Tuesday 21/04/20

  1. In OIL & MACRO NEWS, the US oil price hits historic lows and we see who is lifting the lockdowns
  2. In MANUFACTURING NEWS, Russia’s heavy industry,  Europe’s car industry and US food production hit hurdles
  3. In INDIVIDUAL COMPANY NEWS, Alibaba earmarks $28bn for cloud computing, Premier Foods benefits from lockdown and Le Pain Quotidien looks shaky
  4. AND FINALLY, I bring you IKEA’s meatball recipe and how to clip your dog’s toenails…



So oil falls through the floor while Germany, Taiwan and southern US states are in various stages of lockdown…

US oil price back above zero after historic plunge (Financial Times, Hudson Lockett) moves on from what I identified in yesterday’s note as the price for US oil (the benchmark is WTI – West Texas Intermediate) actually fell below zero for the first time in history, meaning that producers were paying buyers. At one point in trading yesterday, producers were paying over $40 a barrel to get rid of their oil! Brent crude prices, on the other hand, lost about 9% at one point but generally recovered. * SO WHAT? * One of the main differences between WTI and Brent Crude is that Brent is more easily shipped (offshore producers can keep pumping oil for as long as there are ships to offload to whereas American frackers have always had logistical issues with getting their product out), but with global oil storage heading towards capacity, Brent may also go the same way. On the supply side of the equation, Oil storage ‘filling at rate never seen before’ (The Times, Emily Gosden) shows that US storage facilities are being overwhelmed – which will probably mean more price volatility for WTI. The demand side of the equation is also pretty stark at the moment as global demand for oil is thought to have dropped by about 29m barrels a day this month versus the 100m a day before coronavirus. Until demand picks up, that recent agreement between Opec and Opec+ countries to cut production by 10m barrels a day just isn’t going to make much difference at all. In the meantime, we are going to see a lot more stories like Halliburton’s billion-dollar headache (The Times, James Dean) where the oilfield services giant (it’s the world’s second largest after Schlumberger) has decided to cut

costs and capex dramatically. Weak oil prices have resulted in oil majors cancelling and mothballing projects, which means that there’s less work for oilfield services companies to do. As a quick aside, I wonder how this is going to affect Nicola Sturgeon’s plans for Scottish independence. If oil prices remain weak, it’s going to be more difficult for Sturgeon to finance initiatives with lower oil revenues so I wonder whether she’ll wind in the rhetoric given that priorities and practicalities may now be somewhat different…

Elsewhere, Germany throws off the shackles, but pace of recovery will not be quick (Daily Telegraph, Tom Rees) shows that Germany is now allowing small shops (up to 800m²) to open after lockdown. Further relaxation of lockdown measures are expected in the coming weeks, but it is likely to be gradual. Larger shops, bars and restaurants will still be closed and large gatherings are still banned until August at least. US southern states move to reopen economies (Financial Times, Demetri Sevastopulo and Hannah Murphy) shows that some southern states like Georgia, South Carolina and Tennessee are looking to ease lockdown measures over the coming weeks and the anti-lockdown movement seems to be gaining some traction. Meanwhile, Taiwan’s early success against coronavirus cushions economy (Financial Times, Kathrin Hille) shows that one country has actually managed to avoid serious lockdowns altogether during the outbreak as early action (having learned from the SARS outbreak in 2003) has proved to be successful at containment. In the early stages, it screened arrivals from China – and then went on to ban them – while it also adopted strict quarantine measures quickly along with better monitoring and contact tracing. * SO WHAT? * In some ways, it’s heartening to see others emerge from their quarantine. However, I imagine this will make it harder for governments of other countries that are still in lockdown to keep increasingly antsy citizens at bay as everyone yearns for more daily freedom!



