BUSINESS & INVESTING WRAP:
* GDP roller coaster continues with record third quarter bounce
* Tensions escalate between Z Energy and Refining NZ
* Steel & Tube upgrades guidance
* Federal Reserve says US economic outlook improving
* Bitcoin price goes into overdrive surging above US$20,000
A2 Milk’s ride to international stardom has been a smooth one. But today, shareholders will be nervously awaiting a trading update from the company after its shares were unexpectedly placed in a trading halt yesterday before the market opening.
No further information was provided by the market close other than a brief statement to the ASX, where its shares are also listed, saying it had requested the trading halt “to provide additional time to properly consider new information as it becomes available, and inform the market accordingly.”
Shares in Synlait Milk, which makes most of A2 Milk’s formula product, fell by more than 7 percent on the news. In a brief statement to the NZX Synlait said once an announcement is released by A2 Milk, it will assess the information, and the impact on its own company, and provide a further update to the market if necessary.
A2 Milk’s share price has fallen 35 percent since hitting a record high of $21.74 in mid-August, when it became one of the most valuable companies on the NZ exchange, worth $16.1 billion. The shares last traded at $14.12 having dipped below $14 earlier in the week.
In September the company said it expected sales to fall to between $725-$775 million from $805 million last year, although it said direct sales to China remained solid.
GDP roller coaster continues with record third quarter bounce
A record 14 percent bounce in GDP in the September quarter has confirmed Treasury’s outlook earlier in the week that the economy is recovering at a quicker pace than had previously been anticipated, though some sectors, notably tourism, have not participated in the recovery.
The quarter-on-quarter growth in gross domestic product followed a revised 11 percent quarterly drop in the June quarter and was up 0.4 percent compared to last year’s September quarter.
Stats NZ national accounts senior manager Paul Pascoe noted it was “the second historic GDP result in a row.”
However, Pascoe noted not all production lost as a result of the lockdown in the June quarter had been fully recovered.
As a result, GDP contracted 2.2 percent over the 12 months ended Sept. 30, the largest annual decline recorded.
That fall “indicates that the strong growth in the September 2020 quarter was not enough to fully make up for the economic impact of Covid-19 and the measures taken to contain it,” Pascoe said.
On a sector basis, services industries, which make up two-thirds of the economy, expanded 11 percent, and were the main contributor to the hefty bounce. All 11 service industries grew during the quarter.
But unsurprisingly, it was the retail, restaurants and the accommodation sector that recorded the biggest bounce up 42.8 percent in the third quarter.
“It’s possible this has been influenced by pent-up demand,” Pascoe said. “People may be spending domestically money that they might otherwise have been spending on overseas travel.”
Goods-producing industries, which make up about 20 percent of the economy, lifted 26 percent in the quarter, led by a 52.4 percent increase in construction activity and a 17.2 percent increase in manufacturing. Activity was down 3.8 percent in the 12 months to September 30.
Primary industries rose 4.6 percent but did not fall as much in the June quarter, Stats NZ said. Activity was down 4.9 percent over the year to September.
Tensions escalate between Z Energy and Refining NZ
A contractual stoush appears to be escalating between Z Energy, the country’s biggest fuel retailer, and Refining NZ.
In a statement yesterday, Z Energy said it had stopped making ‘top-up’ payments to Refining NZ, saying the simplification plan for the Marsden Point oil refinery being proposed won’t give it access to the capacity it is contracted to provide.
Z said that it has issued a formal dispute notice under its processing agreement with the refinery. It said it had tried to resolve the differences through dialogue and was now seeking an accelerated dispute resolution process to settle the issue “more quickly.”
At issue is the refinery’s proposed changes to develop a long-term plan to convert the site to a fuel import terminal which Z chief executive Mike Bennetts says “does not allow the refinery’s customers to access the full capacity of the refinery and makes no financial adjustment for this reduced capacity.”
“Z has notified the refinery that we will pay the contracted processing fee only and we will not make any additional top-up or fee floor payments while full capacity is not made available to Z. Additionally, Z will claim for costs incurred while the refinery is in breach of the processing agreement.”
