Wednesday 23rd October 2019
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New Zealand shares dropped as the threat of Rio Tinto pulling the pin on the Tiwai Point smelter saw Meridian Energy and its electricity sector peers sold off sharply.
The S&P/NZX 50 Index dropped 169.1 points, or 1.5 percent, to 10,922.11 at 1.30pm, with 27 of the top 50 stocks in the red. The electricity generator-retailers were the hardest hit after global mining giant Rio Tinto said it was reviewing the smelter's future.
Meridian dropped 7.8 percent to $4.995 with 5.9 million shares traded at 1.30pm, more than four times its daily average over the past three months. Contact Energy, which also has significant South Island generation assets, fell 6.7 percent to $7.95, while Mercury NZ was down 5.7 percent at $5.14, Genesis Energy declined 3.4 percent to $3.15 and Trustpower decreased 3 percent to $8.43.
"Rio has to give one year's notice to close the smelter, so there's a lot of to-ing and fro-ing at this stage with regards to the potential outcome, but probably of most significance is that it's dropped to the bottom quartile of performing smelters globally," said Peter McIntyre, an investment adviser at Craigs Investment.
"It's no secret that they've probably been asking for price relief, but these negotiations take a long time. The lead-time here for anything to happen - you're looking at probably two or three years potentially."
The smelter is Invercargill's biggest employer with about 990 staff and contractors, and had taken on more workers having opened a fourth potline after an extended break on the expectation it would have a future. South Port New Zealand, which counts the smelter as its biggest customer, decreased 0.6 percent to $7.85.
McIntyre said if the smelter was to close it would hit all of the generation companies, although Contact and Meridian would feel it the most acutely with their South Island hydro dams.
SkyCity Entertainment Group shares recovered some lost ground, and were down 1.3 percent at $3.82, having fallen as low as $3.71 today. Chief executive Graeme Stevens and Fletcher Building chief Ross Taylor held a joint briefing today to update the media on the fire at the international convention centre building site. Fletcher shares were up 0.2 percent at $4.66.
McIntyre said there was still a lot of uncertainty about what impact the fire would have on the centre's completion date and the downstream impacts. But he said today's briefing had calmed some investors.
"Definitely the selling in the stock has halted, as has the volume as well, as more news flow comes from SkyCity with regards to the fire," he said.
Greg Smith, head of research at Fat Prophets, said the big question was now about how much insurance cover the companies have on the project. Irrespective of that, the opening would be even later than planned, meaning it would take longer for it to start generating revenue.
The fire prompted Tourism Holdings to delay its annual meeting, which was to have been held down the road at the Heritage Hotel today. Its shares were down 3 percent at $3.54.
Auckland International Airport was able to hold its meeting at the Ellerslie Event Centre in Remuera, where the board affirmed its earnings and capital spending guidance. The airport operator's shares were down 1 percent at $9.07.
Earlier today, Air New Zealand said it planned to drop its Los Angeles-London route from October next year, when it would also introduce an Auckland-New York route, saying the Atlantic market was too competitive to continue. Its shares were down 0.5 percent at $2.81.
McIntyre said the national carrier was typically nimble in exiting unprofitable routes and that the Los Angeles-London flight didn't stack up anymore.
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