Europe’s auto production will probably be disrupted first if carmakers can’t find alternative resins used to make fuel systems and brake lines, according to a Credit Suisse Group AG report.
Automakers in North America likely are carrying one month of supply more than European competitors of the resin PA-12, Chris Ceraso, a New York-based analyst for Credit Suisse, wrote today in the report. Global capacity to make PA-12, also called Nylon-12, may have been cut by as much as half after the March 31 explosion at chemical maker Evonik Industries AG, he said.
“European users will be the canary in the coal mine for this problem,” Ceraso wrote. Industrial customers there “are much more likely to keep comparatively thinner inventories and don’t have the benefit of large amounts of materials in transit. This means that the most immediate supply disruptions are likely to surface in Europe.”
Automakers led by General Motors Co. (GM), Volkswagen AG (VOW), Toyota Motor Corp. (7203) and Ford Motor Co. (F) and their suppliers are studying ways to find and test alternative materials and avoid losing vehicle output. A combined two to three months of resin inventory may still be “in circulation,” according to Credit Suisse estimates.
Evonik’s Marl, Germany, factory made a base material used in Nylon-12 called Cyclododecatriene or CDT. Evonik supplies CDT to France’s Arkema SA (AKE), and the companies are two of only four global sources of Nylon-12, Ceraso wrote. The others are Switzerland’s Ems-Chemie Holding AG (EMSN) and Japan’s Ube Industries Ltd. (4208)
“We expect that the client base impacted most by the lost production will be primarily European-based customers, followed to a slightly lesser extent by North American and South American customers,” Ceraso said.
No automaker has reported canceled or slowed production as a result of the resin shortage. Bayerische Motoren Werke AG (BMW) “can rule out a supply risk at the moment,” Frank Wienstroth, a company spokesman, said today in a telephone interview. “The investigations have not been terminated yet,” he said.
“We are in close contact with our suppliers concerning the current supply of plastic components and precursors,” Sebastian Wahle, a spokesman for Daimler AG (DAI), said in a telephone interview.
Automakers in Japan may avoid “large-scale” disruptions to production because suppliers recognized that PA-12 was produced by few companies and are carrying several months’ supply, Takashi Moriwaki, a Deutsche Bank AG analyst, wrote in a research note yesterday.
Automakers and their largest suppliers may collaborate and use their purchasing power for preferential access of the remaining or incremental supply of Nylon-12, according to the Credit Suisse report. Manufacturing of cars, light trucks and heavy trucks accounts for about 55 percent of end-market use of Nylon-12, Ceraso said.
DuPont Co. (DD), the most valuable U.S. chemicals producer, said yesterday it expects additional demand from automakers seeking to work around the resin shortage. Koch Industries Inc.’s Invista, the maker of Stainmaster carpet, also produces CDT and has “limited excess capacity” to make more of the material, said Jodie Stutzman, a spokeswoman
The explosion at Evonik’s plant poses “real and substantial risk” to vehicle production, Jeff Schuster, senior vice president of forecasting at LMC Automotive, said yesterday in an e-mailed statement.
Auto manufacturers who may be most vulnerable to shortages include BMW and Daimler because of their built-to-order production system, Joe Langley, a Troy, Michigan-based analyst with LMC Automotive, said yesterday in a telephone interview. Hyundai Motor Co. (005380) and affiliate Kia Motors Corp. (000270) also are at risk because of lean inventories, he said.
“The best indicator will be when it starts being immediate shortages over in Europe, just because of the proximity,” Langley said. The U.S. “will probably lag by a few weeks or so.”
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