Bloomberg News

Auto Supplier Warns of Resin Shortage Disrupting Output

April 13, 2012

Fire brigades work at the chemical industrial park in Marl, western Germany, on March 31, 2012. Photographer: Patrik Stollarz/AFP/Getty Images

Fire brigades work at the chemical industrial park in Marl, western Germany, on March 31, 2012. Photographer: Patrik Stollarz/AFP/Getty Images

The global automotive industry faces a “severe” shortage of a resin used to make fuel and brake components that may interrupt production “in the next few weeks,” according to TI Automotive Ltd.

“The shortage is real and immediate,” William Kozyra, chairman of Auburn Hills, Michigan-based TI Automotive, wrote in an April 12 letter to customers that was obtained by Bloomberg and confirmed yesterday by Frank Buscemi, a company spokesman. “The possibility of production interruptions at some of your facilities in the next few weeks is high.”

The March 31 blast at a plant of chemical maker Evonik Industries AG in the city of Marl in Germany’s Ruhr valley is leading to a shortage of a resin called PA-12, Kozyra wrote. The explosion, which killed two, resulted in a “complete loss” of making Cyclododecatriene, also called CDT and a key element of PA-12, he said. Global capacity of CDT is “very limited,” according to the letter.

Another resin, PA-10 or Vestamid Terra, may be a suitable substitute and a few other companies may produce PA-12, Itay Michaeli, an analyst for Citigroup Inc. in New York, said in a note, stressing that it was only his initial read in a fluid situation.

“The risk of disruptions appears serious, but our initial impression is that the scale of the problem isn’t very severe,” he wrote.

Brake-Line Coatings

The PA-12 resin is used in most fuel and brake-line coatings, flexible hoses and quick connectors supplied to automakers, Kozyra said in the letter. TI Automotive supplies brake and fuel lines, as well as fuel tanks and pumps to all major automakers, including General Motors Co. (GM:US), Ford Motor Co. (F:US), Toyota Motor Corp. (7203) and Volkswagen AG (VOW), according to its website.

Automakers haven’t canceled any production plans and are monitoring their supply chains, the companies’ spokesmen said.

“This could be very significant,” Michael Robinet, managing director for industry consultant IHS Automotive in Northville, Michigan, said yesterday by telephone. “They’re certainly looking very hard at substitutes. But if there were easy substitutes, they would have been thought of already.”

Evonik produces its own CDT and is a “key” supplier of the material to other manufacturers of PA-12, according to the letter.

Paint Pigment

The resin shortage illustrates potential sensitivities in the auto-supply base that also gained attention during the March 2011 tsunami in Japan, said David Cole, chairman emeritus for the Center for Automotive Research in Ann Arbor, Michigan. The disaster crippled plants for companies such as Merck KGaA, the sole producer of paint pigments supplied to Ford and other automakers.

“In many cases, the top level of the manufacturers don’t know down in the lower levels of the supply base where vulnerability may exist,” Cole said yesterday in a phone interview. “This was one of the factors in the tsunami and earthquake.”

TI Automotive and competitors including Cooper-Standard Automotive Inc. (COSH:US), Martinrea International Inc. (MRE), and Rayconnect Inc. are holding a summit involving automakers and large suppliers about the shortage on April 17, according to the letter. The meeting will be moderated by the Automotive Industry Action Group in Southfield, Michigan.

Joel Karczewski, director of commercial development for the Automotive Industry Action Group, deferred to TI Automotive for comment about the summit. Buscemi, the TI spokesman, had no immediate comment.

Automakers’ Reactions

“We are aware,” Mike Goss, a Toyota spokesman, said in an e-mail. “We are currently assessing the situation in North America. Until that assessment is complete, any impact on our production is unknown.”

Chrysler Group LLC is “monitoring the situation with our supply base,” Katie Hepler, a spokeswoman for the Auburn Hills, Michigan-based automaker, said in an e-mail. “At this time we do not anticipate any production impacts.”

GM is communicating with its supply base and information about the scope of the problem isn’t immediately available, Kelly Cusinato, a spokeswoman, said in a telephone interview.

“We’re aware of the situation and are monitoring it with our suppliers,” Todd Nissen, a Ford spokesman, said in an e- mail. “We have not experienced any production disruptions at this point.”

Nissan Motor Co. is monitoring the situation with suppliers, Brian Brockman, a spokesman, said in an e-mail.

“We are aware of the concern, and have been working with our suppliers on countermeasures to mitigate any risk,” Honda Motor Co.’s Ed Miller said in an e-mail.

Tony Cervone, a spokesman for Volkswagen, didn’t immediately respond to telephone and e-mail messages. Jim Trainor, a Hyundai Motor Co. (005380) spokesman, didn’t have an immediate comment.

To contact the reporters on this story: Craig Trudell in Southfield, Michigan at ctrudell1@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net; Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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