Earnings Call: Q2 2021

Jul 27, 2021

Good day, and welcome to the Q2 2021 Neste Corporation Earnings Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I also must advise you that this conference is being recorded today. And I would now like to hand the conference over to your first speaker today, Juha Pekka Kekalainen. Thank you. Please go ahead, sir. Thank you, and good afternoon, ladies and gentlemen, and welcome to this conference call to discuss Neste's 2nd quarter and half year results published this morning. I'm Juha Pekka Kekalainen, Head of Neste IR. And here with me on the call are President and CEO, Peter Vanacker CEO, Jyrki Makikala and the Business Unit Heads, Matti Lehmus of Renewable Platform and Panu Kopra of Marketing and Services. We will be referring to the presentation that can be found on our website. Please pay attention to the disclaimer since we will be making forward looking statements in this call. With these remarks, I would like to hand over to our CEO, Peter Vanacker, to start the presentation. Peter, please go ahead. Thank you very much, JP, and good afternoon to all of you also on my behalf. It's great that you have again I found the time, I mean, to join this call. The COVID-nineteen and its variants are still around us, but the progressing vaccination schemes give us A lot of hope to be able to return to normal life. And the situation naturally varies a lot globally, But our people are dealing very well with this situation. I am extremely proud of our people for how They successfully and safely managed the most complex refinery turnaround in Porvoo that we have ever conducted. We're also very pleased to be able to deliver solid performance in the Q2 under these conditions. So let's now move in our presentation to Page 4. In the second quarter, we posted a comparable operating profit of €241,000,000 at the group level. We were slightly behind last year's numbers, mainly Due to the lower sales volumes caused by the Porpo turnarounds and a weaker U. S. Dollar, our Renewable Products We had a solid performance, and we were able to deliver a healthy sales margin. As expected, the feedstock markets remained tight, And feedstock prices continued to increase. As a result of strong sales performance, we reached a sales margin of $700 per tonne. This is an excellent achievement under these conditions. The sales volumes were a bit down due to the Porvoo unit maintenance and also some postponements of some June deliveries towards July. The negative EBIT impact of the Porvoo maintenance is estimated to have been €40,000,000 for Renewable Products. The refining market continued weaker than normal, The oil product second quarter was characterized by the portable major turnarounds, which was safely and successfully implemented In very challenging pandemic conditions. In total, some 6,000 people took part in the turnarounds, And over 1,500,000 working hours were completed. Safeguarding the health and safety of our employees, contractors and other partners was our highest priority. And for example, about 61,000 corona tests were taken to prevent spreading of infections. The turnaround is a significant investment to ensure the safety, reliability, productivity and competitiveness of the refinery. The total investment of the major turnarounds was approximately €630,000,000 of which approximately €300,000,000 is realized in 2021. The Porvoo turnaround had a negative impact of approximately €100,000,000 on the segment's comparable operating profit during the Q2 and that mainly in the form of lost sales volume and margin. Our Marketing and Services segment performed very well, and sales volumes in Aviation and Marine were still impacted by the pandemic, but road traffic volumes and transportation fuel demand recovered. Jet fuel demand continues to be, unfortunately, at a low level. Unit margins have normalized from last year's level. And Marketing and Services has also continued to do well in managing their cost basis. As always, we continue to focus on our strategy execution, And I will come back to that at the end of the presentation. Despite the poor of a turnaround in challenging markets in the Oil Products business unit, Our financial position remains solid. We reached an after tax ROACE of 15.6% on a rolling 12 months basis, And that is exceeding the 15% target. At the end of June, our leverage ratio was 7.7%, And this solid financial position enables the implementation of our growth strategy going forward. Now with these opening remarks, I will hand over to Jyrki to discuss the financials in more detail. Ricky? Yes. Thank you, Peter. Let's see the main financial items concerning the quarter 2, 2021. On the revenue side, I think it's funny to see the quarter 2 revenues because we had big swings concerning The comparison with the previous year, because our revenues increased significantly mainly due to the higher prices in the segment, Total of €3,000,000,000 And on the other hand, the lower volumes mainly coming out of the, what about, turnaround Minus €2,500,000,000 So overall, we landed then at this level of €3,000,000,000 turnover in 1 quarter, and like mentioned already earlier, the OP sales volumes were really more than 60% lower than Quarter 2, 2020. And basically the same reason apply also when we are comparing the half year Because with $6,000,000,000 turnover versus the $5,800,000,000 on the previous year, So big swings in the top line. But if we then go to the comparable EBIT basically, if we took first the Renewable Products, we posted a decrease of €27,000,000 in the comparable EBIT level, and that was mainly due to the weaker U. S. Dollar with a negative impact of €37,000,000 So basically, all the other elements were as a total positive compared to this impact coming from We had the higher sales margin, meaning the healthy one, and We had the improved results coming €48,000,000 of the margins, but we had slightly lower volumes. And like mentioned earlier, we have also some volumes at the end of the quarter 2, which were basically postponed to the July, meaning the quarter 3 in this case. We had also slightly higher fixed cost because we are really still focusing on Implementing the strategy and focusing on the segments or the segment in that sense in India in the Renewable Products, meaning the