Will Russia, or Won't It?

02/17/2020 9:25 am EST

Focus: COMMODITIES

Matt Weller, CFA, CMT

Global Head of Market Research, FOREX.com

The auto and auto parts sector are waiting on Coronavirus and whether Russia will join OPEC, reports Matt Weller.

A week has already passed since OPEC’s technical committee recommended that the cartel and Russia (OPEC + 1) deepen the production cuts to balance out the demand reduction that has come from the Coronavirus. And yet, Russia has yet to make a decision, stalling for time to see if the news flow from China will disprove OPEC’s worst-case scenario expectations now that the spread of the virus seems to have slowed down a bit (Las week’s big revision notwithstanding).

After OPEC made its recommendation, Russia’s Energy Minister met with domestic oil producers, but they managed to avoid making a key decision until next week when the larger part of China’s industry — that has been shuttered during the Coronavirus outbreak — is expected to start operating again close to normal capacity. This week should bring a final response from Russia, even be it one that OPEC may not want to hear. Even if that happens, OPEC may still go ahead and cut its production, reaching a decision at the latest at its next scheduled meeting in Vienna at the beginning of March.

Car production contagion

The aftermath of the Coronavirus is not dissimilar to cleaning the house after a raucous party, with a new damaged item found every day. In no industry is this more the case than with car producers where the disruption in the supply of smaller items and spare parts has or may yet force producers outside of China to briefly stop assembling cars while they look for alternative supplies. 

 South Korea’s Hyundai Motor Co. (HYMTF) has been one of the worst hit producers outside of China, but by next week it is likely to resume output, albeit below previous production levels. European car production is also not out of the woods yet – so far Fiat Chrysler (FCAU) has warned that one or two of its European plants may find themselves having to stop production for a time as component supplies dry up. So far production in North America has not been faced with serious problems with parts supplies even though most cars contain some components that are produced in China.
Here is an overview of how car makers have been affected:

  • BMW to restart production on Feb. 17
  • Daimler AG (DAI) reopened Beijing plant on Feb. 10
  • Fiat Chrysler expects disruption to its European operations
  • Ford (F) resumed output at two Chinese plants on Feb. 10
  • General Motors Co. (GM) to restart production in China on Feb.15
  • Hyundai and Kia Motors closed plants in Korea between Feb. 4 to Feb. 11 because supply of engine wire harnesses from China had stopped. Hyundai’s China factories expected to reopen Monday.
  • Nissan stopped production in Japan on Feb. 11 because of parts shortage
  • Peugeot’s three Wuhan plants to reopen Feb. 14
  • Renault closed Busan plant between Feb. 11 and 16
  • Tesla (TSLA) closed Shanghai plant between Jan. 29 and Feb. 10
  • Toyota Motor Co. (TM) to reopen plants on Feb. 16. It operates 12 car and component factories in China
  • Volkswagen AG (VW) to restart production on Feb 17.

US market closure Monday shifts the week by a day

The Presidents Day closure on Monday will shift back the release of oil-market related data like API weekly crude stocks and EIA’s stock data by one day. Last week the EIA reported an increase in crude oil stocks of 7.459m, in itself not hugely worrying in terms of demand given that this is within the band seen over the last few years. However seasonally, demand tended to be higher than this in January, and the latest increase reflected the unseasonably mild winter. It is also evidence of the continuing rise in the U.S. oil production, unmatched by domestic demand growth, which is predicted to result in the United States solidifying its position as a net exporter of crude until 2050, according to the EIA.

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