Cyclododecatriene might kill your auto stocks
April 17, 2012
– Comments (3)
OK, auto stockholders, repeat together: CYCLO-DO-DECA-TRI-ENE (or CDT for short).
Yes, I know: TMF already has an article: http://www.fool.com/investing/general/2012/04/16/a-potential-disaster-for-ford.aspx. I read several Bloomberg reports, and would like to do a little back-filling with a few details.
Worldwide supplies of CDT were already tight before the Evonik chemical plant, which supplies 50% of it, exploded: it is a total loss, and will not come back on line for a couple of years. Well, so what? CDT is a precursor to PA-12, an essential high performance plastic used in brake lines and fuel systems. Without PA-12, you cannot build cars or trucks.
There are apparently a few weeks of supply in the pipeline. After that, the auto industry is going to be in a world of hurt. The question is: not if, but how much production will slow down. Yes, there are PA-10 and PA-11 that can be substituted in some cases, plus DuPont makes a biodiesel version of PA-12 that can be used in some instances (one question: do regulations allow these substitutions?). So, how much PA-12 is used, how much are supplies going to be reduced (the tight supplies before the explosion suggests that other manufacturers of CDT will not be able to fill the shortfall), and how much of that can use these substitutes? That is the part that is unknown at this point.
In conclusion, I would like to leave you with a disturbing thought. Executives, even those further down the chain of command, have no clue where the supply vulnerabilities lie in the products they make. CDT is one example. The other recent case is a color pigment produced in one factory in the world; the factory was wiped out in a tsunami, and they simply could not make cars that needed that pigment.
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