Bluescope launches NZ Steel review, raising prospect of Tiwai Pt, Marsden Pt and Glenbrook Steel closure moves in 2020, endangering over 6,000 high paid jobs
Steel next to go?: The Australian steelmaker Bluescope has announced a strategic review of its NZ operations – NZ Steel and Pacific Steel – and expects to have an update when it reports its earnings next month. BlueScope said it expects to write down the value of its NZ businesses by A$200 million on new expectations for lower sustainable earnings over the long-term. It said the objective of the review is to re-evaluate the footprint of the business to ensure “its financial viability in a challenging environment, made more uncertain by public policy settings in carbon, trade and energy”.
More jobs on the line: BlueScope is the country’s only steel producer at its Glenbrook site south of Auckland where it uses a process smelting local iron sands with local and imported coal. It also owns the Pacific Steel business in Otahuhu and employs around 1,400 workers across both sites. The business has struggled in recent years from falling regional metal prices and increasing costs for electricity and gas.
Manufacturing bounces back: The BNZ/BusinessNZ’s performance of manufacturing index rose to 56.3, its highest level since early 2018, and up from a level of just 39.7 in May and an all-time low 25.9 in April. A reading above 50 indicates expansion while a reading below 50 means activity is contracting. Some of the rebound is likely due to backlogs that occurred during the lockdown period. However, the employment component of the index came in at 48.5, an improvement from 39.2 in May, but still indicating job losses. Continued staff layoffs indicate that employers are still doubtful the recovery will be sustained.
Unemployment growing: A further 4,500 people became unemployed in the week to July 10 according to new figures from the Ministry for Social Development. They show a total of 209,608 receiving the Jobseeker benefit or the more generous Covid-19 Income Relief Payment (CIRP). That’s an increase of around 17,000 in the last month. After an initial surge in unemployment in late March and into April, numbers had settled at around 190,000 through May and into June. In recent weeks however, they have been steadily increasing at a rate of 4,000 per week.
Post-election expiry: There are now 413,138 jobs being supported by the extension to the wage subsidy, bringing the total number of jobs covered by the subsidy to 550,000 as at 10 July. It expires just after the election.
Markets push higher: The NZX50 will start the week at 11,584 after gaining 1.6 percent last week. NZ stocks continued to edge higher as investors remained confident that both fiscal and monetary stimulus will continue into the future. In the US, the S&P500 ended the week at 3225, up 1.25 percent. The ASX200 was more muted gaining just 0.5 percent for the week and the NZ dollar is steady at 65.55 US cents, after trading in a narrow band last week.
Dollar dilemma: Fonterra has trimmed its forecast payout for the season just ended, blaming gains in the NZ dollar for the reduction, but is confident of a resurgence in Chinese demand for its dairy products. The 2019/20 payout forecast was revised to $7.10-to-$7.20 per kilogram of milk solids, which chair John Monaghan said was down to gains in the local currency over the past two months. The kiwi dollar has appreciated more than 10 percent since the previous update in mid-May.
China recovering: Fonterra is also more positive about the upcoming season, lifting the bottom end of the 2020/21 forecast by 50 cents to $5.90-to-$6.90/kgMS, which Monaghan said was due to recovering consumer appetite in China. The more upbeat outlook for the current season comes after recent gains in Global Dairy Trade auctions, where the price of whole milk powder, the key product for Fonterra, has climbed to US$3,208 per tonne.
US Fed expands lending: The US Federal Reserve has expanded access to a flagship $600b business lending scheme to include non-profit organisations such as hospitals and universities.The employee threshold to gain access to the funds would also be lowered from 50 to 10, meaning smaller charities could participate. The US$2.2 trillion (NZ$3.38tr) Main Street lending programme was set up to help struggling midsized businesses. It is just one of 11 emergency facilities the Fed has rolled out since March that operate under powers that allow the central bank to make purchases in “unusual and exigent circumstances”.
FANGS under pressure: The gloss is finally coming off Amazon after its shares posted five straight days of losses last week, making it the worst week for the stock since late February. Its shares traded 1.26 percent lower on Friday and closed down 7.44 percent for the week. Heading into the week, Amazon had posted 10 straight weeks of gains, its longest weekly winning streak in the company’s history.
Crucial in Covid: Amazon has been one of the strongest performers on the US market during Covid-19 pandemic, as people increasingly turn to online shopping in the face of retail closures and shelter-in-place orders. Many companies also increased their reliance on cloud computing providers, including Amazon’s highly lucrative Amazon Web Services unit, as overall online activity increased. Amazon shares are still up more than 60 percent year to date.
FANGs trimmed: Shares of other major tech companies also struggled last week including Facebook, Alphabet and Microsoft which all finished down for the week. In addition, shares of streaming giant Netflix dropped more than 6 percent on Friday after the company reported weaker-than-expected guidance on new subscribers.