NZ Refining sees tough times enduring through 2010, with slim margins

Tuesday 23rd February 2010

New Zealand Refining’s outlook for the year ahead indicates continuing tough times as its refining margins remain squeezed, with more shakeouts expected in an unsustainable global refining industry.

The Northland-based business said its output volumes should remain on target at 17.5 million barrels, but with weak fundamentals, a decline in refinery margin is expected. The exchange rate level will be an important determinant of its overall margin, it said.

In a presentation to analysts, NZ Refining said a worldwide stock build of crude and products started in 2008 and continued in 2009. Despite recent stock declines, helped by a severe northern hemisphere winter and low refinery runs, OECD stocks remain near or above the top of the five-year average range.

“Prices and margins cannot recover sustainably before stocks have moved to realistic levels,” the company said.

Shares of NZ Refining rose 0.9% to $3.43 and have slipped 10% this year.

The main driver behind an increase in demand will be China, which tends to match refinery production to its consumption.

These supply/demand fundamentals has seen global refinery utilisation fall from 88% capacity to 78%. This has resulted in extended refinery turnarounds, deferred capital spending and downstream rationalisations and closures. These include Total’s now permanently idle Flanders refinery, Shell’s Montreal refinery, Valero’s closure of its Delaware City plant and ConocoPhillips Wilhelmshaven refinery remaining closed after a turnaround.

Looking ahead NZRC said reverberations from the world financial crisis are still to smooth out, and the volatile United States to New Zealand exchange rate would strongly impact on its refinery margin.

The expected sale of Shell’s New Zealand assets to an NZ Super Fund/Infratil consortium should not make much change to its fundamental performance, the company said.

Businesswire.co.nz

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