Basing a business on a single specialty polymer may seem a risky strategy, but Victrex, Thornton Cleveleys, England, has made it work. Indeed, the producer of polyetheretherketone (PEEK) boasts enviable financial performance.Victrex is unique in the plastics industry, says Roger Jones, president of management consultant Franklin International, Broomall, PA.
“It’s the only long-term-successful specialty one-polymer company in the world.” More than that, Jones enthuses, “Profitability is spectacular. Return-on-sales and invested capital is at least one-and-a-half to two times better than anyone else.”
A semicrystalline polymer that sells for $35 to $40/lb for standard grades, PEEK retains mechanical properties at temperatures up to 300°C, and withstands chemicals, hydrolysis, and radiation. “PEEK is an exceptionally expensive material, but it provides exceptional heat and chemical resistance,” says Jones.
Victrex, which exports about 97% of its output, had been posting steady growth until last year, when sales slid, notes chief executive David Hummel, who says demand is now rebounding. For the next few years, he terms an annual volume growth rate in the 10 to 20% range as realistic.
Sales, however, dropped by almost 20% in 2002, to £59.1 million (approximately $94 million), and volume fell even further, to 1205 tonnes (see box). The company suffered from the general economic slump and particularly from woes in the semiconductor industry. “Semiconductor demand overheated in late 2001 and then fell off the cliff in 2002,” notes Blair Souder, commercial director. Nevertheless, Victrex increased its margin by 5%, to 55%.
Western Europe accounted for 55% of demand, while the U.S. took 35%, and Asia-Pacific 12%, last year. U.S. consumption was especially hit hard by the drop-off in the semiconductor market.
“Victrex has to go into Asia in a big way,” Hummel says. More than one-third of its sales should come from Asia-Pacific in five years, Souder predicts.
Management buyout makes a difference
Victrex was formed 10 years ago this October, when four managers at ICI led a group that bought the British company’s struggling Advanced Materials operation. PEEK was the only product that was breaking even, notes Hummel, who was international business manager for the polymer then and a member of the buyout group. So, the new owners eliminated all other products. They also relocated R&D to Thornton Cleveleys, the site of a full-scale PEEK plant built in 1987.
The capacity of the plant was expanded in 1996, 1999, and 2001, and now stands at 2300 tonnes/yr. Another expansion, which will raise the nameplate rating to 2800 tonnes, should be completed by October. A second plant of roughly the same size is being considered, notes Hummel, with the decision to be based on business conditions over the next 12 to 18 months. That plant, which would take two to three years to build, would be located adjacent to the current unit. There is no compelling case for building the plant elsewhere, he says, while having them together allows the new plant to benefit from the expertise of staff on-site.
Victrex added a melt-filtration unit in 1999 to produce high-purity PEEK, and in 2001 set up a subsidiary, Invibio, to supply high-purity materials, called PEEK-Optima, for medical implants. Victrex itself supplies PEEK for non-implant medical uses.
To ensure raw material supplies, Victrex has backward-integrated. In 1999, it bought Laporte’s Rotherham, England, plant that makes 4,4-difluorodiphenyl methane (DFDPM). In 2000, it purchased a half-stake from Laporte in a Seal Sands, England, plant that makes 4,4-difluorobenzophenone (BDF); the other 50% is now owned by Degussa, which took over Laporte.
A raw material bottleneck actually forced the company to put PEEK on allocation in the second half of 2001, but that problem has been resolved.
The latest PEEK capacity expansion will come through debottlenecking, says Hummel, noting that it should provide improved quality as well as productivity. David Kemmish, research and technology manager, adds that improvements in the DFDPM process to significantly boost yields also are possible and may be implemented in the next 12 to 18 months.
Adding capacity despite a significant drop in sales may strike some as foolish. However, Jones sees it as a testament to the corporate temperament of long-term development. “Victrex has developed a sound strategic business plan and has the courage to stick to it, despite the downturn,” he proclaims.
The company has three major thrusts, explains Souder: investment in application-development resources and staff; commercialization of new products; and an increasing emphasis on alliances to open up new markets.
Application-development efforts buttress growth
Using PEEK, when only one company makes it, understandably has concerned some customers, admits Hummel. However, he says they have been reassured by Victrex’s ongoing investment in plant and product development, and its history of being a reliable supplier.
A perceived difficulty with processing is also a hurdle, notes Geoff Small, market development manager for the U.K. and Scandinavia. The typical molding machine can run the material without any special equipment or setup, though, says Richard Leibfried, technical service engineer in Greenville, SC. Cycle time is longer than for many materials, but not excessive. Molds must be run hot (180°C), which makes some processors uncomfortable, he admits.
Nevertheless, 249 new applications were commercialized last year, up from 184 in 2001, says Mark Maddern, international product manager.
Stock shapes historically have been the largest market, he notes, but now compounding takes about the same volume and is growing faster. Over half of the new applications in 2002 involved injection molding. Film and extrusion blow molding uses also are developing.
Overmolding is attracting increasing interest, notes Small. The air-intake impeller of an auto turbocharger now uses PEEK on steel, while semiconductor manufacturing applications include PEEK on polycarbonate for a wafer carrier and on perfluoroalkoxy for a tube.
