By Jenny Ruth
Tuesday 6th April 2010
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New Zealand Refining's dramatic improvement in profit margins in the first two months of 2010 is more likely to be a dead-cat-bounce than the first sign of any prolonged recovery, says McDouall Stuart.
"As we have highlighted previously, we consider refining to be a highly cyclical industry," the broker says.
After a prolonged period of particularly high international margins as refining capacity struggled to keep pace with demand, the global credit crisis and substantial volumes of new refining capacity in Asia and the Middle East are now weighing heavily on market pricing conditions, it says.
The company itself has said it expects further volatility and seeing the recent improvement as the start of a sustained recovery would be premature.
Last week's purchase by Infratil and the New Zealand Superannuation Fund of Shell's New Zealand downstream assets provided no insight as to how much value the joint-venture ascribes to the 17.1% stake in NZR, McDouall Stuart says.
"The twin threats of increased refining supply in Asia and reduced demand still loom heavily over the industry and we expect margins to decline and oscillate somewhere between the recent January/February high of US$6.85 a barrel and the November/December low of US$1.18 a barrel," it says.
BROKER CALL: sell.
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