August 3, 2018 / 5:35 PM / a year ago

Refiner Neste's shares fall as renewables margins disappoint

HELSINKI (Reuters) - Finnish oil refiner and biofuel producer Neste said on Friday it was optimistic about its performance for 2018 but disappointment over margins in its renewable fuel division hit the company’s shares.

Neste, which produces diesel and other fuels from renewable material at plants in Singapore and Rotterdam, said it now expected a “very strong” 2018 compared with its previous guidance of a “strong” year.

The company’s core operating profit for the second quarter rose to 277 million euros (£246.65 million), compared to 236 million a year ago and in line with analysts’ average expectation of 278 million euros in a Reuters poll.

But Neste’s shares slid as much as 6.2 percent to become the second biggest faller in the European Stoxx 600 index.

At 1046 GMT, they were 4.8 percent lower. The shares have nearly doubled in value over the past year, helped by its profitable biofuel business and its renewable products division.

The fall on Friday was mainly due to the so-called additional margin in the renewable product division disappointing in the second quarter, according to Henri Parkkinen, analyst at OP Equities.

In April, Neste upgraded its outlook for the year in that category to “strong” from “good”, but still the additional margin in the renewable product division came in at 112 million euros in the period compared to 114 million in the first three months of the year.

Total revenue came in at 3.75 billion euros in the three months, beating analysts’ expectations of 3.39 billion.

Neste could benefit from potential excess supply in the vegetable oil market which it uses as feed stock, after China imposed extra import tariffs on U.S. soybeans.

“We are seeing a downward trend in the vegetable oil market, partly due to the trade war,” Neste Chief Executive Matti Lievonen said in an interview.

Retaliating against U.S. trade barriers, Beijing has imposed a 40 percent import tariff on soybean imports from the United States, creating excess in the soybean market.

Soybeans were the United States’ top agricultural export to China in 2017 worth about $12.7 billion.

Neste, which also has two conventional oil refineries in Finland, is looking into extending the capacity at its biofuel plant in Singapore. The company is on track to make a final investment decision by the end of 2018, Lievonen said.

($1 = 0.8630 euros)

Reporting by Jacob Gronholt-Pedersen. Editing by Jane Merriman

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