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The Future Contains Lots of Pulp

Maxxwell A.R. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

“Ben, just one word. Are you listening? Plastics.”

                                                                                    -Mr. McGuire in The Graduate (1967)

The infamous movie quote came after Ben was asked what he planned to do with his future. He wasn’t very upbeat about the lack of direction in his life, but you should have a much clearer investment strategy. And it should probably include the next game-changing, world-transforming material: nanocrystalline cellulose (NCC).

What?

Yes, NCC should be on your radar (with loud sirens that are triggered every time you read about it). Few materials have the disruptive power of NCC - whose impact could alter daily life as we know it. Made from (simplification) purified wood pulp, the material can be made into products ranging from viscous gel (safe fracking fluid) to micro-electronics to optical coatings to tooth fillings.

Take a quick look at several key physical properties of NCC compared to the materials it will displace:

<table> <tbody> <tr> <td> <p><strong>Material</strong></p> </td> <td> <p><strong>Density (g/cm3)</strong></p> </td> <td> <p><strong>Tensile Strength (MPa)</strong></p> </td> <td> <p><strong>Elongation at Break (%)</strong></p> </td> </tr> <tr> <td> <p>NCC</p> </td> <td> <p>1.5</p> </td> <td> <p>10,000</p> </td> <td> <p>6.7</p> </td> </tr> <tr> <td> <p>SWCNT*</p> </td> <td> <p>1.2</p> </td> <td> <p>30,000</p> </td> <td> <p>6</p> </td> </tr> <tr> <td> <p>MWCNT**</p> </td> <td> <p>2.6</p> </td> <td> <p>30,000</p> </td> <td> <p>12.5</p> </td> </tr> <tr> <td> <p>Kevlar 29</p> </td> <td> <p>1.44</p> </td> <td> <p>2,800</p> </td> <td> <p>4</p> </td> </tr> <tr> <td> <p>302 Stainless Steel</p> </td> <td> <p>7.75 – 8.05</p> </td> <td> <p>1,280</p> </td> <td> <p>---</p> </td> </tr> <tr> <td> <p>Cotton</p> </td> <td> <p>1.5</p> </td> <td> <p>800 (max)</p> </td> <td> <p>7.5</p> </td> </tr> </tbody> </table>

*Single-walled carbon nanotube, **Multi-walled carbon nanotube, Source: CelluForce

NCC is almost 8 times as strong as stainless steel, 3.5 times as strong as Kevlar, and nearly as flexible as pure cotton fibers. Meanwhile, several pioneering polymerization techniques with cellulose are beginning to challenge the strength and flexibility of carbon nanotubes. Can it get any better? Well, yes. NCC is also made from renewable and environmentally-friendly wood pulp, which translates into one of the first super materials with virtually negligent toxicity (carbon nanotubes have been linked to asbestos-like health effects upon inhalation).

Do I have your attention yet?

These companies know money does grow on trees

The obvious investment in NCC is paper giant Domtar Corp (NYSE: UFS) – with 2011 revenues of $5.612 billion.  Domtar has joined forces with FPInnovations, a world leading forest research center based in Canada, to form a JV named CelluForce. Besides feverishly researching the broad applications of NCC the JV opened the world’s first pilot scale NCC plant last year. The process is still being optimized, but the companies are targeting a selling price of just $10 per kilogram. In English: economies of scale have yet to be realized, but are heavily in NCC’s favor.

<img src="/media/images/user_6293/celluforce_construction_large.jpg" />

The construction of this 1 tonne per day facility cost FPInnovations and Domtar $33 million – or a pricey $90,410 per annual tonne. But for the world’s first, that’s not too bad. Source: CelluForce

Domtar has a heavy footprint in the northeast and southeast U.S., so it would not be surprising to see NCC production spill across the border. Those prospects grew this summer as the USDA opened the first NCC facility in the Lower 48 – although it will “simply” supply research quantities to interested companies and defense labs.  The opening ceremony at the pilot plant was attended by USDA Natural Resources and Environment Under Secretary Harris Sherman, IBM (NYSE: IBM), Lockheed Martin (NYSE: LMT), Ecolab (NYSE: ECL), and a consortium of paper companies.

Here are a few products that the companies above are hoping to cash-in on:

<table> <tbody> <tr> <td> <p><strong>Company</strong></p> </td> <td> <p><strong>Product</strong></p> </td> <td> <p><strong>U.S. Market</strong></p> </td> </tr> <tr> <td> <p>IBM</p> </td> <td> <p>Flexible displays</p> </td> <td> <p>$2,300 million</p> </td> </tr> <tr> <td> <p> </p> </td> <td> <p>Flexible consumer batteries</p> </td> <td> <p>$15,000 million</p> </td> </tr> <tr> <td> <p>Lockheed Martin</p> </td> <td> <p>Lightweight body armor</p> </td> <td> <p>$500 million</p> </td> </tr> <tr> <td> <p> </p> </td> <td> <p>Ballistics glass</p> </td> <td> <p>$1,290 million</p> </td> </tr> <tr> <td> <p>Ecolab</p> </td> <td> <p>Water-filter membranes</p> </td> <td> <p>$1,500 million</p> </td> </tr> <tr> <td> <p> </p> </td> <td> <p>Incontinence products</p> </td> <td> <p>$15,700 million (world)</p> </td> </tr> </tbody> </table>

Sources: Numerous industry research reports

The table above sports some pretty gargantuan numbers for just six markets! Don’t forget displacing fracking fluid, plastics, or micro-circuits – just to name a few more. No wonder the USDA estimates that NCC – a single material, mind you – could represent a $600 billion market by 2020. I personally don’t believe that figure is attainable that quickly (see handful of pilot scale facilities worldwide), but the disruptive potential is spot on.

Saving the paper industry?

Will this be the next greentech industry to entertain government aided companies that go bust? It is much too soon to say, but things could be drastically different for NCC for several reasons. The production process itself is a barrier to entry, which only paper companies have the technical expertise or asset allocation to conquer. (Your crazy Uncle Joe could open an ethanol plant that goes belly up, but a NCC facility is a little out of his reach.) Ironically, paper behemoth International Paper (NYSE: IP) is exiting a major restructuring period just in time to enjoy the NCC bonanza.

For those of you who don’t follow the paper industry (everyone?), let’s just say it was pretty bad. International Paper lost $1.15 billion on $25 billion in revenue in 2008, but turned in a net income of $1.46 billion on $26 billion in revenue in 2011. If any company can make a cannonball-sized splash in the NCC market it is IP (no public plans to pursue NCC as of this writing, but c’mon…).

Foolish bottom line

I had a professor in college who would always point to the poor margins of the paper industry as the reason why large investors don’t consider building paper mills. “Why build a paper mill that returns X% a year when a casino can return 3X%-4X%?” he would ask. Well, that could change pretty quickly. I wonder…ten years from now, will casino tycoons flee Las Vegas for the forests of Southern Canada or Upstate New York? NCC could be just the material to make it happen.

Follow me on Twitter to keep up with my future posts on energy, sustainable chemicals, and undervalued growth companies @BlacknGoldFool.

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BlacknGold has no positions in the stocks mentioned above. The Motley Fool owns shares of Ecolab, International Business Machines, and Lockheed Martin. Motley Fool newsletter services recommend International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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