Scott Woods company visits: Trex
World in Motion – Global equities blog

Scott Woods company visits: Trex

I recently visited Trex, which manufactures composite decking, a mixture of plastic and wood which is quite expensive to buy. On my visit, it was testing a new product that is much closer to the price of wood, which would open up a whole new price point and market.

For example, the new product is $2.50 a linear foot but the original is $4 a linear foot. It not only offers customers a cheaper option, but can convert people from the idea that composite decking is too expensive; once they’ve got that in their mind, Trex can potentially upsell them the more expensive option. So it had a little research lab where it was basically testing the strength of the new product.

The reason why going to Trex was really important for me – and why I had been waiting for a while to go – is that it has a plastic recycling process, where it takes different grades and colours of plastic (such as milk bottles and all the plastic bags from the country’s largest two retailers nationwide) and grinds it up to make plastic resin beads, that literally look like tiny little beads. The interesting thing is how it can take all of that different plastic, 100% variable input if you like, and get a 100% consistent output where every resin bead is identical. How is that even possible?

It turns out that it has a plastic sorting facility that is a few miles away. The “secret sauce” as you might say, is the order of the huge pallets the plastic arrives in. It has people constantly sifting the plastic into high- and low-grade and it knows how to order that so the palettes come off the truck in the exact order they need to go into the grinder and what temperatures are required for the extrusion process. It is incredibly difficult to replicate this process and therefore incredibly difficult to replicate the manufacture of the composite decking using recycled plastic, as the resin beads are heated and mixed with wood chippings from local furniture manufacturers.

As Trex is taking recycled plastic, it is buying it at five cents a pound, whereas competitors are having to pay something closer to fifty cents a pound. This gives Trex a huge cost advantage – for the long term – in a market that has wafer-thin margins.

1 February 2020
Scott Woods
Scott Woods
Portfolio Manager
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February 2020
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Scott Woods company visits: Trex

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