NZ shares fall; oil price plunge weighs on Refining NZ

New Zealand shares fell for a third day after a fresh drop in global oil prices heightened concerns about the outlook for the global economy. Refining NZ, which operates the Marsden Point oil refinery, led the market lower.

Wednesday, April 22nd 2020, 6:18PM

by BusinessDesk

The S&P/NZX 50 Index dropped 118.20 points, or 1.1 percent, to 10,417.67. Within the index, 37 stocks fell, eight gained, and five were unchanged. Turnover was $176.4 million.

Stock markets around the world fell today as dwindling demand for oil hinted at a sharp downturn in the global economy. The International Energy Agency has estimated global demand may fall by 9.3 million barrels a day this year as the virus outbreak pushes nations into lockdowns.

“Oil is symptomatic of what is going on globally,” and a reminder that many parts of the economy remain highly disrupted, said Harbour Asset Management portfolio manager Shane Solly.

“The fall in oil prices has been a reason for investors to pause and reflect on slowing global activity.”

US and European equity markets were down overnight after the price of Brent crude oil fell below USD$20 per barrel — a two-decade low. Prices for other commodities, such as milk powder, were also weaker. Asian markets were mixed.

The local share market followed the negative reaction to the oil price plunge, led lower by Refining NZ, which dropped 9.8 percent to 83 cents.

Solly said volatile spot oil prices were challenging. Sometimes the refinery could benefit and sometimes it could be hurt. The uncertainty while the company was already going through upheaval was enough to bring some investors to sell, he said.

“It is a really unusual circumstance and investors are not sure how to deal with it,” he said.

Z Energy, which is a cornerstone shareholder of Refining NZ, fell 4.7 percent to $3.06. Demand for fuel is likely to remain depressed throughout the different covid–19 alert levels.

“There will be some pick up in transport usage related to going into level 3, but the higher margin parts of the business are under pressure,” Solly said.

This pickup in activity will help the company, but low oil prices are unlikely to help margins as fuel retailers are under scrutiny to pass savings on to consumers.

A2 Milk rose 1.5 percent to $19.75 after saying profit margin had a temporary boost as consumers stocked up, the kiwi dollar slid and overhead costs fell. Revenue was above expectations, particularly for infant nutrition products sold in China and Australia, but the company warned those levels were unlikely to continue.

Meanwhile, economists have warned that the sharp fall in global growth coupled with a spike in unemployment could see demand for dairy products go down.

Fonterra Shareholders' Fund units declined 1.3 percent to $3.69 and Synlait Milk fell 3.1 percent to $6.94

Spark New Zealand posted the day's biggest gain, up 4.7 percent at $4.48. It said it still expects small earnings growth and plans to keep paying dividends, despite the national lockdown denting its high-margin mobile roaming revenue that accounts for 5 percent of all sales. While broadband use and voice calling increased, most of Spark’s customers are on unlimited data and minute plans, meaning it doesn’t reap any upside from that increase.

Chorus fell 1.1 percent to $6.96.

Stock exchange operator NZX declined 0.8 percent to $1.27 after it said it hired accounting firm EY to review technical problems over the past six trading days. It is also reviewing a range of hardware upgrades to increase processing throughput.

Air New Zealand fell 6.3 percent to $1.275 after it said it would rejig its domestic network from next Tuesday when the country eases the lockdown restrictions to keep freight moving as personal travel remains very restricted.

Solly said the collapse of Virgin Australia was likely weighing on the airline’s share price today. The Australian airline, which Air New Zealand was a shareholder in until 2016, entered voluntary administration yesterday.

SkyCity Entertainment Group fell 3.9 percent to $2.24, while Fletcher Building declined 4.8 percent to $3.61. The two companies welcomed a report by Fire and Emergency New Zealand that found last October's fire at the under-construction SkyCity convention centre and hotel was an accident.

Kathmandu Holdings completed the retail entitlement component of its capital raising, bringing another $53 million onto the balance sheet. It’s share price fell 2.5 percent to 77 cents today.

Just over half of all eligible retail shareholders took up Kathmandu’s offer to acquire new shares at 50 cents, with those shareholders applying for an additional $17 million of shares. That brought the effective take-up rate to approximately 82 percent.

Tags: Market Close