Record profits; Petrol spikes to over $1.60/litre

Record profits; Petrol spikes to over $1.60/litre
Petrol Prices; Used vehicle market; Business Indicators

Fuel prices: Last week the national average price of unleaded petrol rose by 1.7 cents a litre to 132.8 cents per litre (c/l) according to the Australian Institute of Petroleum. Pump prices have spiked to over $1.60 a litre as discounting cycles end in Sydney and Melbourne.

Used car prices: Used vehicle prices fell 1.4 per cent last week with supply up 20.4 per cent.

Profits: Company operating profits fell by 6.6 per cent in the December quarter but were still up 15.1 per cent on the year. Profits hit a record $439.9 billion in calendar 2020.

Sales, stocks and wages: Wages & salaries rose by 1.4 per cent in the quarter. Inventories were flat. Sales rose by 3.5 per cent in the quarter but were down by 2.0 per cent on the year.

Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. Used car price data is useful in gauging activity levels in the motor vehicle market.

What does it all mean?

• Motorists will need to get used to fuel prices averaging over $1.30 a litre with prices potentially peaking over $1.60 a litre – as now exist in the Sydney and Melbourne markets – at the end of the discounting cycle. Higher petrol prices will constrain consumer spending and add to headline inflation.

• Prices of used cars are starting to correct. There is more supply of vehicles on the market and prices have fallen by over 4 per cent in the past fortnight. Stock levels are still low, but used car owners will need to be alert if they are thinking of selling in coming weeks.

• Over 2020, Australian companies racked up record profits. That period included the recession in the first half of the year. Full credit to the tremendous support and stimulus measures provided by governments and the Reserve Bank. These measures kept business in business and kept people in jobs. Overall though there was an unprecedented 4.3 per cent fall in sales over the year but the recovery is well under way. The economy probably grew by 2.8 per cent in the December quarter after a 3.3 per cent rise in the September quarter.

What do you need to know?

Weekly petrol prices

• Last week the national average price of unleaded petrol rose by 1.7 cents a litre to 132.8 cents per litre (c/l) according to the Australian Institute of Petroleum. Metropolitan prices rose by 1.9 cents to 132.8 c/l and regional prices rose by 1.2 cents to 131.8 c/l.

• Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 0.6 cents to 127.2 c/l), Melbourne (up by 0.4 cents to 127.4 c/l), Brisbane (up by 14.0 cents to 151.4 c/l), Adelaide (down by 15.5 cents to 126.1 c/l), Perth (up by 1.6 cents to 132.7 c/l), Darwin (up by 0.4 cents to 130.1 c/l), Canberra (up by 0.8 cents to 130.9 c/l) and Hobart (up 1.7 cents to 133.1 c/l).

• The smoothed gross retail margin (2-month rolling average) for unleaded petrol fell from 15.20 cents per litre to an 11-month low of 15.03 cents a litre (24-month average: 15.40 cents a litre).

• The national average diesel petrol price rose by 1.7 cents to 130.2 cents a litre over the past week. The metropolitan price lifted 1.9 cents to 129.4 cents a litre and the regional price was up 1.6 cents to 130.8 cents a litre.

• Last week, the national average unleaded Terminal Gate Price (TGP) was up 2.3 cents to 120.4 cents a litre. The terminal gate diesel price was up 1.3 cents to 119.8 cents a litre.

• Today, the average unleaded TGP stands at 12-month high of 121.1 cents a litre, up by 1.7 cents over the week. The terminal gate diesel price has also hit a 12-month high at 120.1 cents a litre, up 0.7 cents a litre over the week.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 134.9c/l; Melbourne 133.7c/l; Brisbane 145.4c/l; Adelaide 143.2c/l; Perth 125.1c/l; Hobart 133.7c/l; Darwin 130.2c/l; and Canberra 1312.7c/l.

• Last week the key Singapore gasoline price rose by US$3.35 or 4.8 per cent to a 13-month high of US$73.10 a barrel. And in Australian dollar terms, the Singapore gasoline price rose by $3.60 or 4 per cent to a 12-month high of $93.37 a barrel or 58.72 cents a litre.

Weekly used vehicle market

• Datium Insights have reported the following results for the past week:

“Prices fell last week (-1.4 per cent) with ex-government cars (-6.3 per cent) leading the decreases

Supply was up (+20.4 per cent) with ex-leases (+50.8 per cent) and repossessions (+35.3) seeing increases

Clearance rates were largely flat (-0.5 per cent)

Prices for the top 15 traded vehicles were mixed with the Mazda CX-5 (+2.2 per cent) leading increases and the Toyota Hiace seeing the greatest decrease (-7 per cent)

 Stock still remains considerably low.”

Business Indicators – December quarter

• Company operating profits fell by 6.6 per cent in the December quarter but were still up 15.1 per cent on the year. In calendar 2020, profits hit a record $439.9 billion, up 12.6 per cent on the year. Profits rose in only 4 of the 15 industry groups in the December quarter.

• Inventories were broadly flat in the December quarter after falling by 0.3 per cent in the September quarter. Inventories will add 0.1 percentage point to GDP growth. Five of the six industry sectors posted declines in inventories led by Accommodation and food services (down 12.1 per cent).

• The total real value of sales rose by 3.5 per cent in the December quarter but was down by 2.0 per cent on the year. Real sales rose in all but two of the 15 industry sectors – Electricity, gas, water and waste services (down 2.0 per cent) and Construction (down 0.4 per cent). In current prices, sales rose by 4.6 per cent in the quarter but fell 2.1 per cent on the year.

• Over the full year to December, real sales fell by 4.3 per cent on a year earlier (decade average +1.3 per cent). And in current prices, sales fell by 4.2 per cent in the full year to December (decade average +2.8 per cent).

• In current prices, sales rose in six of the states and territories in the December quarter: NSW (up 2.7 per cent), Victoria (up 5.4 per cent), Queensland (up 5.6 per cent), South Australia (up by 4.3 per cent), Western Australia (up by 8.5 per cent), Tasmania (down 3.9 per cent), Northern Territory (up 2.2 per cent) and ACT (down by 0.7 per cent).

• Wages & salaries (includes changes in wages and employment) rose 1.4 per cent in the quarter to be up 0.7 per cent on the year – reflecting modest growth in wages and higher employment.

What is the importance of the economic data?

• Weekly petrol prices data are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

• Data analytics firm, Datium Insights, provides a weekly report on the used vehicle market. Datium Insights and Moody’s Analytics also issue a monthly reading on used vehicle prices. The data assists in gauging the strength of a key component of consumer spending and provides insights on the Autos and components sector of the sharemarket.

• The quarterly Business Indicators publication by the Bureau of Statistics contains measures such as inventories, company profits and income from sales. Higher inventory (stock) levels can be either intentional or unintentional. If stocks are low and sales are expected to rise in the future, businesses will seek to build up stocks. However an unintentional build-up in stocks is where sales fall short of expectations, leaving more goods on the shelves than desired. If profits are increasing then this may point to increased capital spending and employment in the future. Rising profits are also a sign of favourable business conditions.

What are the implications for investors?

• Key OPEC oil producers will meet this week. The hope is that they will agree to pump more oil in order to keep a cap on the crude oil prices and thus keep economic recovery prospects intact.

• Corporate Australia is in good shape. The key challenge will be how businesses fare when support and stimulus measures are scaled back. Still, interest rates look to stay low for an extended period. And success with the vaccine roll-out will provide scope to open foreign borders.

Published by Craig James, Chief Economist, CommSec