aviation and also the Polymers and Chemicals. So all these changes between these 2 quarters are pretty clear in many ways. OP, if we go back to the oil products, slightly better, Well, let's say at the same level as 2020, the quarter 2, but here we had the big impact coming out of Porvoo turnaround volumes more than €50,000,000 And again, the weaker U. S. Dollars, some €7,000,000 Other elements in OP were positive, like Refining margin overall a positive €23,000,000 So if you think about the big things between these two segments, yes, Renewable Products and Oil Products shuttering off of the U. S. Dollars, but then having positive things in the business performance in many ways. It was also an OP that the base oil business has performed tremendously in 2021. And then MS, like discussed earlier, they delivered strong results with €80,000,000 comparable EBIT in the quarter. It has slightly lower margin, but volumes basically are coming back. If we look the IFRS EBIT that has Certain impact also in our P and L, it was much higher compared to the comparable one and the reason being really the gains in inventories, mostly in Renewable Products. We had a positive quarter free cash flow, Positive of €261,000,000 But if we look the half year figures, we still have some work to be done for the full year To get this also in a positive mode. If we look then The difference in the segment level, the next slide, this is basically pretty easy to explain in this sense. Like already mentioned, renewable was below €28,000,000 Remember, €37,000,000 already coming from the weak U. S. Dollar, OB basically the same and all the others basically 0 or slightly positive. The others is mainly lower fixed cost in the corporate So EUR 40,000,000 lower comparable EBIT in the quarter. If we then Look, 2 more bridges. Basically, looking first the quarter 2, overall, you'll see the main elements here, the 5 different ones. We talk about volumes. We talk about Porvoo turnaround. It was minus €72,000,000 overall. Most of that came from the Porvoo turnaround, mainly in OP, €51,000,000 and then the balancing is certainly the Renewable Products, So nothing significant concerning on the volume side, which wasn't basically already Explained in our call in late, late June. Positive thing certainly is the margin improvement €71,000,000 And that was in both businesses. RB had the biggest one €48,000,000 To FX, it hit hard In quarter 2, euros 45,000,000 mainly in OP. So remember that also in quarter 1, the impact was already €56,000,000 negative. So it's on a year to day basis, it was more than €100,000,000 in comp EBIT just coming out of The FX, mainly U. S. Dollar. We had a positive development in the fixed cost despite we have a strong focus on the RP growth And the others, like I mentioned already earlier, it is also coming out of a strong performance in the base oils business. Basically, the same story goes on then with the half a year figures. I mentioned about the big impact coming out of the FX changes, more than €100,000,000 And the other part is certainly the volume Volume development coming out of the turnaround in quarter 1 also COVID-nineteen, if you take these negatives out, Then we'll see the positive things coming out of the margin. It's only €1,000,000 improvement, but it has two side of the coin basically. RFE improved by $56,000,000 and OB had a negative of $55,000,000 So those are basically balancing each other. Fixed cost already $43,000,000 savings and ARP was higher some €11,000,000 So we basically had a lower fixed cost In other businesses and functioned by more than €50,000,000 Other items, Positive things certainly coming out of the base oil business. What I mentioned, we have also slightly higher depreciation as we are investing back to the business. So those are also very visible in the depreciation level. So this was kind of the short version and I hand over now to Matti Lehmus Thank you, Jyrki, and good afternoon also on my behalf. So if I comment on the Renewable Products, I would start with a comment that the EBIT level was solid at €287,000,000 This was approximately 9% below previous year's 2nd quarter level, But only 2% under the Q1 that we had. And I have to say, this is a good result You are back to the conference, sir. Please go ahead. So this is Matt Trems. Apologies, the line was cut. Let's continue. And I was just commenting on the first on the sales margin. Now on to the sales volume of the renewables, this was also relatively Stable at the level of 732 kilotons, stable versus the previous quarter, and this in spite of the Porvoo turnaround. It's good to note that we also increased the share of our North American sales to 39%, which is clearly higher than a year ago and also higher than in the previous quarter. This again reflecting our active geographical sales optimization. Our production volume reached 764 kilotons. And given the major Porvoo unit turnaround, this was a good achievement. It reflects Good operations in both Singapore and Rotterdam. And finally, I would comment that our feedstock optimization continues. The share of waste and residue increased again by 3% versus the previous quarter, now reaching 93%. And this increasing trend reflects our continued development of our global waste and residue sourcing capabilities. So overall, good quarter. A quick look at the waterfall then. And it's actually when we compare the result differences versus a year ago, there is 3 items I would Highlight, first of all, the sales volume was 41 kilotons lower. This was driven by the Porvoo major unit turnaround, but also some deliveries being shifted into the following quarter and this explains €25,000,000 lower result contribution than Q2 last year. This is then more than compensated by the higher sales margin, which had a €48,000,000 positive impact As it was $75 per ton higher. And finally, like also Jyrki Maki Kala pointed out, like in the previous quarter, the FX Changes represent a 3rd major driver and they explain a €37,000,000 decrease year on year excluding the FX hedges As the U. S. Dollar market rate weakened from 1.1 last year second quarter to 1.21, this year's Q2. So my final comment would be the fixed costs were slightly higher than previous year, And other items also account for an €11,000,000 difference, this mainly including