June 6, 2024

New Zealand News

What The Government Promises, Reality Checks

Seldom does a Treasurer predict that his/her budget will produce a bleaker future: and the Minister of Finance, Nicola Willis, duly followed suit last week when handing down her budget. Indeed, she mainly highlighted the tax relief of up to $102 per fortnight for average households. Hard-working New Zealanders would, for the first time in 14 years, get to keep more of their own money, she triumphed. The economy will grow by 1.75% in the year to June 2025, she forecast. Childcare payments of $150 per fortnight, better healthcare, better education – they are all coming. The most fiscally responsible budget in seven years, she said of her own work. She also noted that inflation in New Zealand is now predicted to be back in the target band in the third quarter of 2024 and dropping to 2.5% rather than 2.9% by year’s end. “Ultimately the Reserve Bank is responsible for getting back to that inflation target, but we’re doing our bit,” said Ms Willis, carving out a slice of the good news for herself. In truth, those tax


reliefs will be far more welcomed than Ms Willis might imagine, if the view of the NZ economy elsewhere comes to fruition. The ANZ economist, Henry Russell recently said it had “become clear in the past couple of months that the economy has deteriorated pretty significantly”. Unemployment is now expected to hit 5% by the end of the year. With the job market tightening, data from Stats NZ shows that in the year to March 2024, 78,000 Kiwis left New Zealand, exceeding the previous record set in 2012. Australia is now gaining 2,000 more New Zealanders every month as they go in search of opportunity.

Specifically, insofar as all this relates to the steel industry, a market update published at the end of May by Fletcher Building provides further worrying signs. The Update commented that: “Market conditions across the company’s materials and distribution divisions have weakened throughout FY24. In New Zealand, market volumes to date in 2H24 have moved 5% lower than 2Q24. There has also been a notable slowdown in house sales in the New Zealand market and an end to the house price momentum seen through the first half of FY24.” In February, Fletcher Building said its guidance for FY24 EBIT before significant items was in the range of $540 million to $640 million. However, in a sign of the times, the company now expects lower FY24 earnings. Its updated guidance is for FY24 EBIT before significant items to be in the $500 – $530 million range. Among the causes for the guidance adjustments, the Update said challenging conditions in the NZ distribution division and its exposure to the residential sector had resulted in intense price competition. Also, a sharp correction in the Australian residential market was leading to an expected 10% revenue decline for the Australian division in 2H24 compared to 2Q24.

“Given the current conditions, our focus has been on managing things within our control, in particular: customer service; costs and margins; cash flows; capital allocation; funding; and closing out the remaining legacy construction projects,” said acting CEO, Nick Traber. The Update concluded by saying Fletcher Building expects market conditions to remain challenging in both New Zealand and Australia in the near term.

In good news elsewhere, the future of the Tiwai Point aluminium smelter has been secured. New Zealand Aluminium Smelters (NZAS), which owns and operates Tiwai Point, has signed 20-year contracts with electricity generators Meridian Energy, Contact Energy and Mercury NZ to set pricing for an aggregate of 572 megawatts (MW) of electricity to meet the smelter’s full electricity needs. The agreements, which are subject to regulatory approvals and other conditions, are expected to commence in July 2024 and run until at least 2044. About 1000 full time-equivalent employees and contractors work at the smelter, with around a further 2200 people offsite employed indirectly.

The news comes after the Australian miner, Rio Tinto, agreed to acquire Sumitomo Chemical Company’s 20.64% interest in NZAS for an undisclosed price. On completion of the transaction, NZAS will be 100% owned by Rio Tinto. “We are pleased the long-term future of the Tiwai Point smelter has been secured with these agreements, which were reached with a genuinely collaborative spirit between all parties,” said Rio Tinto Aluminium´s chief executive officer, Jérôme Pécresse. “They give us confidence that our New Zealand workforce and assets can continue competitively producing the high purity, low-carbon aluminium needed for the global energy transition,” he added. NZAS contributes about NZ$400 million to the Southland economy annually, or 6.5% of Southland’s GDP.

Finally, over recent months on ASN´s companion platform AustralianSteel.com we have published Special Product Features on scrap metal, wire products, importers, and stainless steel. The latest one focusses on New Zealand. Check it out: https://australiansteel.com/nz-spf-june24


* This month´s New Zealand Steel News was authored in-house by Australian Steel News