Neste Oil Oyj (NTOIY) Thursday said refining markets are likely to remain challenging in 2010 and it expects margins to increase only gradually as it reported a below-forecast net loss for the fourth quarter of 2009.

The Finnish oil refining company said the slow recovery of demand, new capacity due to come onstream in 2010 and high petroleum product inventories will weigh on a recovery in refining margins.

"It is likely that refinery utilization rates will be limited globally and that more capacity will be closed either temporarily or for good," Neste Oil said.

The company booked a net loss of EUR1 million, an improvement on the EUR290 million loss of the same period of 2008, but below a Dow Jones Newswires poll of six analysts which pointed to a profit of EUR31.03 million.

The result was impacted by lower sales as the refining margin slumped to $5.85 a barrel from $15.05 a barrel a year ago, and a series of negative non-recurring items including costs relating to job cuts announced in late 2009.

Chief Executive Matti Lievonen said: "The refining industry had a very difficult year in 2009, which was reflected clearly in our result. A virtually unprecedented drop in oil demand, coupled with increased new refining capacity, led to lower refining margins compared to recent years."

Lievonen said 2010 "appears to be another challenging year due to the slow pace of economic recovery."

Revenue was at EUR2.49 billion compared with EUR2.81 billion a year ago, and the loss per share for the period was EUR0.01 from a loss of EUR1.14 a share in the fourth quarter of 2008.

The company proposed a dividend of EUR0.25 a share for 2009.

Neste said it has built up a significant storage in anticipation of its planned maintenance turnaround at the Porvoo refinery in Finland in the second quarter. Storage depressed cash flow from operations by around EUR250 million, leading to net cash from operations of negative EUR225 million. That compares to positive net cash of EUR486 million in the fourth quarter of 2008.

Neste Oil closed at EUR11.65 Wednesday, off the previous 12-month peak of EUR13.22 reached in October following news of layoffs. The shares had made a steady recovery from July up to that point, but fell again after the October high as depressed refining markets continued to weigh on a more sustained recovery.

Company Web site: www.nesteoil.com

-By Elizabeth Adams, Dow Jones Newswires; +44 (0) 20 7842 9386; elizabeth.adams@dowjones.com
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