higher depreciation. Let me then have a quick look at the feedstock markets. In the Q2, the feedstock markets were characterized by a steep increase of vegetable oils in the first half of the quarter with most pronounced changes in soybean oil and also rapeseed oil given a tight inventory situation and strong demand. As visualized in the charts, in the second half of the quarter, the veg oil markets corrected downwards. And as an example, for palm oil, the expectation for a seasonal production volume increase in the second half of the year was one driver. For waste and residues, The quarter was characterized by an increasing price trend, reflecting the tight market fundamentals and following, of course, also the veg oil price trend. In the chart, this trend is illustrated by the European animal fat, which increased steadily during the quarter. And looking at supply, COVID related lockdowns continue to affect especially used cooking oil supply, which we estimate currently to be approximately 15% lower than pre COVID levels for used cooking all this is. Then turning to the U. S. Markets, I would make a couple of highlights again. So first of all, on the LCFS credit It averaged $185 per tonne, which is slightly below the previous quarter, which was at $195 Here, of course, demand for diesel and gasoline in California continued to be affected by the COVID related lockdown measures. The bigger change occurred in the RIN values, which increased very steep in the first half of the quarter, reflecting the increasing soybean oil price. And although the RIN values corrected towards the end of the quarter, the quarterly average price increased clearly from $0.01 thereby, counteracting the impact of the increasing feedstock prices for biofuel producers. Finally, some comments on the sales margin, which was practically stable versus the previous quarter. And here I would highlight 3 main drivers. Firstly, the average feedstock price increased significantly as discussed in the market section. As an example, I would mention that European quarterly price average for both animal fats and used cooking oil increased by more than 20%. And on the other hand, it was the good sales performance and product market increases, which were then the main drivers compensating the feedstock price The sales performance included in particular a successful price premium optimization supported also by continued geographical sales mix And as you could see, for example, the North American sales share increased from 35% to 39% quarter on quarter. From the product price movements, I would highlight especially the RIN price development as it appreciated by €0.50 Final comment, it's worth mentioning that also margin hedging, which had a positive result. The impact from the margin hedging compared to the previous quarter was slightly higher. So in general, it's good to note that The sales margin in the 2nd quarter was also again supported by good operational performance. Utilization rate reached 96 With these comments, I hand over to Peter Vanacker, who will comment on the oil products. Thank you very much, Matti. As you have all read, I mean, from our stock exchange release early this morning, Marco Pecola has decided latest in January 2022. And therefore, he is not joining us today, So allow me to make some comments on the performance of the Oil Products business during the Q2. The most important topic during the Q2 was the scheduled, highly complex, complete turnarounds of the Porvoo refinery and the finalization of the transition of the Nantali refinery towards harbor and terminal operations. Both these strategically important projects were executed successfully, meaning safely within the announced time frame and within the announced budget. Our Porvoo refinery is now operating again at full capacity. Unfortunately, The refinery market continued to be oversupplied and impacted by the pandemic. Market demand continued to be weak, and the reference margin during the 2nd quarter averaged Due to the turnarounds, we had substantially lower production volumes available. And as a consequence, our sales volumes were 62% lower compared to the Q2 in 2020. The total refinery utilization during the Q2 was 20%. This resulted in a negative comparable EBIT of minus €58,000,000 Looking at the EBIT bridge between the Q2 2021 and the same quarter in 2020, The impact of this major turnaround and the weak market environment is clearly visible as lower sales volumes and margins. They had a total negative impact of €33,000,000 on the comparable operating profit year on year. Good fixed cost management and a very good Performance of the Specialty business had a positive impact of €37,000,000 compared to the Q2 of 2020. As you can see from the graphs on this page here, yes, excellent volatility in the market remains high. The good news is that there was a slight improvement on product margins, but of course, still at a historically low level due to the unhealthy supply and demand balance. The Urals Brent's differential averaged on the level of minus $2 per barrel for the 2nd quarter. When taking a look at our own margin performance, our total refinery margin improved but was still low at US9.7 dollars per barrel as the additional margin was supported by currency hedging. During the quarter, refinery production costs were As mentioned before, the strategy execution in Oil Products is proceeding well. The scheduled 12 week turnaround was successfully and safely executed in very challenging pandemic conditions, And Nantali operates now as a terminal and harbor. We want to turn our Oil Products business into one of the most sustainable refineries globally By transforming the Porvoo Refinery operations to co processing of renewable and circular raw materials combined with our commitment to reach carbon neutral production by 2,035. Now with these comments on the Oil Products business, I would like to hand over To Panu to talk about marketing and services. Good afternoon. This is Panu Kopra speaking. Solid financial performance continued in marketing Services in Q2. And if we look first half of the year, we are approximately €8,000,000 ahead of last year. Unfortunately, still aviation and marine volumes are both recovering slowly. However, Diesel volumes increased by 10% and also gasoline volumes