The firm’s application development pipeline also grew in 2002, to 1488 prospective applications representing 2316 tonnes/yr of demand at full volume, up from 1039 applications and 1982 tonnes/yr in 2001. A mature, large application typically consumes 50 to 100 tonnes/yr of PEEK, notes Kemmish.
Three markets account for the bulk of PEEK consumption: transportation took 34% in 2002, industrial 28%, and electronics 24%.
Invibio’s business is increasing, but is small in tonnage, says Souder. In 2002, 18 new long-term supply contacts were signed, bringing the total to 33.
Material development gets increased emphasis
Grade extensions are essential for continuing strong growth, says Jones. That message certainly resonates today at Thornton Cleveleys.
The company, unlike many others, didn’t cut back on R&D spending despite the downturn, Jones notes. Victrex actually raised R&D spending to £2.3 million in 2002, says Kemmish, and plans to spend £2.6 million this year. The company doesn’t focus its efforts exclusively on PEEK, but looks at other polyketones and even beyond, he adds.
Victrex offers a number of standard grades in pellet and powder form, as well as glass- and carbon-reinforced pellets. Demand of 50 to 100 tonnes/yr is enough to justify a new grade, notes Hummel.
Last year, the company introduced a new material, PEEK-HT. It maintains physical and mechanical properties at 30°C-higher temperatures than standard grades, boasts up to three times the wear resistance at high temperatures, has much higher tensile strength and flexural modulus at 250°C, and possesses improved compressive strength. Souder doesn’t see it cannibalizing sales of PEEK, but rather replacing metal and ceramics. Even-higher-temperature grades can be produced, if the market demands them, notes Kemmish.
PEEK-HT is just the start. This year, Victrex will launch at least three materials, says Souder, adding that the company hopes to introduce products on a more regular basis.
A silicone-modified PEEK, now being evaluated in several applications, provides toughness and impact performance approaching polycarbonate, says Kemmish. It can be supplied in tonne-level quantities.
Meanwhile, small-scale samples of grades with three to five times the wear life of unfilled PEEK are being tested by customers, as are similar quantities of an ultra-high-purity grade with “order-of-magnitude”-lower extractables.
A version of PEEK-Optima with better mechanical properties may come out this year.
Hummel notes that specialty grades account for less than 5% of volume now. They could amount to 20% of sales in five years, Jones believes. Hummel terms that a reasonable expectation.
Alliances play a greater role
Low-density foams are also under development and some small applications might appear soon, says Kemmish. Such foams may be of particular interest for high-temperature automotive and commercial aviation applications. Woburn, MA-based Trexel’s Mucell microcellular foam technology can be used, but Victrex also has developed its own foaming agents and has worked on an informal basis with Zotefoams, Croydon, England.
It has a formal arrangement now with the University of Birmingham, England, on gears. There’s a lot of potential for PEEK gears (such a gear was a winner of modern plastics’ 2002 Design Awards: Oct 02 MP, 31; MPI, 33), both from a design and compound formulation standpoint, says Kemmish.
Victrex’s highest-profile joint-development effort was established at the beginning of 2001, with Ballard Power Systems, Burnaby, BC, Canada, for ionomers (proton conductive polymers) for fuel cell membranes. The companies now have settled on a modified Victrex material that overcomes the limitations of conventional sulfonated polyketones. Kemmish describes the new formulation as “not just sulfonated PEEK.” Technical development is progressing well, adds Souder, with all milestones being achieved.
“Joint development is a great way to commercialize technology,” says Souder. One or two more alliances may be established this year, he notes.
The polymer and the company attract others
Hummel notes that five firms made PEEK-type materials like PEK in 1987, but of them only Victrex continues to produce such a polymer. The small market, plus the long (three- to five-year) technology development cycle drove out the others and keeps large firms from entering now, he says. Jones agrees, adding that Victrex’s long head-start is a potent factor. Victrex has developed operating know-how and has raw-materials costs and a scale-of-production that would be hard for competitors to match, notes Kemmish.
Victrex no longer has a monopoly on PEEK, however. Gharda Chemicals, Mumbai, India, is using a different production route at a plant with about 120 tonnes/yr of capacity in Panoli, India, according to Prakash Trivedi, director of the polymer business unit. Expansion is planned.
Gharda uses a single monomer and has a lower-cost process than Victrex, contends Daniel Ireland, product manager for plastics at JLM Engineered Resins, Tampa, FL, exclusive distributor of its PEEK in the Americas. The material is darker in color, and 10 to 15% less expensive, he adds. Jones says that outside of color, properties are comparable.
“Gharda is positioning itself as a reliable second source for PEEK,” says Ireland. It could be a significant competitor long-term, as a drop-in replacement for Victrex PEEK, Jones believes, potentially taking as much as 10% of the market.
Jones says he’d be surprised if Victrex wasn’t being eyed by major firms in the engineering plastics business. He reckons around $500 million is a realistic acquisition price, but cautions: “Long-term development is not very popular among large companies, but is key to Victrex… I don’t see how being acquired would benefit [Victrex].”
“Victrex is in a very enviable position for the next three to five years,” concludes Jones.