Victrex plc (LON:VCT) is based in the UK and produces thermoplastic polymers. Its two operating divisions are Victrex Polymer Solutions (VPS) and Invibio Biomaterial Solutions (Invibio). The VPS division deals with transport, industrial and electronics markets while the Invibio division deals with specialist solutions for medical device manufacturers. Its subsidiaries include Victrex Manufacturing Limited, Victrex USA, Inc, Victrex Europa GmbH, Invibio Limited and Victrex Japan, Inc. It has distribution and technical centers in over 30 countries. Rising oil prices and increased regulation on carbon emissions have impacted Victrex's costs.
Like many other plastic manufacturing companies, VCT uses petroleum oil in its products and burns natural gas as a fuel to make its products. Due to turmoil in the Middle East in 2011 and reduced oil production, energy prices have increased drastically, rising 28% from 2010 and continuing to increase. As a result, VCT's costs increase due to the cost of its materials and production. VCT would then have to either pass these higher costs to its consumers or face lower profit margins. This also could turn away current consumers to favor plastics based on vegetable oils or sugars.
With increased attention on the possibility of global warming, consumer demand is moving away from cheap petroleum based plastics towards more environmentally responsible, albeit more expensive, vegetable oil or sugars based plastics. Since Victrex only makes petroleum based plastics, this change in demand negatively impacts its sales.
Lawmakers are also considering placing regulations on the amount of emissions to be produced from an organization or state. For example, in emissions trading (or a cap-and-trade scheme), companies or countries would face a carbon limit and if they exceed their limit, they can buy excess credits from other organizations or projects. Established schemes include the Kyoto Protocol, European Union Emissions Trading Scheme, and Northeast US states' Regional Greenhouse Gas Initiative. However, as consumers demand more green products, more regulations are being considered. These regulations impose extra costs on VCT as it has to buy carbon credits if they exceed limits or they have to change production materials/procedures to fit regulations. These regulations also favor "greener" initiatives, such as sugars or vegetable oil based plastic manufacturing.
Victrex's sales are based on its main brand, PEEK polymers, and it serves a very niche market with its products marketed towards the biomedical, transport, industrial, and electronic industry. In addition, it has approached increased attention towards "greener" initiatives related to petroleum oil by seeking to improve efficiency in energy usage. Nevertheless, it is not the largest company in its industry and consumers have started to move towards petroleum plastic substitutes, such as the products produced by Metabolix (MBLX).