CDT Cartastrophe: Europe Will Run Out First

Europe’s car industry, already in the midst of Mediterranean meltdown, will be first to suffer the big resin famine, says a Credit Suisse report. European carmakers will have to stop the lines first unless alternatives are found for key component CDT. After the explosion of a key factory in Germany, automakers may soon find themselves without fuel and brake lines. Some sooner, some later.

According to Reuters, the global supply of PA-12 was already stretched thin before the explosion. Bloomberg, which currently owns the resin beat, cites Chris Ceraso, a New York-based analyst for Credit Suisse. He writes today in a report that global capacity to make PA-12, also called Nylon-12, may have been cut by as much as half. Evonik and France’s Arkema are two of only four global sources of Nylon-12. Says Ceraso:

“European users will be the canary in the coal mine for this problem. 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 in North America are likely sitting on one month of supply of the resin PA-12.

Ceraso figures that European-based makers will take the brunt of the shortage, followed to a slightly lesser extent by North American and South American customers.

Automakers in Japan are likely to avoid “large-scale” disruptions (this time) because suppliers carry several months’ supply, Takashi Moriwaki, a Deutsche Bank AG analyst, wrote in a research note yesterday.

European carmakers carry next to no inventories. Also, large parts of European sales are built to order, meaning immediate disruption.

The blow to U.S. carmakers will come four weeks later. Some, especially GM, sit on more than two months of inventory. If the resin shortage is prolonged, the formerly toxic inventory would make GM look like the hero.