Resin plant blast put global auto output at risk; industry dodges a bullet -- this time
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Although fears of a nylon resin shortage appeared to ease last week, the flurry over nylon 12 exposed a lingering auto industry problem:
In the lower tiers of the supply chain, a fire, flood or natural disaster that chokes off supply of an obscure but vital component can instantly create the threat of assembly line shutdowns.
Observers said last week that few, if any, assembly plants will be shut down for lack of a specialized nylon resin crucial to the production of fuel and brake lines.
But the March 31 explosion at a German factory once again exposes the perils of a "diamond-shaped" supply chain.
Although the supply chain is broad at the Tier 1 level, it narrows at the bottom, like a diamond. Automakers double- or even triple-source key parts from Tier 1 suppliers to reduce the risk of supply disruptions. But as the massive 2011 earthquake in Japan -- and the resulting computer-chip shortage -- showed, multisourcing can fail if all the Tier 1 suppliers rely on the same source lower down the chain.
The flash point this time was much smaller: a March 31 explosion and fire that killed two workers at the Evonik Industries plant in Marl, Germany, and halted manufacture of Cyclododecatriene, or CDT. The chemical is a major ingredient of nylon 12, which is used in many automotive fuel and brake lines. The Marl plant won't reopen for three to nine months.
Why is that one plant so crucial? Not only does Evonik make nylon 12, but it also supplies CDT to a rival nylon 12 producer, French supplier Arkema. Between them, the two companies account for half of global nylon 12 production, said Tim Urquhart, an IHS auto analyst.
Not all auto brake and fuel lines use nylon 12. But because other industries have discovered nylon 12, producers have been running at or near maximum capacity for years.
Immediately after the Marl shutdown, supply chain specialists faced three stark choices: secure more nylon 12, switch to fuel and brake lines using another substance, or shut auto assembly lines when parts run out.
Using another substance isn't a good short-term option because it requires thousands of hours of testing and then validation of the part by the manufacturer, and that can take months.
TI Automotive CEO Bill Kozyra, whose company is a major supplier of fuel and brake lines, warned customers of a "high" potential of assembly plant shutdowns.
"The shortage is real and immediate," he wrote in a letter to automakers. "The possibility of production interruptions at some of your facilities in the next few weeks is high."
Last week dozens of suppliers and automakers met in an emergency session in Detroit to find work-arounds and keep plants open.
No automaker has announced plant shutdowns yet. The Detroit 3 said in statements that they are working with suppliers. Chrysler Group said it expects no production disruptions. But General Motors and Ford Motor Co. did not promise that.
There's a scramble to find more nylon 12. Evonik is building a second CDT plant in Asia, but it won't open until 2014. Stockpiles at manufacturers and suppliers are limited.
A bidding war seems imminent, said Neil De Koker, CEO of the Original Equipment Suppliers Association, a trade group. Before the Marl explosion, nylon 12 already was selling for $5 a pound, compared with $1 to $2 for other nylons, according to Plastics News, a sibling publication of Automotive News.
"I am sure there will be bidding for any available supply of nylon 12 in the market," De Koker said.
But, De Koker adds: "If it comes to crunch time, I wouldn't be surprised if temporary solutions are negotiated ... to prevent a significant shutdown of the industry."
You can reach Jesse Snyder at jsnyder@crain.com.
