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    NESTE   FI0009013296

NESTE OYJ

(NESTE)
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Renewable fuel companies edge out some refiners on feedstock

08/17/2021 | 05:11am EDT
FILE PHOTO: Soybeans are harvested from a field on Hodgen Farm in Roachdale, Indiana, U.S.

NEW YORK (Reuters) - Both renewable fuel processors and oil refiners are trying to profit off the growing market for sustainable aviation fuel and renewable diesel, but high prices for feedstocks like soybean oil has been more of a hazard for refiners, as their most recent earnings showed.

These renewable fuel products are a fraction of overall sales of gasoline, diesel and other products, but it is growing. However, demand has helped cause the prices of the ingredients needed - like soybean oil and animal tallow - to rise sharply. Refiners were forced to put off plans for expansion into renewable fuel production, but competitors who specialize in such fuels were able to shift to processing lower-cost feedstocks.

"We are making sure we are not dependent on one or the other feedstock," said Peter Vanacker, Neste's chief executive, in an interview with Reuters. "In the future it's going to be more and more about margin management."

Companies such as Renewable Energy Group Inc, Darling Ingredients Inc and Neste all beat estimates for second-quarter earnings even as refiners crowd into the market.

The companies have more flexibility to switch between feedstocks such as used cooking oil and animal fat to make in-demand renewable diesel, said Dhruv Kharbanda, an associate at investment bank Tudor, Pickering, Holt & Co.

Refiners, by contrast, are reliant on more carbon-intense feedstock such as soybean oil that costs more because incumbent producers have used up much of the used cooking oil.

"Darling, Neste and Renewable Energy Group benefitted from feedstock flexibility during the quarter, whereas (CVR Energy) and Marathon highlighted the weak economics of running soybean oil," the bank said in a research note.

Margins to produce renewable diesel from soybean oil have averaged so far this quarter about $1.35 per gallon, while margins to produce the fuel from used cooking oil have averaged are around $2.28 per gallon, according to the bank's data.

Soybean oil prices have more than doubled in the past year, causing Carl Icahn's CVR Energy to put off plans to produce renewable fuels at its Wynnewood, Oklahoma, facility after the refinery geared up for production.

Marathon Petroleum, which operates America's second largest renewable diesel facility in North Dakota that primarily runs soybean oil, called the feedstock's economics "challenged" because the heightened prices coupled with the relatively higher carbon intensity of the oil limits the refiners' ability to profit on production.

Renewable Energy Group's gross profit, meanwhile, rose by more than 400% from a year earlier by processing a higher percentage of lower carbon-intensive materials, said the company's chief executive Cynthia Warner.

(Reporting by Stephanie Kelly and Laura Sanicola; editing by Aurora Ellis)

By Stephanie Kelly and Laura Sanicola


© Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
NESTE OYJ 0.12% 51.26 Delayed Quote.-13.46%
RENEWABLE ENERGY GROUP, INC. 0.69% 55.16 Delayed Quote.-22.11%
RENEWABLE FUEL CORP 0.00% 2.01 Delayed Quote.0.00%
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Financials
Sales 2021 13 338 M 15 541 M 15 541 M
Net income 2021 1 344 M 1 566 M 1 566 M
Net Debt 2021 156 M 182 M 182 M
P/E ratio 2021 29,2x
Yield 2021 1,50%
Capitalization 39 320 M 45 785 M 45 814 M
EV / Sales 2021 2,96x
EV / Sales 2022 2,61x
Nbr of Employees 5 137
Free-Float 53,4%
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Mean consensus HOLD
Number of Analysts 20
Last Close Price 51,20 €
Average target price 57,52 €
Spread / Average Target 12,3%
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Managers and Directors
Peter Vanacker President & Chief Executive Officer
Jyrki Mikael Mäki-Kala CFO, Head-Information Technology & Strategy
Matti Kähkönen Chairman
Lars Peter Lindfors Senior Vice President-Innovation
Jean-Baptiste Renard Independent Non-Executive Director
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