were a bit better than the last year in Q2. Fixed costs were 1,000,000 Euro lower in Q2 and €5,000,000 lower compared to 1st 6 months of the last year as a result of the cost saving program. We have expanded Neste MY availability at the station network, and now we have been active in marketing as well. The results of advertising conference are good and both the awareness and the volumes of Neste MY have improved. We also launched new EV charging service with 1 of our B2B customer in order to expand our sustainable solution offering. This was shortly about Q2 in Marketing and Services. Handing over to Pete. Thank you, Panu, and let's now move on to the current topics. The very good progress in our strategy implementation has continued. And the Singapore Renewables capacity expansion project is proceeding according To our schedule, we currently have about 4,500 people working at the site and in our workshops. We continue, of course, to take all precautions and follow the development of the COVID-nineteen situation in Singapore very closely. The 500,000 tonnes SaaS optionality project in Rotterdam has been organized after the final investment decision and is now also moving ahead. This about €190,000,000 project will be completed by the end of 2023 and further strengthen our leadership position in the sustainable aviation markets. The engineering phase in preparation for the possible next world scale renewables production facility in Rotterdam is also proceeding well, And we continue to aim at decision readiness for a final investment decision late this year or early 2022. During the Q2, several commercial agreements were signed in both Renewable Aviation and Renewable Polymers and Chemicals. Sustainable aviation fuel supply has been set up in the United Kingdom, at London Heathrow and Farnborough, at Zurich Airport in Switzerland and at Cologne in Germany. And the first sale of SAF to a corporate customer, Boston Consulting Group, has been agreed to enable business travel related Emissions reductions in collaboration with Finnair and SAS. The first Neste RE, so here we talk about polymers and chemicals, Deliveries to Asia were made together with South Korean LG Chem. And we have successfully expanded our A long term commercial agreement was also made with LyondellBasell to ensure the availability of renewable solutions for the polymers value chain. The successfully completed Porvoo refinery, major turnarounds as well as the transformation of the Naltali facility to a harbor and terminal operations was There were significant efficiency efforts during the Q2, and our short term cost management measures Have also continued very well. In the area of innovation, our clean hydrogen related projects in Portugal have been applied For the IPCEEI, and that is important projects of common European interest status. We have also received Business Finland's Circular Economy Investment Aid for chemical recycling, and that is relating to sites and laboratory investments. In feedstock pretreatment development, we found promising new purification concepts for challenging waste and residues, which will enable us to continue to expand the amount of different types of waste and residues that can be used for our next PTL Renewable Products production processes. And as you all noticed, I mean European Commission recently published its Fit for 55 proposals, which is a road map reflecting a higher ambition in climate change mitigation. As we have announced, we are pleased to see That SaaS mandates are an important part of this package. And we expect that the proposal will drive growing demand for renewable products and solutions. However, we need to ensure access to all sustainable raw materials to meet these ambitious targets. No single solution, Electrification of transport or other will be able to solve the challenge alone. These are just some of the highlights I wanted to mention. We have a clear strategy and continue moving ahead. And we will talk more about this at our Capital Markets Day in September. As an outlook for the Q3, we see the following. 3rd quarter sales volumes of renewable diesel are expected to be lower than in the previous quarter due to the scheduled maintenance in Singapore that currently is ongoing. The waste and residue markets are anticipated to remain tight As their demand continues to be robust. And the renewable sales margin is expected to remain healthy, but to be lower Except for the scheduled 7 week maintenance turnaround at the Singapore refinery, which is estimated to have a negative impact of €90,000,000 on the segment's comparable EBIT. In the Q3, oil products market demand will continue to be depressed as a result of the COVID-nineteen pandemic. The reference margin is expected to remain low and volatile and an approximately €20,000,000 of The negative result impact of the Porvoo refinery turnarounds that is completed in June is still expected to materialize in the Q3. In Marketing and Services, the sales volumes and unit margins were expected to follow the previous year's seasonality pattern, And some negative impact on demand and sales volumes is still anticipated due to the COVID-nineteen pandemic. Our strategic project proceeds as planned with our Singapore expansion and the Porvoo turnarounds being the major projects this year. Our cash out capital expenditure is still estimated to be approximately €1,200,000,000 in 2021, and that excludes M and A. Regarding the Renewable Products, we have currently scheduled a 4 week catalyst change at the Rotterdam refinery in the 4th quarter, which is estimated to have a negative impact of approximately €50,000,000 on the comparable EBIT. And we will host, as you know, our Annual Capital Markets Day as a webcast on September 23. We would, of course, have liked to see many of you in person, but unfortunately, due to the pandemic situation, this still needs to be conducted as a virtual event. And at the CMD, we will also share our views on recent developments and give direction on the strategy ahead. You are, of course, all warmly welcome to join, and details will be provided by our Investor Relations team closer to the event. So this concludes now the presentation, and we would now be happy to take your questions. Thank you. We will now begin the question and answer session. And