Jan. 9 (Bloomberg) -- LG Chem Ltd., South Korea's largest chemicals maker, tumbled to a four-month low in Seoul trading after one of its laptop batteries exploded in South Korea yesterday. Affiliate LG Electronics Inc.'s shares also dropped.

LG Chem manufactured the lithium-ion battery that exploded and the company has asked a third party to investigate the matter, said Tracey Park, a spokeswoman at Seoul-based LG Chem. LG Electronics, which buys LG Chem rechargeable batteries for its notebook computers, is probing the explosion with the battery maker, it said in a statement today.

Sony Corp., the world's second-largest maker of consumer electronics, in 2006 began recalling a record 9.6 million lithium-ion batteries after finding they may burst into flames. The recall cost the company 51.2 billion yen ($467 million), driving down quarterly profit by more than 90 percent. In the past year, Matsushita Electric Industrial Co. and Sanyo Electric Co. have also recalled rechargeable batteries.

``If this happens again and the companies recall their products, that would be a big deal,'' said Lee Seung Jun, who helps manage the equivalent of $1.9 billion at CJ Asset Management Co. in Seoul. ``Still, laptops and laptop batteries don't account for a large portion of sales for LG Electronics and LG Chem.''

LG Electronics shares tumbled 5.7 percent, the most in more than two months, to 99,000 won at the close of trading on the Korea Exchange. LG Chem declined 4.7 percent to 80,600 won.

`Overblown' Reaction

The stock reaction at LG Electronics is ``overblown'' because the company's laptop business is ``very small,'' James Kim, a Seoul-based analyst at Lehman Brothers Holdings Inc., said in a note to clients today.

LG Electronics sold about 670,000 laptops last year, accounting for 0.6 percent of industry shipments, according to Lehman's Kim. Third-quarter consolidated operating profit at the company's digital media business, which sells desktop computers and notebooks, accounted for 8 percent of overall profit.

LG Electronics is seeking to determine the cause of the problem, which should not occur under normal conditions, the company said in the statement.

Seoul-based LG Electronics manufactured the laptop, Yonhap Infomax reported today, citing unidentified industry officials. The Chosun Ilbo, South Korea's largest newspaper by circulation, said on its Web site today a battery in a laptop used by one of its reporters exploded yesterday, without disclosing the manufacturer.

Dell, HP

LG Chem was the world's fifth-largest maker of lithium-ion batteries used in notebook computers and mobile phones in 2006, behind Sanyo, Sony, Samsung SDI Co. and Matsushita, according to Tokyo-based Institute of Information Technology Ltd.

Steve Kim, a spokesman for LG Chem, said the company sells lithium-ion batteries to companies including Dell Inc. and Hewlett-Packard Co.

Sales of the types of batteries in question probably accounted for about 3 percent of LG Chem's 2007 revenue, according to Kim Jae Jung, an analyst at Woori Investment & Securities Co. in Seoul.

``Finding out the cause of the explosion will be the important issue,'' Kim wrote in a report today.

LG Electronics and LG Chem are part of LG Group, South Korea's fourth-largest family-run industrial group.

To contact the reporters on this story: Kevin Cho in Seoul at kcho2@bloomberg.net; Sungwoo Park in Seoul at spark47@bloomberg.net.

Last Updated: January 9, 2008 03:56 EST