8 Apr 2014

Refining NZ expects profit margin hit

8:02 am on 8 April 2014

Refining New Zealand has announced that its hydrocracker and related units, which break down crude oil into petrol, kerosene and diesel, will be out of action for a further week.

The oil refinery said the extended shut-down, which began in the first week of March, would have an impact on its profit margin because its ability to upgrade lower-cost feedstock into high value products would be restricted.

Forsyth Barr analyst Andrew Harvey-Green said the refining company's gross profit margin in January and February this year was $US3.86 a barrel.

Although that was very low compared with the long-term average of a little over $US6, it was an improvement over the previous four months when it fell below the floor set by Refining NZ's major shareholders.

Mr Harvey-Green said the margin in March and April would be particularly low because of the Hydrocracker outage.

Nevertheless, he said the market was undervaluing Refining NZ's shares and that projects such as Te Mahi Hou expansion of the refinery should lead to a sustainable lift in margins.