we have questions that came through. And the first question comes from the line of Joshua Stone, your line is now open. Please go ahead. Thank you. Hi and good afternoon. Two questions, please. Firstly, on the 55 and the Red two revision, there was a proposal for 1.7% cap on part of the feedstock for Road and Rail. So I was interested to see what's your opinion on that. Are you likely to oppose that? And how likely do you think that will get Overturned or amended back into a soft cap? And then my second question on the Renewable diesel margin, I was wondering if you could try and talk about how the underlying market is developing in July and Stripping out, anything to do with hedging or maintenance, would it be fair to say that maybe margins are getting better because of higher prices underlying? And Any opinions on that? And also how you think the underlying environment will sort of move as we go through the second half of the year? Thank you. Yes. Thanks, Joshua, for your questions. Peter here, I will take the first one and then Matti will take the second one on the RD margin. As you rightfully say, I mean, there is still I mean, this in the proposal, this 1.7% cap. And as I said also and alluded to a bitumen in my opening comments, it's clear that we are Happy on one hand side with all the proposals that the commission has made, I mean, in terms of Leading to market creation of more demand for renewable diesel, but also for sustainable aviation fuel. But on the other hand side, we also need to have the means that this We can contribute, I mean, to the greenhouse gas emission reductions. So not just the ones that were then stipulated in RED3, but also the ones, I mean, that were then stipulated as greenhouse gas emission reduction targets of the member states. So as such, we are in discussion, of course, and that will be intensive work That we are asking, I mean, for a broader acceptance of allowed feedstocks, And that includes, of course, also removals of caps and these kind of things because the big problem that we have or the big issue that we have at the table is Reducing greenhouse gas emissions overall. And this is Matti. I'll take the second question on the renewable diesel margin outlook. Perhaps the comments I would make, Joshua, is that I'll Start with, obviously, that feedstock continues to play a very important role. You could see from the charts I showed during the second Quarter, we had a clear increase in waste and residues. If you look at the Q3, I would say that the tight waste and residue market Continues. We are clearly on a high level. On the vegetable oils, you could see quite a lot of volatility. We had a price correction at the end of the second quarter. Now there has In some recovery in the early parts of the Q3, so the high volatility clearly continues also on the veg ore side. But in general, I would say, it looks like, let's say, waste and residue feedstocks will continue to be tightened on a high level. There has not been really a clear direction there on the waste and residues in the early part of July. The other one I would, from an estate perspective, highlight is apart from the tight feedstock market and that we have had this ramp up Great surprises during Q2. I would highlight the fact that we have the Singapore major turnaround. What this does, of course, is 2 things. It adds some costs, also variable costs are typical during a turnaround. But secondly, it also reduces our flexibility when it comes geographical sales optimization. So in practice, we have, for example, less volume that we can allocate to the North American market. So these are the drivers that affect the short term margin from our perspective. And like you could see, we were guiding that we expect the Margin to be sales margin to be lower in the 3rd quarter than it was in the 2nd quarter. Okay. Thanks, Matthew. And Peter, if I could just follow-up on the first question a little bit on maybe just share any timeline of when you think you're going to get sort of new drafts Out the door or not you, but when the commissioning or the EU gets new drafts out the door on any potential changes to the sort of feedstock Well, I mean, the process is that the commission has now made all the drafts, I mean, available, and They need to be discussed, I mean, with the European Parliament as well as with the member states or the council. We foresee That will be a discussion probably ongoing somewhere 18 months, 24 months until it is then Leading, I mean, to the final, let's say, legislation or legislative documents, they can be directives, they can be regulation. So it will be it's a bit like remember taxonomy. Of course, everybody is eager to get, I mean, immediately It's an assessment, but these things, I mean, do take time and so there will be lots of discussions going on. Okay, great. Thank you. Thanks for the information. Thank you. Thank you. And the next question comes from the line of Henri Aprycov, your line is now open. Please go ahead. Yes, hello. It's Patrycov from UBS. Thank you for the presentation. I have three questions, On Renewable Products, the first one is just on the 2nd quarter and the average selling price in Europe, which Seems to have gone up quarter on quarter by much more than the increase in the diesel price. So I was wondering if that's simply a function of You're shifting less profitable sales in Europe to the U. S. Or if there is some other kind of more structural Change that is supporting higher premium versus diesel. And then secondly, I just want to come back on the comment you made around Some new concepts for pretreatment. I was wondering if you can give us a sense of which feedstocks Are you working on? And what's the time line to be able to have commercial use of these new pretreatment concepts? And finally, just wanted to come back to an announcement you made during the quarter around renewable gasoline production. I was hoping you can give us a bit more details around how you produce that renewable gasoline and what's the potential for that product? Thank you. Yes. Thank you, Henri, for the questions. Matti here answering. So I'll I would first of all say that it indeed reflects the successful sales performance, the successful sales optimization. And if I take a couple of main drivers that explain that