Nails in Renewcell Coffin Were Hammered in by a Callous and Lethargic Global Fashion Industry

Since the company's annual report for 2022 that was released on 25 April, all numbers that subsequently came out of Sweden were low in count. At the onset it did not seem to indicate anything wrong, for any numbers would obviously have to be low to start with. 

The production of prime quality pulp increased from 500 tonnes in January to 650 tonnes in February and 1,150 tonnes in March. The total production during the quarter was about 3,350 tonnes of which 2,400 tonnes were prime quality, and 2,061 tonnes were delivered to customers. 

The production volume in May was 2,100 tonnes, followed by 2,200 tonnes in June. Then came the first sign of oncoming turbulence: on 15 July CFO Toby Lawton was said to be moving on. A change at the top level of a company on the cusp of becoming an industry gamechanger cannot be good news. The company, however, remained guarded about the dismal sales figures.

In the 29 August interim report for Q2 2023, CEO Patrik Lundström spoke of the "consequences of the ongoing war in Ukraine, including the high level of inflation and a weaker level of demand, continue to negatively impact global economic activity." Lundström felt recovery in the textiles-fashion sector was slower than expected, but hope lay in "more brands setting clear targets for their businesses." That month, production dropped to 2,000 tonnes, and 1,600 tonnes in September.

The preliminary update on financial results for Q3 on 12 October bore ominous portents: "The ramp up of Circulose sales to fibre producers is taking a longer time than previously expected. Sales volumes to fibre producers are behind the levels previously expected and are not likely to follow the volumes implied for 2023 by existing off-take agreements." 

The clue possibly lay in the "existing off-take agreements" bit. 

Till the end of September, Renewcell had sold 14,400 tonnes of Circulose, of which a third had gone to fibre producers. The remaining had gone to a "sales agent and are held pending final onward sale to fibre producers." About 70% of the payment was reported to have been done, and the rest held back on account of onward sales to fibre producers. The "sales agent" is not named in any document, but Renewcell seemed to be mortally bound to this entity well into 2024. This payable amount alone had impacted cash flow to the tune of SEK 25 million. Four days later, the Board axed Lundström, replacing him with Magnus Håkansson.

The interim report of Q3 2023 made Renewcell concede its fatal mistake: of trusting buyers, though not in as many words. The new CEO commented: "We are working hard to get the wheels turning faster but have underestimated the complexity and timing to get from consumer or brand demand to an order from a fibre producer at the start of the textile supply chain."

He continued: "It is clear that there is a strong interest and action-readiness from the fibre producers. However, the two off-take agreements with fibre producers, which have been previously signed and communicated, have so far not translated into orders according to time plan – partly due to a delayed production start from our side, but also delays in the calibration of the new material in their fibre production lines as well as their preparations to sell fibre volumes to their customers, the yarn spinners. In addition, the demand in terms of hard orders from the brands is coming along with less urgency than we had expected." In November sales plummeted to zero. Repeat: zero.

The Board announced a strategic review on 20 November to "explore and evaluate various funding alternatives." Negotiations were held with the two largest shareholders, H&M and Girindus, existing lenders BNP Paribas, European Investment Bank, Finnvera (as partial guarantor), Nordea, AB Svensk Exportkredit and potential new investors as well as other stakeholders. Those came to nought.

In January 2024, it became evident that the final nails were being hammered into Renewcell’s coffin. The company announced restructuring plans, with a quarter of the workforce (30-odd people) being retrenched. The writing on the wall was as intelligible as can be.

When a recycling pioneer decides to file for bankruptcy, it distinctly indicates that the stated circularity claims, promises and ambitions of industry are only hot air.

But it might be worthwhile to divert one's attention for a moment away from Renewcell, to a report that was published in December 2023: Materials Market Report 2023 by Textile Exchange. It had underlined: "After years of growth, the market share of recycled fibres decreased from 8.5% in 2021 to 7.9% in 2022. Polyester had the highest proportion of recycled fibres in 2022, at around 14%. Around 99% of recycled polyester came from PET bottles."

It was evident that in spite of the screaming rhetoric and lofty promises brands had not only failed to increase their recycled fibre proportions, but were in fact consuming more virgin fibre than earlier. What's worse is that they have done so with impunity and got away with it.

It should therefore be no surprise that Renewcell was let down by both buyers who had committed themselves, as well as those seen to be potential ones. That Renewcell had never blamed them for the depressing and perennially dipping sales figures is understandable: you cannot bad-mouth your customers and remain in business. But the real buyers were not the fibre manufacturers, but the indirect ones—brands. In the global fashion industry, it is the brands who decide what to use and what to sell. If fibre makers did not buy Circulose, it means brands were not willing to use it.

Renewcell had done exactly what the industry needed to cut down on consumption of virgin fibres. It had created a product that was closed loop in process, retained the quality of the original fibres, made use of textile waste. It is also not that industry did not have time to factor this in. Pilot projects had created a buzz years ago, and its industry-scale operations were in fact being looked forward to.

The pilot projects had been collections, particularly those from Zara. That’s where the industry is stuck—it is too lethargic to transition from one-off collections to main lines. [Note: The work with Ganni had been more elaborate. Ganni worked closely with Renewcell for over three years, producing a substantial level of products made with Circulose. Those were used across product groups with no limitations of product volumes.]

Yet, Renewcell had done its bit. The cutting-edge innovation apart, its Sundsvall facility was the world’s first commercial-scale textile-to-textile pulp mill (it already had a plant in Kristinehamn). It had made the product traceable with TextileGenesis, and even launched a suppliers network. It had also inked deals with fibre producers ranging from Lenzing to Spinnova and Daiwabo Rayon to Birla Celluose. Brands cannot cry hoarse about Renewcell not having things in place.

Voluntary commitments from brands are not working: those sound great only on paper, in the vacuous impact and sustainability reports that brands churn out by the year.

Meanwhile, what transpired at the negotiations with Renewcell shareholders and lenders is not known as of now. But the Board Chairman Michael Berg's last words in the bankruptcy announcement are significant and tell-tale: “This is a sad day for the environment, our employees, our shareholders, and our other stakeholders, and it is a testament to the lack of leadership and necessary pace of change in the fashion industry."

Innovation has not faltered; brands have.