MIDDAY REPORT: Fonterra units lose 9 cents after DCD scare

Jan 28 (BusinessDesk) - Fonterra Shareholders Fund units have slipped 1.24 percent in value, or 9 cents per unit, in trading on the NZX this morning, following international media attention on the discovery of minor traces of a nitrogen inhibitor in milkpowder products.

While the substance, DCD, is present at levels far below requirements set by the European Union and the products remain fit for human consumption, the issue has sparked concern among some export markets where the substance is not yet subject to standards-setting.

FSF units were trading at $7.14 just after midday, having started the day at $7.13. There has been considerable debate in recent weeks about whether the units are over-valued, having been issued at in November at $5.50 apiece.

Prime Minister John Key expressed concern about "misinformation" relating to the DCD issue, and insisted there was no public health risk. The fertiliser firms who supply DCD to a relatively small number of New Zealand farmers have voluntarily withdrawn it from sale while the issue is cleared up. DCD reduces nitrous oxide emissions, a greenhouse gas accounting for around 16 percent of New Zealand's total annual GHG emissions.

Drop the dollar, manufacturing inquiry hears

An Opposition party inquiry into the manufacturing sector heard from a cross-section of exporters at Parliament this morning, all of whom argued a lower exchange rate was more important to them than any specific government support to their industry.

Led by the chief executive of the New Zealand Manufacturers and Exporters Association, John Walley, the inquiry heard dire predictions about the state of the New Zealand economy if its ability to manufacture elaborate, high value products were allowed to continue eroding.

"The biggest thing is the exchange rate," said Walley, a long-time critic of the Reserve Bank of New Zealand's singular focus on controlling inflation.

High-tech entrepreneur and Labour Party backer Selwyn Pellett told the inquiry his companies had exported more than $450 million of goods and services since starting in 2001, when the exchange rate was US39 cents, compared to US83 cents today.

Pellett was uncertain he would have started his business if the exchange rate had been so high 12 years ago. He was about to bank about $10 million in gains on the sale of his shareholding in Endace, a software company he helped found, but would not invest that sum back into the New Zealand economy at present.

Services sector treading water, says PSI

The services sector is in a sluggish state, with the latest BNZ-Business New Zealand Performance of Services Index falling 2.7 points to 51.5 in December from its November levels, which in turn were 3.6 points down on October's outcome.

The result mirrors ambiguous readings from the Performance of Manufacturing Index last week, which like the PSI remained in positive territory, but gave mixed signals about business conditions.

Over 2012, the PSI averaged 53.8, with all but one month (August) in expansion. Compared to previous December results, the 2012 value was almost identical with 2011.

“When comparing the PSI with its sister survey the PMI, the service sector has held up despite another difficult trading year," said Business NZ chief executive Phil O'Reilly. "However, 2012 has ended with more of a whimper than a bang."



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