CHI - Channel Infrastructure Ltd (NZR)

**cdonald** · 18-05-2016, 09:09 AM

Originally Posted by cyclist

That was from mid March when it was around $3.10. Hmmmm. I fully expected more bad news today, but this was much more dire than I could have guessed.

Again I find myself wondering if they just make this stuff up on a whim. Throughput for the period was still fantastic, despite the shutdown. Surely any costs (labour and materials) for the shutdown are just part of normal opex. So why this massive hit on the margin due to the shutdown? I don't get it. (Put it another way, I can understand why costs during the shutdown and repair period would be higher, but don't understand why the revenue gets discounted by such a big amount). Any suggestions?

The hydrocracker is what they call an upgrade unit ie it upgrades cheaper products into more expensive ones. Here is a good link as to what hydrocrackers do http://www.eia.gov/todayinenergy/detail.cfm?id=9650

So in basic terms, when the hydrocraker is not working the refinery has to export fuel oil (cheap) rather than making jet fuel which is in pretty big demand in New Zealand. Hydrocracker needs to have a catalyst replacement every couple of years hence the need for shut downs. It is at the heart of the refinery. Once Catalyst is replaced the amount of thruput they can put thru increases and then gradually reduces until it is due for replacement again (about 2 years from now).

Hope that helps a bit... To get positive margins while the hydrocracker is down is pretty exceptional for NZR.

**crabs** · 18-05-2016, 09:54 AM

Originally Posted by cdonald

The hydrocracker is what they call an upgrade unit ie it upgrades cheaper products into more expensive ones. Here is a good link as to what hydrocrackers do http://www.eia.gov/todayinenergy/detail.cfm?id=9650

So in basic terms, when the hydrocraker is not working the refinery has to export fuel oil (cheap) rather than making jet fuel which is in pretty big demand in New Zealand. Hydrocracker needs to have a catalyst replacement every couple of years hence the need for shut downs. It is at the heart of the refinery. Once Catalyst is replaced the amount of thruput they can put thru increases and then gradually reduces until it is due for replacement again (about 2 years from now).

Hope that helps a bit... To get positive margins while the hydrocracker is down is pretty exceptional for NZR.

excellent informative post.

something else to ponder on..........
I am very surprised, given the effect that the NZD movement has on profit, that NZR do not hedge the currency.
Currently the NZD is trading 12% below the 5 year ave offering NZR a very good opportunity to hedge a % of income at a very beneficial level.

**cyclist** · 18-05-2016, 09:39 PM

Originally Posted by cdonald

The hydrocracker is what they call an upgrade unit ie it upgrades cheaper products into more expensive ones. Here is a good link as to what hydrocrackers do http://www.eia.gov/todayinenergy/detail.cfm?id=9650

So in basic terms, when the hydrocraker is not working the refinery has to export fuel oil (cheap) rather than making jet fuel which is in pretty big demand in New Zealand. Hydrocracker needs to have a catalyst replacement every couple of years hence the need for shut downs. It is at the heart of the refinery. Once Catalyst is replaced the amount of thruput they can put thru increases and then gradually reduces until it is due for replacement again (about 2 years from now).

Hope that helps a bit... To get positive margins while the hydrocracker is down is pretty exceptional for NZR.

Thanks cdonald, that is very helpful. So the summary is production is maintained through the shutdown, but giving a lower value product with little local demand - hence the big hit. Seems reasonable as a once every two year event.

**babymonster** · 20-05-2016, 08:45 PM

The fall just won't stop. We might looking at 2.30 soon

**Sideshow Bob** · 20-05-2016, 08:52 PM

Originally Posted by golden city

2.50 looks impossible

hopefully not impossible on the upside!

**golden city** · 20-05-2016, 09:00 PM

Happy to top up more at this level

**couta1** · 20-05-2016, 09:03 PM

Originally Posted by babymonster

The fall just won't stop. We might looking at 2.30 soon

Tell me about it, one of my dumber moments buying at $3.55 for the divvy, swapped a 8k divvy for a 37k red arrow, I've got the feeling she's going to be a long wait to break even(If ever) although a few years of divvy at the current rate should do it.