Strong Australasian Economic Data | Z Energy & NZR Dispute

29 December 2020

Global markets resumed their rally overnight (S&P 500 index +0.6%) as US stocks rose to records after data showing a further slowdown in the labour market stoked bets Congressional leaders will clinch a deal on federal spending.

Z Energy (ZEL:NZX / ZEL:ASX)

Fuel retailer Z Energy fell -4% yesterday on its continued dispute with Refining NZ over its processing agreement with the refinery. 

The dispute between NZR and ZEL moved up a notch yesterday. The company has stopped paying fee floor payments saying it is unable to access the full capacity of the refinery, or be compensated for it. Meanwhile, Refining NZ has said its customers should be paying $70 million more than they have been. Refining NZ shares were unchanged at 57 cents.

The dispute hinges around NZR’s plan to drop its 135kbbl/day output (plus bitumen) to just 90kbbl/day (with no bitumen) without reducing the processing fee floor. ZEL wants the NZ$140m floor fee reduced to reflect the capacity reduction. Also, NZR has cut all bitumen production, ZEL now having to import this directly, and ZEL wants compensation. This will likely go to arbitration and NZR is incentivised to get a quick resolution.

We see this as ZEL moving to hasten the refineries conversion to an import terminal. If NZR are forced to rush conversion then their ability to negotiate a better pipeline fee reduces. ZEL have not changed their operating earnings guidance for 2021 to be NZ$235-265m. We view this as neutral to modestly positive for ZEL. We currently have a BUY (high-Risk) on Z Energy, and a HOLD on NZ Refining.


Australia & New Zealand Market Movers

The Australian market (ASX 200 index +1.2%) climbed to a nine-month high on Thursday after recording its best session in more than three weeks amid signs the recovery of the domestic economy was tracking well ahead of expectations. A strong report on employment during November, which saw new employment double expectations, helped lift the heavyweight sectors.

Travel stocks were among the market’s worst performers after health officials detected a number of new COVID-19 cases in Sydney’s Northern Beaches with an unknown origin, threatening the reopening of borders.

In stock news, Nine Entertainment shares firmed 3.4% after it upgraded its earnings expectations amid a strong rebound in the advertising market. Transurban shares rose 1.2% after striking a deal to sell half of its US toll roads to superannuation funds, including existing partner AustralianSuper for $2.8 billion. Sydney Airport declined 0.6% after it announced it wouldn’t pay a final dividend for the first time in its history, reporting traffic numbers for November were still 90 per cent lower than a year prior.

The New Zealand market was higher on Thursday (NZX 50 index +0.5%) as a historic bounce in New Zealand’s gross domestic product (economic growth) buoyed investors' sentiment spurring equities and the kiwi dollar higher (currently trading at over 71 cents versus the US dollar).

Data released by StatsNZ showed gross domestic product expanded 14% in the September quarter, a stronger than expected rebound from the previous quarter which recorded an 11% contraction due to covid lockdowns, a smaller decline after a revision.

3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​COVID related news flow, including vaccines are likely to dominate headlines for another week.
  2. Highlights this week include interest rate decisions from the US Federal Reserve, Band of Japan and Bank of England.
  3. The latest employment data in Australia is due on Thursday along with housing starts. Closer to home, the latest NZ migration print is due along with Q3 GDP and business confidence.


The dispute between NZR and ZEL moved up a notch yesterday.

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