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Archer Daniels (ADM), LG Chem Sign MoU for Bioplastic Demand

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Archer Daniels Midland Company (ADM - Free Report) partners with one of the leading diversified chemical companies, namely LG Chem, through a memorandum of understanding (MoU) to fulfill the growing demand for plant-based products, including bioplastics. The demand stems from customers’ gradual shift to environmentally-friendly products. The collaboration is in sync with Archer Daniels’ efforts to expand its capabilities in the plant-based solution space.

Per the deal, both companies are in talks to form a joint venture (JV), which will be concluded in early 2022. Through the JV, the companies will build, own and operate a US-based facility, which will produce high-purity corn-based lactic acid on a commercial scale.

Archer Daniels is likely to benefit from this, which is evident from the global demand for lactic acid, which was valued at $2.7 billion in 2020 and is expected to grow 8% on an annual basis, per Grand View Research.

Alongside this, the companies will unite for another joint venture to use the lactic acid produced by the first JV to further produce polylactic acid (PLA) for commercial use. PLA is a plant-based, biodegradable plastic, which is used for food packaging, clothing and upholstery. The companies will also work toward the development of technology for other biomaterials. The demand for global bioplastics and biopolymers is now projected to grow from $10.7 billion in 2021 to $29.7 billion by 2026, witnessing a CAGR of 22.7%, per research by MarketsandMarkets.

Lactic acid used in the production of PLA will also be used for a variety of food and pharmaceutical applications. Archer Daniels’ BioSolutions growth platform is likely to enable it to expand reach in sustainable, higher-margin demand areas, including pharmaceuticals and personal care, textiles, paper products, and even adhesives for helicopters.

In 2019, both companies signed a joint development agreement to produce biobased acrylic acid via mass production technology, which, in turn, will be used to manufacture superabsorbent polymers to be used in diapers and other hygiene products.

Shares of this Zacks Rank #3 (Hold) stock has rallied 22% year to date compared with the industry’s growth of 2.2%.

 

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