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Cyclododecatriene might kill your auto stocks

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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.

3 Comments – Post Your Own

#1) On April 17, 2012 at 11:03 PM, superpanman (< 20) wrote:

You pose several keen questions. I would love for you to follow up with answers.

I can see where many industries might be vulnerable in strategic points along the supply chain, and that is disturbing. I wouldn't be too worried about pigment problems, but it does make one wonder where other and more damaging weak links are hiding.

Thanks for the thoughtful article.

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#2) On April 18, 2012 at 12:28 AM, awallejr (82.72) wrote:

I dunno the name almost sounds the same as the pills I am taking.

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#3) On April 18, 2012 at 10:12 AM, Frankydontfailme (27.20) wrote:

Car companies have much more to worry about than some transitory blip. When the stocks fall enough, i'll bet this will be a positive catalyst - "sales were down because production was down!"

 

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