Under the refinery’s processing agreement, the three oil majors have to provide up to $140 million a year under a fee-floor intended to keep the operation viable for occasional periods when regional refining margins fall below profitable levels.
Fee-floor payments so far this year have accounted for $86.2 million of the $117 million the refinery has booked in processing fees.
In-turn, Refining NZ has lodged a separate claim that the fee-floor its customers pay during periods of low margins should be $70 million a year higher.
Z shares fell 4.1 percent to $3.23 yesterday, while shares in Refining NZ shares closed unchanged at 57c cents.
Steel & Tube upgrades guidance
Steel & Tube Holdings is anticipating first half normalised operating earnings could come in up to 31 percent stronger than last year.
The company said trading in the first five months of its 2021 financial year had been “solid” with revenue tracking close to the previous first half and earnings before interest and tax ahead, reflecting cost reduction initiatives and gains from sub-leasing property.
The company said it expected to report normalised pre-tax earnings of between $6.5 million and $7.5 million for the six months ended December, up from $5.7 million in the same six months last year.
At its AGM in October, the company said trading was stronger than it had expected coming out of the nationwide lockdown earlier in the year.
CEO Mark Malpass said the positive performance to date reflected growing market demand, driven in part by the busy residential and infrastructure sectors, which had provided some balance to a softening non-residential construction sector.
“While the board remains cautious on the outlook for the second half of 2021, Steel & Tube has secured a solid pipeline of project work and is well positioned to continue its current performance trends,” the company said in a statement.
Steel & Tube shares closed at 84 cents, up 3.7 percent. Since March the shares have almost doubled in value after trading as low as 47c.
Federal Reserve says US economic outlook improving
Prospects for the US economy have improved since September, despite a recent surge in coronavirus cases, according to America’s Federal Reserve.
Fed officials said they expected growth of around 4.2 percent next year while the unemployment rate is now forecast to fall from 6.7 percent to 5 percent.
The update comes as medical authorities begin to distribute vaccines against Covid-19 in the US.
Federal Reserve Chair Jerome Powell warned the coming months would be “particularly challenging,” as the US battles a surge in coronavirus cases, while businesses and the unemployed face deepening hardship.
But he said he was hopeful widespread distribution of the vaccines would enable a strong rebound in the second half of 2021.
“You have to think that sometime in the middle of next year, you will see people comfortable going out and engaging in a broad range of activities,” he said. “The issue is more the next four or five months.”
Policymakers said they expected to keep interest rates near zero and continue other stimulus until they saw “substantial” progress toward recovery.
The central bank said that in recent weeks hiring had slowed and retail sales had dropped, as consumers avoid restaurants and cut back spending.
Officials in some places such as California have re-imposed strict lockdowns, while others, such as New York City have warned of such steps.
Meanwhile poverty rates in the US have surged as government virus assistance expires. It’s estimated nearly 8 million Americans have fallen into poverty since June.
Powell said there was a definite need for more support and he was optimistic that Congress would approve additional aid, describing the roughly US$900 billion (NZ$1.28 trillion) package being debated in Washington as “substantial”.
Bitcoin price goes into overdrive surging above US$20,000
After previously striking resistance at US$20,000, bitcoin has surged well clear of its previous high and now has US$30,000 as the next round number in its sights.
The new all-time high means the price of bitcoin has more than doubled in less than three months, after trading around the US$10,000 level in early October.
Some market watchers are even suggesting bitcoin has become the new 21st century gold, though others disagree, arguing the volatile cryptocurrency has no store of value.
Bitcoin rose by more than 6 percent overnight to reach US$23,700 extending a winning streak this year amid growing interest among big investment companies attracted to its potential for quick gains.
The price of bitcoin has surged by more than 400 percent this year from a low point of around US$3,600 in March, when the coronavirus pandemic triggered a deep sell-off in financial markets around the world.
Analysts said that unlike in previous surges, a major price driver appeared to be more institutional investors buying into the cryptocurrency.
Investor interest has been growing in bitcoin as a potential way to safeguard against rising inflation. Expectations among investors for higher rates of inflation have been growing in recent weeks, fuelled by the prospect of a stronger global economic recovery next year thanks to the Covid vaccine and ongoing stimulus measures from central banks and governments in advanced economies.
