Renewcell’s 60,000-Ton Problem Sparks Strategic Review

Renewcell is scrambling to turn things around, and quickly.

The Swedish textile-to-textile recycler is seeking new funding as part of a strategic review to mend the fraying seams of one of the industry’s most promising material innovators. According to the Spinnova partner, November’s sales are on track to come in somewhere in the ballpark of October’s “low” volume, which at the time prompted Renewcell to sound the alarm about its troubling financial trajectory. The Circulose maker, in rapid succession, responded to the growing malaise by installing a new chief executive and trotting out a 2,000-metric-ton offtake deal with fashion powerhouse and Zara parent, Inditex.

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Though promising, Inditex’s 2,000-ton commitment represents a mere drop in the bucket of the 60,000 tons of cellulose-rich pulp that Renewcell’s commercial-scale factory in Ortviken, four hours north of Stockholm, can produce each year out of textile waste. Negotiations with potential customers have yet to produce firm offtake commitments, Renewcell said on Monday, and there’s no telling when talks might move from handshake to John Hancock.

A “first mover” like Renewcell faces the unfortunate difficulty of balancing production against sales, said Tiffany Hua, a research analyst at Lux Research, the Boston-based advisory focused on the intersection of sustainability and innovation.

“At the same time, the company is experiencing the real-world conditions of processing textile waste and difficulties in establishing strong reliable partnerships along the textile supply chain,” she added. “All of which has put the company in a not ideal financial position.”

One of the biggest problems could be that the Ortviken plant seems to be stuck in a “ramp-up” phase, 11 months after it sputtered life, Hua said, pointing to “room for improvements in efficiency and operating costs.” A closer look at the numbers shows that Renewcell produced about 6,500 tons of Circulose pulp and delivered nearly all of it—99 percent—in the third quarter, according to the company’s preliminary report on the three months through September.

“However, the company also reported 7,500 [tons] of total pulp production, of which 86 percent was sellable quality pulp,” Hua noted. “In Q3, Renewcell only used half of its full capacity as the company can produce 15,000 [tons] of Circulose in a single quarter.”

Renewcell worked to iron out yet another third-quarter wrinkle when it ran into hurdles incorporating “new types of raw materials” that drove up production delays, Hua noted. “The challenge appears to be the processing of variable textile waste feedstocks including various pre-consumer or post-industrial cellulosic textile waste,” she continued. “More volume and more variability in feedstock will impact quality and yield—and ultimately cost. Such hiccups are to be expected for any new commercial operation but here it appears the operational costs and production yield strayed more than expected.”

Fashion is closely watching Renewcell’s fortunes.

At the Textile Exchange conference in London last month, Canopy’s Nicole Rycroft stressed the “critical” success of next-gen companies like Renewcell. Startups like these, she said, pave the way for fellow fashion disruptors such as Earthshot Prize nominee Circ, Tommy Hilfiger collaborator Infinited Fiber Company, Bestseller bedfellow Evrnu and the brands that are “trying to secure a stable supply of low-carbon alternatives.”

For Evrnu CEO Stacy Flynn, many brands are all “talk” and hot air.

“They want commodity pricing today,” she said at the Textile Exchange event. “They don’t have a culture of committing to innovation that isn’t tested. They don’t have the budgets; they have stated objectives, but they’re not funding them appropriately. And without funding, you get what you pay for. If you don’t pay for it, you don’t get it. So this has been a constant loop for the last 10 years: It’s a lot of talk.”

For Renewcell, a new funding source could shore up its shaky footing and offer some much-needed breathing room to clinch potential new customers. The company’s board is looking at several options, including securing new debt funding. It might also offers shareholders the option to acquire additional shares or make new shares available to a limited group of investors. Both options would increase Renewcell’s equity. Other strategic transactions are also on the table. Renewcell tapped ABG Sundal Collier and Vinge to manage the review process’ respective financial and legal angles.

Renewcell has spent the past year or so building out the Circulose Supplier Network to plug its planet-friendly pulp into fiber and yarn producers’ existing infrastructure. Network partners numbered 116 at last count, including participants in India, Pakistan, Turkey, China, Taiwan and other key global production hubs.

And earlier this month, Renewcell took home the 2023 Nordic Council Environment Prize, besting Scandi neighbor Infinited. But the $42,000 award highlighting Renewcell’s work championing circular alternatives to fashion’s outmoded take-make-waste model will have little impact on the bottom line.

What Ganni and Levi’s collaborator must do, according to Hua, is build up a stronger sales strategy while figuring out how to cut costs.

“Renewcell will need to strengthen its sales channels (and the company is well on its way in this regard), however, minimizing operational costs and maximizing yield via process improvement will be the company’s biggest challenge and ultimately the bottleneck to successful commercialization,” said Hua. “Any new funding that Renewcell might receive in the near future should focus on sales but more importantly, securing the reliability of its technology.”