There's been a problem brewing for a couple of weeks now, but only last week did the news start spreading beyond the industry supply chain and finally hitting industry presses, now that more concrete impact forecasts are surfacing. On March 31, there was an explosion at Evonik Industries AG's chemical plant in Marl, Germany that killed two employees and shut down production of the chemical Cyclododecatriene (CDT) which is a key component in an essential nylon polymer, PA-12, used in a range of end products. This shut down halved the availability of this nylon polymer which was already in tight supply (see this report from Bloomberg).
PA-12 nylon is the material used for brake lines and plastic fuel lines in automobiles throughout the global automotive industry. A thorough report on the automotive and chemical industry impact was issued here by IHS Global Insight, which also cites that the restart of Evonik's CDT lines might be six to eight months away. "Together Evonik and Arkema account for about half of the world's capacity to make nylon 12," according to the report by IHS Global Insight.
Noteworthy is the near single-supply situation for this polymer that is essential to critical components for the automotive industry and for solar photovoltaics. The production stop after the tragic explosion has cut supply of the PA-12 nylon, and hence, there has been a trickle down as the global auto industry is bracing and strategizing how to avert a significant supply chain disruption globally. According to this report from BusinessWeek, roughly 200 auto executives from 8 major OEMs and over 50 suppliers met on April 17th to discuss the situation and develop strategies to avoid negative impacts from the disruption (see this article from Crains Detroit for details on the meeting's topics and goals). As part of the summit, six technical committees were created to develop action plans, according to post-summit reports here from Bloomberg and here from The Detroit News.
Among the committee plans are finding ways to increase and allocate the supply of PA-12 nylon from other suppliers. According to Bloomberg sources at Deutsche Bank, it may be possible to increase production at other manufacturers and provide additional output by June. This means that the Asian and US automakers will likely be less affected than the European group due to shipment supplies that were en route before the explosion, according to this article from Bloomberg.
One alternative compound source is DuPont, which can supply various polymers, including PA-12 and ones that can be used as substitutes for PA-12, to the auto industry; the disruption may create an opportunity for increasing suppliers and increasing the approval list of components, as noted by DuPont CEO, Ellen Kullman, in this article from Bloomberg.
Again, as we were reminded with the Thailand flooding last year, the increasing dearth of initial component (and compound material) suppliers along supply chains has serious implications when disruptions occur. In the quest for lean management and margin improvements, there needs to be greater securing of supplier diversification strategies and a revisiting of the risk-reward analyses of such lean, yet globally interdependent, supply chains where only a small handful of suppliers exist for critical components.
While the chemical does not directly affect the semiconductor and electronics supply chain, it does hold the potential to impact our industry because critical industries such as automotive, solar photovoltaic, and some household appliances rely on the PA-12 polymer for the production of their end products. In turn, a slowdown in their production volume and capabilities, could pull demand for semiconductor components down as OEMs in these verticals are not able to produce at their seasonal capacities.