Resin plant explosion may curtail auto output

Apr 18, 2012

A year after Japan’s tsunami sent global automakers and suppliers into triage mode, another disaster is sending the industry into a search aimed at salvaging this year’s car production.

So reported Bloomberg’s Craig Trudell and Mark Clothier.

Executives from the world’s largest automakers met April 17 at a summit near Detroit to find alternative sources of resin used to make brake- and fuel-system components. The officials are searching for options after a March 31 explosion at [German] chemical maker Evonik Industries AG halved the global source of an ingredient used to make the resin, called PA-12.

Officials are searching for options after a March 31 explosion at chemical maker Evonik Industries AG halved the global source of an ingredient used to make the resin, called PA-12.

At stake is whether automakers can keep assembling cars and trucks after another breakdown in supply chains that are stretched taut around the world to minimize investment and parts inventory. Lost output of parts such as Renesas Electronics Corp.’s semiconductors and paint pigments made by Merck KGaA after Japan’s March 2011 tsunami resulted in disruptions that cost production and sales for automakers around the world.

“This is the risk you have to take to become more efficient, to gain some scale, to go just-in-time,” Itay Michaeli, an analyst for Citigroup in New York, said April 16 in a phone interview. “What we have to hope for is that, after last year’s situation, the auto companies followed through on what they told us they would do, which was to build more comprehensive Plan Bs in contingency situations like this.”

TI Automotive Ltd. warned its customers in an April 12 letter of severe shortages interrupting production “in the next few weeks.” The Auburn Hills, Mich.-based company supplies brake and fuel lines, as well as fuel tanks and pumps, to all major automakers, including General Motors Co., Ford Motor Co., Toyota Motor Corp. and Volkswagen AG, according to its website.

About 200 executives from automakers and suppliers attended [the] summit, said Frank Buscemi, a spokesman for TI Automotive. Alternative materials were discussed and officials have planned “a number” of follow-up meetings in the next few weeks, he said, without being more specific.

“Indications are that near-term production disruptions are likely,” Rod Lache, an analyst for Deutsche Bank AG in New York, wrote [April 17] in a research note. “Disruptions will likely start in Europe” because U.S. and Asian purchasers of PA-12 “likely have several weeks of supply en route.”

TI Automotive and other suppliers recognized the tight supply of Cyclododecatriene, also called CDT, and PA-12 two or three years before last month’s blast at Evonik’s factory, said Neil De Koker, president of the Original Equipment Suppliers Association. While Evonik plans to add capacity in Asia, a new factory won’t be ready until the end of 2014.

While automakers and their suppliers have reacted quickly, it may be difficult for the industry to find a solution in time to avoid losing production because of the nature of the parts that use CDT and PA-12, De Koker said.

“Brake lines and fuel lines are safety products, so you don’t make changes overnight,” he said. “You have to do them very carefully with the right testing to prove out the product.”

Other makers of PA-12 are France’s Arkema SA, Switzerland’s Ems-Chemie Holding AG and Japan’s Ube Industries Ltd., Thiel said.

Parts suppliers typically have about two weeks supply of the resin on hand, he said. Shortages of PA-12 probably will last about six to nine months, said Aurelien Paumier, director of Arkema’s technical polymers business unit for North America. Customers are testing alternative polymers, made from castor oil, he said.