JAPAN DISASTER: Shuttered auto plants threaten N America chems

21 March 2011 22:53  [Source: ICIS news]

HOUSTON (ICIS)--Shuttered parts plants in Japan could threaten supply chains all the way in North America, working down to the chemical industry - although it is too early to forecast what effects this may have, sources said on Monday. 

General Motors (GM) already has suspended production at a plant in Shreveport, Louisiana, because of a parts shortage. Toyota, meanwhile, has curtailed overtime at its 13 vehicle and engine plants in North America, the company said.

"It is definitely going to have an impact. It is going to be disruptive," said Jeff Mengel, plastics industry team leader for Plante and Moran.

Many supplier plants in Japan were destroyed or damaged by the earthquake, according to a column by Keith Crain, the editor in chief of Automotive News.

"In today's global environment, there may well be customers around the world who will be confronted by parts shortages in the weeks ahead," Crain said.

If a key part is missing, a producer could suspend all production, cutting demand for bumpers, tyres and other auto parts.

That, in turn, could reach downstream to the chemical industry, as the automobile industry is a major end market for such materials as polypropylene (PP); nylon; acrylonitrile butadiene styrene (ABS); polyurethane flexible foam; synthetic rubber; and paints and coatings.

The American Chemistry Council (ACC) estimates that each automobile contains an average of $2,700 (€1,890) worth of chemicals.

The multiple disasters in Japan could disrupt production in the US, Canada and Mexico – all major auto producers – in several ways.

Japanese employees working in North American plants will need to tend to their families back in Japan, Mengel said. "There is bound to be an impact."

Logistics could pose another problem. Several ports are closed, and those that are open could be overwhelmed, he said. "You could have it that [Japanese plants] are producing the parts, but they just can't ship them," Mengel said.

To conserve parts, they may slow down overall production until supplies return to normal, he said.

Automakers could search for alternative suppliers, which Mengel said would be difficult. Plus, this would be impractical if the disruption would last only a few weeks.

Some automakers have become more vulnerable to supply disruptions, said Bruce Belzowski, assistant research scientist at the University of Michigan Transportation Research Institute.

Many manufacturers have moved to a single supplier as a way to reduce costs, Belzowski said. By relying on just one supplier, automakers can place larger orders, allowing them to obtain larger discounts.

On the other hand, suppliers do keep buffer inventories they can rely on until production returns to normal, Belzowski said.

Consumers may wait out the disruptions and resume buying once models become available, or they could buy another model instead of waiting, Belzowski added. While that would hurt an individual auto producer, it would have little effect on the industry overall.  

($1 = €0.70)

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