The renewable diesel market is a battlefield right now. RIN prices have plummeted 30%, premiums are shrinking, and competition is fierce. Neste, the Finnish renewables giant, is feeling the heat. Their Q1 2024 comparable EBITDA dropped a third year-on-year, and while they're projecting a sales margin recovery later in the year, the road ahead looks rough.

But buried deep within Neste's financial statements, there's a hint of something unexpected, something that could give them a critical edge in this fight: a massive inventory buildup. Neste's inventories ballooned by over €700 million in the first quarter, a dramatic surge they attribute to both the upcoming Porvoo refinery turnaround and a strategic stockpiling of SAF.

Now, analysts have largely accepted this explanation, viewing the inventory as a temporary blip on the radar. But what if it's something more? What if Neste is quietly amassing an arsenal, ready to deploy it when the market least expects it?

Let's examine the numbers. The €700 million inventory increase represents a nearly 20% jump from year-end levels, far exceeding the historical norm for turnaround-related buildups. While it's true that SAF inventory would contribute to this surge, the projected SAF sales volume for the year, even at the high end of the 0.5 to 1 million tonne range, wouldn't justify such a drastic increase.

This begs the question: is Neste holding back more than just SAF? Could they be stockpiling renewable diesel as well, strategically anticipating a market shift?

If this hypothesis is true, Neste could be playing a masterful game of chess. By deliberately restraining sales volume and allowing the market to weaken further, they're creating a pressure cooker environment that could force less-resilient competitors to curtail production or even exit the market.

Then, when the field is thinned, Neste could unleash their 'phantom inventory,' flooding the market with supply just as demand tightens, driven by upcoming mandates and a potential rebound in credit prices.

Consider this: the Netherlands biofuel mandate is expected to boost European demand by 300-400,000 tonnes this year, and Germany's impending HVO approval could add another 400,000 tonnes. Furthermore, the EU's RefuelEU Aviation mandate kicks in at the start of 2025, creating a looming wave of SAF demand.

If Neste is holding back supply now, they could be perfectly positioned to capture these emerging opportunities at a time when competitors have reduced production capacity.

This strategy wouldn't be unprecedented for Neste. Remember, this is the company that pioneered the renewable diesel industry, a company renowned for its savvy feedstock sourcing and global optimization. They understand the intricacies of this market like no one else, and they've consistently outmaneuvered their rivals.

Of course, this is just a hypothesis. It's possible the inventory buildup is purely a combination of turnaround preparation and ambitious SAF stockpiling. But the scale of the increase, combined with Neste's history of strategic brilliance, raises intriguing possibilities.

Analysts may be overlooking a potential game-changer. Neste's 'phantom inventory' could be the wildcard that reshapes the renewables battlefield, reminding the industry who the true king of the hill is.

Neste's Renewable Sales Margin and SAF Sales Volume Projections

The following chart illustrates Neste's projected sales margin recovery and the anticipated growth of SAF sales volume.

"Fun Fact: Neste's Porvoo refinery, originally built in the 1960s, was once a major producer of conventional fuels. Now, it's undergoing a radical transformation to become a global hub for renewable and circular solutions, a testament to Neste's commitment to a sustainable future."