Neste posts deepest net loss in a decade as biorefining bets turn sour

Neste reported its first negative profits since 2014 in Q2 2024 as the Finnish refiner felt the impact of a global biofuels market downturn and extended outages at its Porvoo refinery.

In a July 25 earnings statement, Neste reported a net loss of Eur144 million ($156 million) in Q2, its first negative profit margin since Q4 2014 and deepest losses in over a decade. This was down sharply from Eur162 million in Q1 2024, dragging returns to levels the refiner said would be the lowest on the year.

As the largest player by capacity in the distressed European biofuels segment, a "very challenging" renewables market environment was a key concern for Neste. Pressured by competition from cheap imports, rival players have paused investment in large bio-refining projects, while in the US, Fulcrum BioEnergy has verged on collapse.

In July 25 earnings statement, the company reported a significant hit to its renewable fuels business in Q2, slashing its comparable sales margin to $382/mt from $800/mt the previous year. The company also revised down its maximum expected sales margin for 2024 from $650/mt to $580/mt.

"Clearly lower" returns reflected a slump in the European biodiesel spot prices and weaker incentives in the US, Neste said, while growing biodiesel production pushed feedstock prices higher.

Used cooking oil feedstock prices increased in both the EU and North America on the quarter, propping up operating costs, while soybean and palm oil prices eased slightly.

Platts assessed used cooking oil (UCO) FOB ARA costs at $1080/mt July 24, up $5/mt on the month and $127/mt on the year. Platts is a part of S&P Global Commodity Insights.

Faced with rising feedstock prices, Neste reduced its share of waste and residue inputs used for processing to 88% in Q2, down from 96% the previous year.

Lower US bioticket and renewable credit (Low Carbon Fuel Standard) prices also resulted in a loss of around Eur36 million ($39 million) on the quarter, Neste said, forecasting levels to hover below 2023 prices for the second half of the year.

SAF outlook, renewables ramp-ups

The refiner anticipated renewable diesel spot prices to also underperform last year's levels, but identified sustainable aviation fuel (SAF) as one potential bright spot.

The company revised down its expected SAF sales volumes for the full year of 2024 from 500,000 - 1 million mt to 500,000 - 700,000 million mt, but remained optimistic on short-term growth.

"We expect our SAF sales to grow clearly in the third and fourth quarter," said Neste President and CEO Matti Lehmus in the July 25 statement.

In Q3, a six-week turnaround at Neste's Singapore refinery and a four-week maintenance shutdown at its Rotterdam site are expected to deplete sales volumes in the renewables segment.

Ramp-ups at its Martinez joint venture in California, which was damaged by a fire last year, should help recoup sales. Neste has targeted ramp-ups from 50% utilization at Martinez in the first half of the year to 75% by Q3 and has eyed full utilization by the end of the year.

Fossil refining

In the conventional refined products space, Neste took a hit to its sales volumes in Q2 due to a major turnaround at its Porvoo refinery in Finland, which took the 206,000 b/d refinery offline between April and June. The planned maintenance took Neste's refinery utilization levels to 34% in Q2, down from 86% the previous year, it said, anticipating a recovery in the second half of the year.

The reduced sales volumes contributed to a Eur1.6-billion year-on-year hit to Neste's revenues in the first six months of 2024, it said in the statement.

Falling middle distillate prices provided an additional squeeze on revenues as product cracks continued to soften from post-2022 highs, though a stronger US dollar had a small positive impact on earnings.

Neste reported its total refining margin in Q2 at $15.10/b, down from $20.40/b in Q1 and 10% lower year on year.

Emerging supply risks in the fist half of the year, such as Red Sea shipping attacks and Ukrainian drone strikes on Russian refineries now appeared to be providing less upside for product cracks, though Neste maintained that the situation remained volatile.

"The continuing war in Ukraine and the escalated crisis in the Middle East have intensified geopolitical risks that could have a material impact on the global and European energy markets," it said in its statement July 25, flagging Europe's particular exposure to energy price shocks.

"We estimate the second quarter to be the weakest quarter of the year for Neste in terms of results and cash flow to be substantially positive in the second half of the year," said Neste President and CEO Matti Lehmus in the statement.