Sector News

Finland's Neste mulls U.S. biofuels investment amid Trump uncertainty

February 8, 2017

Finnish oil refiner Neste is considering investing in U.S. production of biofuels in a move seen as a response to possible policy changes by U.S. President Donald Trump’s administration.

Neste, which derived 48 percent of its profits from biofuels in 2016, has benefited from the “Blender’s Tax Credit”, a U.S. tax break, but the future of that policy is uncertain under the new U.S. administration.

The credit added 169 million euros to Neste’s operating profit in 2015. The company did not disclose a number for 2016, but analysts estimated it around 100 million euros.

Currently Neste exports renewable diesel to the U.S. market from its plants in Singapore and Rotterdam. Renewable diesel, or hydrotreated vegetable oil, is produced from waste fats, residues and vegetable oils and used in vehicles and machinery.

“We are currently evaluating the feasibility of options to invest in new production capacity. The options under review include locations in the U.S. and Singapore,” Chief Executive Matti Lievonen told a news conference.

He said the company was keen to increase its biofuels production capacity amid growing global demand.

“We will look at the market, the raw material, logistics… but also the incentive systems,” Lievonen said.

The risk is that the U.S. tax rules are changed to favor local production, said Handelsbanken analyst Karri Rinta.

“I believe Neste would prefer to invest in Singapore … but if the (U.S) rules change, they may choose otherwise.”

Shares in Neste, which have fallen about 20 percent since the U.S. election, were down 8 percent at 1123 GMT following the release of its 2016 earnings.

Its operating profit rose to 983 million euros ($1.05 billion) in 2016 from 925 million, broadly in line with analysts’ forecasts.

However, investors were unhappy with a lack of detail and guidance on the biofuels unit.

“The profit outlook for the renewables unit is rather unclear. It is always difficult to estimate that business, but the increased political uncertainty makes it even more challenging,” said Handelsbanken’s Rinta, who holds an “accumulate” rating on the stock. ($1 = 0.9361 euros)

By Jussi Rosendahl

Source: Reuters

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