Russia’s heavy industry, Europe’s car industry and the US food processing industry are facing challenges…

Russian industry scrambles to cope with coronavirus restrictions (Financial Times, Henry Foy) highlights the current plight of Russia’s metal smelters, hydrogen processors, miners and energy giants as they have been forced to diversify their usual activities in order to build temporary accommodation for shift workers who have tested negative for the coronavirus, manufacture their own respirator masks and manage bus services to transport their staff. The national lockdown was imposed on March 30th and is set continue throughout April. * SO WHAT? * Clearly, Russia’s heavy industry is not cut out for working from home and it has had to adapt hugely in order to keep going. Although the bigger metals, mining and oil companies have been classed as strategic/essential, many of their suppliers and other related small companies have not and supply chains will be hit hard. Russia’s industrial sector faces particular difficulties because much of it can’t just be switched off and on again and many factories are in remote areas which require shift workers to commute, meaning a greater potential for contagion. Sibur, Russia’s biggest petrochemical producer, has made special accommodation for its non-coronavirus sufferers and runs its own bus services; Phosagro, Russia’s biggest phosphate fertiliser company, has used company-owned hotels as worker housing and worker quarantine and also runs its own bus services; Severstal, the steelmaker, is set to make respirators for its own staff and local people in Cherepovets, where the company’s main production site is based. Projects are being re-evaluated and capex will be cut in many cases.

VW urges EU to take co-ordinated action to revive car industry (Financial Times, Joe Miller) shows the German car giant speaking for its entire industry as it presses the EU to take “energetic and co-ordinated action” in the form of a major stimulus package. It is calling for a co-ordinated incentive to boost new car sales and comes as the latest figures show that sales for the EU passenger car market fell by 55% in March due to coronavirus lockdowns. * SO WHAT? * One form this could take is an incentive offered shortly after the 2008 financial crisis – a scrappage bonus – and the minister-president of Bavaria (a region which is home to BMW and Audi, among others) pointed out that such a programme would be a “huge opportunity” to boost sales of electric vehicles. Germany already offers up to €6,000 incentives for the purchase of new electric cars and companies such as VW will be very keen to see this continue. Discussions are ongoing but the pressure will continue to build, especially as carmakers are starting to increase production this week…

Coronavirus spreads to farms, packaged-food plants (Wall Street Journal, Jesse Newman and Annie Gasparro) shows that the American food system is facing increasing challenges as the spread of the virus is forcing plant closures and infecting farm workers. Given such developments as well as the strong demand for groceries, it sounds like problems could be looming ahead if these issues aren’t addressed. Kraft Heinz, Conagra and Flowers Foods are among those to close facilities following other high-profile closures. On the other hand, some that have been closed down have been opening up again with new safeguards – facilities run by Cargill, JBS USA Holdings and Empire Kosher Poultry being among them. * SO WHAT? * Clearly, packaged-food producers and farmers alike are getting increasingly concerned about the ongoing health of their staff. They are having to implement measures as they go and just hope that the outbreak won’t overtake them. 



Alibaba eyes a chunky amount for cloud computing, Premier Foods benefits and Le Pain Quotidien suffers from the lockdown…

In a quick scoot around other stories from today, Alibaba pledges to spend $28bn on cloud computing (Financial Times, Ryan McMorrow) highlights the Chinese e-tailing giant’s plans to build next-generation data centres to cope with increased demand on internet infrastructure and technologies. Although it’s already one of the world’s

biggest cloud providers this represents a big increase on its usual spend. * SO WHAT? * Cloud computing is one of its fastest-growing businesses and it currently has 10 data centres in China and 11 in other countries. No doubt it will be catching up with Amazon and Microsoft’s cloud offerings although it is currently not profitable, unlike Amazon Web Services.

In the UK, Lockdown fattens Premier Foods (The Times, Louisa Clarence-Smith) shows that the food producer has benefited from a huge uplift in sales following the outbreak (although they do seem to be relaxing a bit now from the initial frenzy) but Le Pain Quotidien UK set to appoint administrators unless buyer found (Financial Times, Alice Hancock) shows that the posh Belgium-owned bakery could be the next high street name to disappear.



And finally, in other news…

I thought I’d leave you today with a few projects you might want to try during lockdown. One is the recreation of a real crowd-pleaser in IKEA shares iconic meatball recipe – and they look much easier to make than furniture (The Mirror, Courtney Pochin https://tinyurl.com/ybdtrud2). And then there’s this brilliant idea: Woman goes to extreme measures to cut dog’s nails – involving peanut butter on her head (The Mirror, Paige Holland https://tinyurl.com/yc56busy). How the heck did she come up with that?!?

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Some of today’s market, commodity & currency moves (as at 0736hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq**DAX *CAC-40 *Nikkei **Shanghai **
5,813 (+0.45%)8,56110,676 (+0.47%)4,521 (+0.48%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)