trend, I mean, the first one is, of course, In general, the optimization of the sales premia, and it links, of course, then also to the geographical sales mix optimization. So one very clear, let's say, example is the fact that we increased the sales to North America, which, of course, benefited from a very high RIN price. But also within Europe, we, of course, continued, let's say, optimizing the segments and looking for an optimization of the sales As we have created over the last years, a large number of markets where we can serve the customers. So these are both very important And then thirdly, obviously, we have just simply the market parameters like the RIN, which, of course, also then are reflected in the average selling price. Your second question was on the new concepts for pretreatment. It is indeed something that we are continuously doing. And I would mainly highlight here that we, of course, in particular, look at Pretreatment when we think of challenging feedstocks. And I would give you 2 examples perhaps of where we, for example, see the need. 1 is continuous looking for the ability to process lower quality of waste and residue, whether it's animal fats, whether it's used cooking oils. So this is clearly something where we are going. And of course, also if I think of challenging feedstock in general, there is this category of Acid oils, which is again very low quality side products residues, so that would be another example where we are experiment or let's say, developing this pretreatment for. And then finally, on the renewable gasoline, I would mainly make the comment it's a pilot. We are testing it, so time will show how we develop it further. Okay. Thank you. Thank you. And the next question comes from the line of Michael I just got a couple, please. Just coming back to Matthew's comments on the Renewable Products margin. I appreciate feedstock markets are clearly very volatile. But given the forward curves We see now for some of the feedstocks. When I look at the kind of medium term outlook or into at least 4Q The Renewable Product Margins, it feels to me that directionally it should move higher 3Q into 4Q Given the comments you made around, I guess, the impact that Singapore has on your sales optimization, you're not going to be able to sell as many volumes into the U. S. In 3Q, but that should be clearly not the case in the 4Q. So could you maybe just talk a little bit about anything I'm missing in terms of that, I guess, profile for the margin over that period. And then secondly, on feedstock optimization. Clearly, you're seeing an increasing amount of waste and residues as you saw again this quarter. I was just wondering whether you could talk a little bit more about how big The feedstock pool is now that you can access relative to your current production base. How big is it expanding given the work you've been doing on the feedstock Yes. Thank you, Michael, for the questions. So First, again, on the margin outlook and your question, I think, was mainly on then looking already into the Q4. So like you correctly commented, of course, feedstock Development will be one important one, but I can confirm your comment. Of course, we don't have the Singapore turnaround in the Q4. We have Rotterdam turnaround, which is 4 weeks then. But especially for this geographic Sales allocation flexibility, Singapore is, of course, needed for the maximization of the U. S. Volumes. So in that sense, I agree with your comments that in that sense, the Q4 is different. From the feedstock optimization work, I would Probably refer to the comments we also made in last year's Capital Markets Day that we do see that the global pool Of waste and residues is growing towards 35,000,000 tonne with all the work that is being done. And that is something which we continue seeing, and we will then update in the upcoming Capital Markets Day, if that number can be updated. But the work, of course, continues to keep opening new feedstock sources. Thanks, Matthew. And if I could just squeeze in a follow-up, just on demand. I think last quarter or previously in the year, you talked about Demand of renewable diesel growing by 1,500,000 to 2,000,000 tons in 2021 versus 2020. I'm just wondering whether you could update us as to where you see The line is shaking out for this year. Thanks. Thanks for that Follow-up question on demand. Indeed, last quarter, last spring, we commented actually that we see it more towards the low end of that range, so more like 1,500,000 tonnes. I don't see dramatic changes. Probably what we see is that with the continued impact of the COVID lockdowns in some regions, The demand this year may be slightly lower than that. That's probably where we See it at the moment, but again to be then updated in the Capital Markets Day. Great. Thanks very much. Look forward to it. Thank you. And the next question comes from the line of Artem Beletsky. Your line is now open. Please go ahead. Yes. Hi, this is Adam from SEB. Thank you for taking my questions. I still have a couple of ones on renewables. So, Matti, could you maybe comment on hedging outlook for second half of this year and this type of big volatility what We have seen in vegetable oil prices, especially during June, whether you have utilized this opportunity down the road. Then maybe on share of North American sales. So it has been indeed close to 40% Now in Q2 and pretty high also previously, is it still so to say, is the formula still valid that basically North America should be roughly 30% of your volumes over time. And the last one is actually relating to oil products. At week 1, you are talking about €20,000,000 negative Earnings impact in Q3, is it purely volume related, basically impact that should be visible, so basically normalizing inventories Yes. Thanks, Artem. I'll start with the first two questions. So first one on hedging. So indeed, if I look at the second half of the year, we have increased our hedging ratio versus First half of the year, we are currently at something like 55% of total sales For the second half of the year, and if you remember, in the first half of the year, we were more somewhere like 35% to 40%. So we have increased that ratio. And of course, it's good to note when last quarter when we commented on it, we still had quite a low Hedging ratio