that they can continue to multiply the Circulose message to the market,” she said. “Those that are in denim have really strong communication messages.”
“We’re big fans of recycled materials,” said Mark Ix, director of North American marketing at Advance Denim, which bills itself as China’s oldest denim mill. “And Circulose makes steps toward a better recycled product that offers more tenacity, which is one of the drawbacks when you get into recycled cellulosic products. And it’s softer.”
At Kingpins in Amsterdam this past October, Advance Denim debuted the first denim collection featuring Gracell x Circulose viscose, made by fiber producer Yiben Grace using a 50 percent blend of Circulose, a “significant milestone,” Ix said, because of the high recycled content.
“We’ve had a lot of people interested in it,” he said of the two styles Advance Denim showed, one including recycled cotton, Lenzing’s Ecovero and spandex and the other incorporating recycled cotton and Lycra’s T400. “We’ll probably develop 13 or 14 more. We’re not pulling back into any way, shape or form.”
H?kansson hesitated to say whether he sees Renewcell achieving profitability any time in the near future. What needs to happen still, he noted, is for the company to “sell and produce in harmony.”
As November wound to a close, the board of directors announced that it has initiated a “strategic review,” with the support of ABG Sundal Collier, to “explore and evaluate” different funding alternatives, including additional debt funding, equity injection through a rights issue or equity injection through a directed issue targeting a financial or strategic investor. When the process will conclude, however, still remains to be seen.
So is H?kansson hopeful? Why, yes, he is.
“I took this on because I’m inspired by the position we have and what we’re bringing to the industry,” he said. “And I’m counting that we’re going to make it. But it takes more. It takes more leadership from the brands. That’s my bottom line.”
This article appears in Rivet’s winter issue. Click here to download the digital magazine.
Solve the daily Crossword
