A late March explosion at a chemical manufacturer's plant in Germany could have an adverse effect on automotive production across the globe, a Bloomberg BusinessWeek report suggests. Evonik Industries produces a key ingredient to make automotive resin – a product used in both brake and fuel lines – and up until the explosion produced half of the global supply of the resin ingredient.
Automakers became aware of the tight supply of Cyclododecatriene (also known as CDT, or PA-12) about two or three years ago. Recognizing the potential for shortage, Evonik was planning on adding capacity in Asia, but that factory won't be ready until the end of 2014. As for the German factory where the explosion occurred, company representatives told Bloomberg they hope to get the plant back online before winter.
So how exactly will it affect automakers? Rod Lache, an analyst for Deutsche Bank AG told Bloomberg that "disruptions will likely start in Europe," because U.S. and Asian buyers of PA-12, "likely have several weeks of supply en route." With parts suppliers typically having only a two weeks supply of resin on hand, shortages are estimated to last about six to nine months.
Automakers are currently looking into other sources for their resin needs. Japan's Ube Industries and America's DuPont Co. have both seen an increase in order inquires after the Evonik factory explosion. Though DuPont doesn't make the resin using PA-12 that automakers like GM, Ford, Toyota, and Volkswagen need, it does currently supply fiat with fuel lines made from its own specialty polymers.
That said, some in the industry have warned automakers about switching to new chemical compounds, "Brake lines and fuel lines are safety products, so you don’t make changes overnight," Neil De Koker, president of the Original Equipment Suppliers Association told Bloomberg, "You have to do them very carefully with the right testing to prove out the product."
That doesn't mean automakers are just going to wait for the resin supply to rebound. In a statement, GM tells us it has "implemented a global work team, compromised of GM purchasing, engineering and suppliers, including Evonik, [to] allocate and prioritize existing inventories and also find alternative process material solutions." GM also says it's too soon to predict the potential impact of the resin shortage.
Volkswagen says that "currently there are no restrictions in the supply of our global production facilities," but the automaker notes that it will "take appropriate action" as soon as it has additional information.
Currently no automaker has announced slowed or suspended production due to the resin shortage.
Source: Bloomberg BusinessWeek