Markets Wrap: Cyclone Gabrielle's devastating impact lingers
The impact of Cyclone Gabrielle continues to be felt, with Napier Ports profits expected to be severely impacted. Forsyth Barr made significant cuts to its forecast for the port companys profit this year due to the severe impact of Cyclone Gabrielle on the Hawke's Bay export sector. Napier Port's near-term earnings will suffer materially from Cyclone Gabrielle, with its two biggest trades, forestry and pip-fruit, both impacted by the severe flooding event, Forsyth Barr head of research Andy Bowley said in a report. Pip-fruit and forestry represent about three quarters of the ports cargo revenue, which is a higher concentration than other more diversified ports like Port of Tauranga, he noted. READ MORE: * First coastal freight ship travels East Coast's 'blue highway' * $2.75m 'blue highway' between Gisborne and Napier after cyclone hits road, rail * How the climate change megatrend will influence investments Bowley cut his expectation for Napier Ports profit by 41% to $12.4 million, reducing his forecast for log exports by 17%, for container exports by 9%, and for cruise ship visits by 20%. The port company withdrew its earnings guidance last month. Bowley retained his underperform rating on the stock and pulled back his one-year price target to $2.50 from $2.60. Shares in Napier Port Holdings fell 1.9% to $2.60. Synlait Milks shares were placed in a trading halt on Friday after the milk processor asked for additional time to properly consider new information it had received which it said may require it to revise its previous guidance. Last month, Synlait reported first-half profit fell 83% to $4.8m as it faced higher costs and lower than expected demand from its biggest customer, The a2 Milk Company. At the time, it forecast annual profit of $15m to $25m. Thats down from profit of $38.5m last year. The companys shares last traded at $2.14 and have lost 39% of their value this year. The benchmark S&P/NZX 50 Index gained 0.4%, or 47.824 points, to 11,927.50 on Friday. On the broader market 55 stocks rose and 65 fell with $97m shares traded. Still, there was some more upbeat news for farmers and orchardists with expectations that rampant cost inflation may be moderating. Rural cost inflation doubled last year to top 15% , but it has now reached its peak and is expected to slow from here, according to Westpac senior agri economist Nathan Penny. At the end of last year, rural cost inflation was white-hot, Penny said. Feed costs shot up 13%, fertiliser 28%, fuel 33%, and interest rates 45%. But Penny said he now expects rural cost inflation to descend relatively rapidly, falling to about 4% by the end of this year, and to about 2% by the end of next year. Feed costs, which make up the largest component of farm budgets, are expected to fall steeply from here as wet weather associated with the summer floods and Cyclone Gabrielle has supercharged pastures over autumn, leaving farmers with ample feed for winter which was putting downward pressure on prices. Petrol prices have fallen by about 20% since mid-2022 and local fertiliser prices have headed in the same direction with world urea prices down by about 66% since April last year. And he doesnt expect much further increases in interest rates given they are close to their peaks. There is light at the end of the cost inflation tunnel, he said. Penny expects key commodity prices to rise over the remainder of this year and into next year, helping widen farm and orchard margins. Farmers have previously been warned that the country could face trade barriers in overseas markets if sustainability expectations arent met. Some overseas markets are already taking action. The European Parliament this week approved a landmark deforestation law to ban imports into the European Union of commodities linked to the destruction of the world's forests, Reuters reported. Deforestation is responsible for about 10% of global greenhouse gas emissions that drive climate change. Reuters said the rules aim to eliminate deforestation from the supply chains of a range of everyday items sold in Europe. It will apply to soy, beef, palm oil, wood, cocoa, coffee, rubber, charcoal, and derived products including leather, chocolate and furniture. Oil prices are on track for a weekly loss of about 4.4% amid concerns that recession will slow demand. Brent Crude for June delivery slid 0.1% to US$81.04 a barrel. Local petrol prices are likely to head higher though after Finance Minister Grant Robertson said the Government wont extend the 25 cents a litre fuel tax subsidy beyond its June deadline.