for the second half, it was under 20% still 3 months ago. So we have indeed during the quarter Increased that hedging ratio for the second half of the year. And then on the other question, the U. S. Share, I mean, like you have seen in the previous It is, of course, something that we continuously do that we optimize the geographic allocation. We have been able now to go all the way up 39% in this second quarter. There are, of course, limitations because we, for example, have also term commitments That we also need to take into account and other type of limitations. But I would say there is not A fixed number we are aiming for. It's more a function of the optimization that we do. Yes. But I mean, all of that, I mean, to bring it into the right Context, of course, yes. Yes, of course, I mean, we leveraged upon the hedging You know that we are following that, I mean, extremely closely, just also, I mean, from Matti, Jyrki and myself. So when we saw the opportunity, of course, we did build up, I mean, our hedging positions for the second half of the year because we also saw That's not like anticipated beforehand. Yes. You have some rumors in United States on broth. So that means that the soy harvests, which is normally, let's say, around, I mean, September, October time frame, could eventually be a bit lower if it doesn't start raining. So that had an influence and you had some impurities that were waived For the palm oil, so Yes, very good buying, I mean, from India, from China, you have Malaysia then with, I would say, the 4th wave And a complete lockdown, so not the availability of the workers. So there was quite a lot of dynamics, I mean, let's say, in the last 3, 4 weeks. So from that point of view, I think it's good that we did build up that hedging position in the second half of the year. But if I put it back into the context, I mean, just to bring a little bit of clarity, from today's perspective, We are estimating that our sales margin in renewables would be more around the middle of the range Of being healthy in the Q3, of course, that may change because we are just at the 1st month Of the Q3, but at least, I mean, that's what we believe, I mean, today. And then, of course, I mean, as Matti said in terms of the volumes, We believe, I mean, that with the Singapore shutdown that we have, I mean, in total, probably 30 kt to 50 kt, I mean, lesser volumes that we are calculating with for the 3rd quarter And then some €20,000,000 I mean higher fixed costs as we continue to build up innovation, aviation business, polymers and chemicals And all these kind of things. Yes, just to bring a bit of clarity, I mean, to that could help you, I mean, of course, Thank you. And the next question comes to I'm asking on OP. Sorry. You had this question on OP. I mean, Yes, Karsten, I mean, your estimation is good. I mean, that has to do, I mean, with the ramp up of the facility. As I said, I mean, in my introduction, safety first. So we were very prudent in how we did By step, the ramp up of that very complex, I mean, refinery, we've done quite a lot of investments also in projects and new things. So therefore, The guidance is a bit higher than what we said, I mean, in Q1. And then the remaining €20,000,000 is mainly a volume impact in Thank you. And the next question comes from the line of Nick Konstantakis. Your line is now open. Please go ahead. Good afternoon, guys, and thanks for taking the questions. I will go back to the European realizations, if you don't mind. Can you just give us an idea of what kind of differentials you see between, say, your best region and your worst region? I'm trying to understand a little bit what Given the swing even within Europe, what kind of an impact that has? And related to that, as we look into 2022, The direction of the feedstock seems to be going one way for now. Let's see if that changes. Can you just talk to us a bit about the evolution of your pricing? Just trying to understand how much Pricing, can you pass through a bit? Maybe it's pretty much if you talk about it, just get some comfort around how do we move into 2022 in a Increasing demand environment and tight pit stock at the same time. I'll start with the first one. I mean, in general, I would just state that we have obviously very systematically worked on It's good to note that there is different customer segments in these markets. There is different regulation. So from that perspective, you will see some variation Over time in the exact average selling price, for example, also the feedstock base. And I don't can't quantify what that range is, but it's just a Normal part of our optimization that we continuously follow the market and try to optimize. At the same time also, of course, making term contracts for a certain share of the volume. And that leads me a bit to your second question. I mean, the normal procedure have how it has been going is that During the autumn time, during towards the end of the year, quite a lot of the term agreements are made on an annual basis For the calendar year and this is then again something that we will be, let's say, looking at this autumn also To then decide what volume exactly and how to build our term portfolio. And also here, I mean, Nick, I mean, as you know, I mean, one thing is not It's not one thing is the same for everything. And you know that these penalty levels, they are On a local level, yes, so this is something that a member state is defining. So you may have a bit of flexibility in one country And maybe lesser flexibility, I mean, meaning distance in the price that we currently have compared to the ceiling, let's say, if you Call the ceiling of penalty level. But then, of course, there are other things. I mean, I remember, I mean, that I was talking, I mean, to the authorities in Belgium. And If you look at the R and D implementation, R and D II implementation in Belgium, then you see there that they say, look, If you don't meet the requirements, you need to pay the penalty. But If for the second time, you don't meet the requirements, then actually your penalty is actually going up, Yes. And it's really, I mean, a very strong penalty. So the reason why I'm explaining that is, you see this is not cast in stone, yes? And if we put it in the context of the Fit for 55, then with these higher