February 6, 2019 / 8:15 AM / a year ago

Renewables niche reaps profits for Finnish refiner Neste

HELSINKI (Reuters) - Biofuel producer and oil refiner Neste reported a bigger than expected fourth-quarter profit on Wednesday after seeing robust demand for its renewables fuels, which it expects will continue to grow.

FILE PHOTO: General view of Neste's oil refinery, with a total refining capacity of about 13.5 million tonnes per year, in Porvoo, southern Finland, November 17, 2015. REUTERS/Jussi Rosendahl/File Photo

The Finnish company, which produces diesel and other fuels from renewable materials at plants in Singapore and Rotterdam, said sales at its renewables business in the first quarter would likely surpass those of the fourth quarter of 2018, adding that utilization rates would be high.

Chief Executive Peter Vanacker said the company’s main growth drivers going forward would be rising jet fuel sales, and marine fuel sales as shipping companies prepare for new sulfur emissions rules coming into force in 2020.

“In 2018, we have already produced the first 5,000 tonnes of renewable jet fuel and we see a big market coming up in the aviation industry,” Vanacker told Reuters in a phone interview.

Neste’s cooperation with furniture giant Ikea on bio-based plastics, announced last June, would be another growth area, he said.

The company’s shares rose as much as 6 percent after its results and were up 4 percent at 85.46 euros by 1343 GMT.

Neste, which also has two conventional oil refineries in Finland, said margins for its oil products business would be low in the first quarter due to a weak gasoline market, but would strengthen towards the end of that period.

Renewables account for 70 percent of group profits and

Neste said its total fourth-quarter core operating profit rose 12 percent to 349 million euros ($398 million), beating analysts’ average expectation of 321 million in a Reuters poll.

Operating profit at its renewables operations rose to 281 million euros, beating analysts’ forecasts in the poll, which ranged from 198 million to 258 million.

Neste announced in December plans to build a new 1.4 billion euro refinery in Singapore, expecting to expand its total renewables production capacity to 4.5 million tonnes annually by 2022 from 2.7 million tonnes currently.

“As you can see from the Singapore investment, quite a lot of our efforts are going into expansion in the renewables space where we still see quite a lot of opportunities for the future,” Vanacker said.

Neste said its cooperation with Ikea aimed “to utilize renewable residue and waste raw materials as well as sustainably produced vegetable oils in the production of plastic products”.

The company sees room for growth in its marine fuel business ahead of the new sulfur emissions limits, which will fall to 0.5 percent in bunker fuel from 3.5 percent currently.

“We are very well positioned because here in the Baltic Sea the regulation is already even lower than 0.5 percent, it’s 0.1 percent,” Vanacker said, referring to the new emissions limit for ships.

“This will have a positive influence on our additional margin,” he said, adding some industry consultants has estimated the effect at between $1.8 and $2 per barrel.

Neste proposed a dividend of 2.28 euros per share, slightly above the average forecast.

($1 = 0.8780 euros)

Reporting by Anne Kauranen and Tarmo Virki, editing by Louise Heavens and Susan Fenton

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