China virus forces OPEC to weigh up extension to oil output cuts

Venezuela’s Oil Minister Manuel Quevedo, Saudi Arabia’s Minister of Energy Prince Abdul Aziz bin Salman and Russia’s Energy Minister Alexander Novak. (Reuters)
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Updated 29 January 2020

China virus forces OPEC to weigh up extension to oil output cuts

  • Slide in crude prices to three-month low alarms officials amid concerns over coronavirus’ impact on economic growth

LONDON: OPEC wants to extend current oil output cuts until at least June, with the possibility of deeper reductions on the table if oil demand in China is significantly affected by the spread of a new coronavirus, OPEC sources said.

The quick slide in oil prices over the past few days has alarmed OPEC officials, the sources say, as the new virus found in China and several other countries raised concerns about a hit to economic growth and oil demand.

Oil futures were on course for a sixth day of losses with Brent crude staying below $60 per barrel. On Monday it hit a three-month low of $58.50, as the virus outbreak triggered a global selloff of riskier assets.

Saudi Arabia, OPEC’s de-facto leader, joined by key oil producers such as the United Arab Emirates, Algeria and Oman, sought to calm market jitters on Monday — urging caution against gloomy expectations on the impact of the virus on the global economy and oil demand.

But OPEC officials have also started weighing their options and intensified internal discussion on how best to respond to the price slump, the sources said.

“A further extension is a strong possibility and a deeper cut is a possibility,” said one OPEC source, adding that the impact of the China virus outbreak on oil demand would be clearer over the coming week.

“Extension is highly possible until June,” another source said, adding that an additional preferable option is to extend the oil producers’ pact until end of 2020 and that a deeper cut was “possible” if there was a need for it.

A source familiar with Russian thinking, said that although Moscow had been keen earlier to exit from price cuts, it would stay on board if oil prices continued to trade below $60 a barrel

OPEC+, which includes Russia, has been reducing oil supply to support prices, agreeing in December to hold back 1.7 million barrels per day (bpd) of output until the end of March.

Russia had insisted it wanted the current deal to last only until March, while Saudi Arabia has been keener for the deal to last longer, according to OPEC+ sources.

This year, OPEC expects its world market share to fall further as output booms in non-OPEC rivals including the US, Brazil, Canada, Australia, Norway and Guyana while global demand is rising.


LG Chem separates battery business as electric cars take off

Updated 18 September 2020

LG Chem separates battery business as electric cars take off

SEOUL: South Korea’s LG Chem, an electric car battery supplier for Tesla and GM, said that it plans to separate its battery business into a new company as the electric vehicle market takes off.

The move came after LG Chem swung to a profit in its car battery business in the latest quarter. It expects further profitability thanks to growing demand from European car makers and more sales of cylindrical batteries used in Tesla cars.

LG Chem, South Korea’s top petrochemicals maker, has long bet on car batteries as a new growth engine, but it has never made an annual profit in the business since it started making them about a decade ago.

But expectations are growing for its car battery business as automakers push for more electric vehicles, fueled by Tesla’s rise and tougher emissions regulations in Europe.

LG Chem said the timing was right to separate the business, which competes with China’s CATL and Japan’s Panasonic, as it has started to make “structural profits” in its car battery business.

LG Chem said the new business, to be launched in December, aims to achieve a revenue of 30 trillion won ($25.5 billion) or more in 2024, from an expected revenue of 13 trillion won this year.

The new wholly owned subsidiary, tentatively named “LG Energy Solutions,” will include LG Chem’s small batteries used in smartphones and laptops and its energy storage systems, as well as its car batteries. LG Chem shares slumped 5.4 percent.

“Many LG Chem investors will only indirectly hold the battery business, which will be separated into a unit,” Daeshin Securities analyst Han Sang-won said.

He also said that investors are also taking profits ahead of Tesla’s battery day, in which Tesla may unveil its advanced battery technologies.

LG Chem said it will consider a stock market listing of the battery unit, without elaborating further.

Making the unit an independent company would also help to attract investments to the business, which requires heavy capital expenditure to expand production capacity as orders pile up, LG Chem said.