Refinery hit by strength of dollar

JAMES WEIR
Last updated 07:36 28/02/2013

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Refining NZ, operator of the Marsden Point oil refinery, made a $32.6 million profit in 2012, down 5 per cent on the previous year.

The company advised that it did not expect a recent lift in refiners' profit margins to be sustained this year.

The high New Zealand dollar was not expected to drop sharply either, which also hit processing revenue in the past year.

"We expect business conditions to remain difficult in 2013, with volatility in refiners' margins and the exchange-rate strength likely to continue," Refining NZ chairman David Jackson said. But the company was well-placed to withstand that through strong revenue generation, he said.

Refining NZ shares fell 5 per cent yesterday to close at $2.55. The shares traded at $3.30 a year ago and went as low as $2.20 in the middle of last year.

For the year to December, Refining NZ said record processing levels in "challenging" conditions had seen it improve on a disappointing first half of the year, when it made a loss of $1.5m.

Refining NZ declared a final dividend of 5 cents a share to be paid on March 28, despite a $365m expansion project currently under way.

The refinery is controlled by the big petrol retailers in New Zealand.

Operating profits were $113.5m, down 14 per cent on the year before.

Revenues were $278.5m, down 4 per cent.

Jackson said the profit was better than expected, given a strong kiwi, averaging US81c for the year, volatile refiners' profit margins and increasing global competition.

Jackson said the strength of the kiwi against the US dollar continued to "significantly impact" processing revenue.

"We don't expect the New Zealand dollar to weaken appreciably against the US dollar in the short term," he said.

The Northland refinery posted a record throughput of 42.1 million barrels in the full year, which helped it capitalise on improving refining margins in the second half of last year.

The gross refining margin was weak in the first half of the year at US$4.36 a barrel, but improved later on and averaged US$5.77 for the year.

The average margin was down from US$6.11 a barrel in 2011.

The margin was effectively the difference between the cost of the crude feedstock and the value of the end products.

Global demand for refined oil was mainly driven by China and India. Their lower-than-expected economic growth, with lower demand in the US and Europe, had put further pressure on the refining sector, Jackson said.

Permanent refinery closures reduced capacity by about 1 million barrels a day, but capacity growth in the next five years was expected to outstrip oil demand growth, he said.

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"Demand growth will need to gather pace before we see a sustained and positive impact on refiners' margins."

In the Asia Pacific region, Refining NZ would need to lift its performance to stay competitive.

Refining NZ's $365m upgrade project was progressing as planned and had already cost about $70m.

When confirmed last year, the project was expected to result in a $60m lift in operating profits and a strong jump in dividends once completed in 2015.

The project would lift petrol production by about 2 million barrels a year, taking market share from 50 per cent to about 65 per cent.

- © Fairfax NZ News

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