MARKET CLOSE: NZ shares fall, led by Steel & Tube on supply glut; A2 Milk declines

New Zealand shares fell for a second day, led by Steel & Tube Holdings after the steel products manufacturer yesterday issued a profit warning. A2 Milk Co declined, ending a three-day rally.

The S&P/NZX50 dropped 34.93 points, or 0.6 percent, to 5989.03. Within the index, 25 stocks fell, 21 rose and 4 were unchanged. Turnover was $111 million

Steel & Tube fell 5.4 percent to $2.30, extending its decline for a fourth day. New Zealand's biggest steel distribution company yesterday forecast a drop in first-half profit, citing the impact of lower-priced Chinese steel in eroding margins. Chief executive Dave Taylor told shareholders that increasing low-priced steel exports and imported pre-fabricated steel was putting New Zealand's steel industry under pressure.

"You're going to see that supply/demand dynamic move to a point where there's far more supply than demand, and also overseas players starting to dump steel into our market which will make it more difficult for Steel & Tube," said Peter McIntyre, investment adviser at Craigs Investment Partners. "This is not likely to be a short-run thing either, and I think Steel & Tube investors are getting nervous and starting to take money off the top of the table."

A2 Milk fell 3.3 percent to 88 cents, ending a three-day run where the shares rose by about 20 percent on the back of strong Australian and Chinese demand for infant formula.

"They did rally quite significantly during the week," McIntyre said. "If you look at Asian markets in general and at global weakness, there may be some profit taking there because the stock has run pretty hard."

At the same time, A2 is currently raising capital through a share purchase plan where shareholders can buy up to $15,000 worth at 65 cents per share, meaning those investors can sell their existing stock and buy it back at a cheaper price before the offer closes on Nov. 19, he said.

Local blue-chip stocks also fell as markets across Asia dropped in afternoon trading. Spark New Zealand shed 2.9 percent to $3.215, Fletcher Building declined 2.1 percent to $7.47 and Auckland International Airport decreased 1.9 percent to $5.11.

New Zealand Refining rose 6.6 percent to a four-year high $3.87, and continuing a three-day upswing. The company yesterday said it expects to exceed planned throughput guidance by 4.6 percent, up to 40.8 million barrels for the year, with a margin of US$9.47 per barrel, resulting in a processing fee income of $73.5 million.

"It's a stock which has come out with a series of good news, it's been a strong recovery story," McIntyre said. "In this income-hungry market, investors obviously still see potential for further upside. There's expectations around dividends being paid again in March 2016, and we're forecasting those dividends being higher."

SkyCity Entertainment Group gained 0.5 percent to $4.24 after the casino and hotel operator said earnings were up 14 percent in the first four months of trading on strong performances at its Auckland and Adelaide casinos.

Air New Zealand rose 3.7 percent to $2.82. The national carrier will start flying directly to Vietnam from the middle of next year, expanding its Asia-Pacific offering as it faces increased competition on both international and domestic routes. Flights between Ho Chi Minh City and Auckland will begin in June 2016.

Wynyard Group rose 5.4 percent to $1.75, a near-five month high. The security software developer has signed a three-year contract worth $4.5 million with a national security agency it didn't name to use its software for counter-terrorism and protect high value assets. The shares jumped 20 percent yesterday after Wynyard announced plans to raise $30 million from institutional and high-net investors at $2 apiece or higher.

(BusinessDesk)