targets, then there will have to be a reflection by the member states in how will I now accomplish these Key pieces of legislation, like for example, I mean, effort sharing regulation with higher, I mean percentages on greenhouse gas emission reductions that need to be accomplished if the penalty level is at the same level as it was, I mean, let's say, with the old targets. And if I just may touch on this. I mean, for the sustainable aviation fuel, the penalty level seems to be quite well defined at the EU level. Do you think as part of the proposals or the ongoing, I guess, Discussion for the revision of grade 2, there could be scope to move towards a European penalty, if you want universal or do you think we'll continue to stay on a country by country Again, this is Crystal Ball, of course. It's a good question, Nick. But I think I I would think, I mean, road transportation is more something, I mean, on a member state level, aviation level playing field Questions that have taken place, I mean, in the context of the Refuel EU. So therefore, I mean, here you go more towards, I mean, a European and every plane that is leaving an airport in Europe, so it goes beyond even inter European flights With all these obligations and therefore also these well defined, I mean, European penalty levels. Thank you. Thank you. And yes, the next question comes from the line of Peter Allot, your line is now open. Please go ahead. Thanks. The first one was just on the new renewable refinery you're studying in Rotterdam. What has to happen for that to move forward to FID? Are you looking at whether you could secure feedstock and how policy will evolve in Europe? Or is it simply a case of going through the design and engineering work for the plant itself as you're already confident on the demand and feedstock outlook? The second was just another one on the 5th of 55 package. Looking through the various proposed policies, It feels as though the EU's preferred long term route to decarbonizing road transportation is through electrification and Hydrogen, perhaps rather than biofuels. Would you agree with that characterization? And how can Neste ensure it's part of helping to provide those solutions? Thanks. Yes. Matti, if you can take the first one, you're close, I mean, to the Rotterdam, of course. Yes. So thanks for the question. I would say it's like for any major investment. Of course, it's a Technical and commercial evaluation that we are now doing at the moment. And part of the work we are doing with a more detailed engineering is to get a better Standing on the capital expenditure, that is, of course, very important. But in parallel, we will obviously also be updating our view on the market, including regulation and everything. And then at the end of the day, these two aspects will Help us make a decision on or let's say, make an evaluation on the feasibility of the project. And that then creates the basis for decision making. And then a couple of reflections and of course, I mean, we will further discuss this during the CMD, I'm absolutely sure of that. On the Fit for 55, I personally had a bit of the impression with all the discussions that we had In Brussels that the European Commission is looking at difficult to decarbonize industries and Easier to decarbonize industries. So if you talk about the easier to decarbonize industry, personal vehicles, for example, We're small transporters. Here, the tendency goes, I mean, towards electrification. But under the realization that electrification, of course, also takes a huge amount of investments and therefore, Biofuels will be needed as well as a solution, whereby then the more difficult to decarbonize industries, and here we're talking about definitely Heavy duty transportation, we're talking about clear commitment from the European Commission on the Aviation Industry. And please remind that the proposal is really high. I mean, it's about 60% saff blend by 2,050. Yes. So this is huge in terms of market demand that that would create for renewable fuels. So you see that there is this kind of a tendency and I believe, I mean, that fits very well To our strategy because as you know, I mean, we have anticipated and that's why we are building up the I mean, flexibility production capacities in Singapore, in Rotterdam, so that we can leverage upon that. And of course, what is currently not really covered, I mean, in the Fit for 55 Is then what is happening in Polymers and Chemicals because also there we see that there is good traction. And the only way, I mean, to get out of Based, I mean, raw materials is by going into bio based, I mean, polymers and chemicals on one hand side or recycle, I mean, the carbon from waste plastic on the other hand side. So from that point of view, we see good traction, I mean, in the marketplace, even if we have not talked about it yet Thank you. And the next question comes from the line of Matthew Blair. Your line is now open. Please go ahead. Hey, good afternoon, everyone. I'd like to start with a strategic question. Could you talk about how open you might be to a partnership on RD production? It looks like some of these refinery conversions appear to have pretty low CapEx relative to greenfield projects. Then a company like Neste could obviously bring the edge on feedstock. So I guess I'm just a little surprised that there haven't been more joint ventures in this space. And I'm just wondering how open Neste might be to discuss a partnership. And then my follow-up is on OP. Sometimes after a major turnaround, the refinery will just run better. With the poor food turnaround behind you, should we expect A pickup in margin capture or a structural reduction in OpEx? Thanks. Yes, good questions, Matthew. And I would say, I mean, on your first question, I mean, on partnerships, We have said, I mean, a couple of times at our Capital Markets Day, if that was in 2019 and also in 2020, We don't exclude anything. But of course, it needs to fit, Yes. And we do believe that in terms of our next PTL technology, we have the most advanced I mean technology. We do believe that we have the most advanced technology when we're talking about pretreatment. And in addition to that, Our model is that we want to have, I mean, that flexibility, both in terms of the waste and residue side As well as on the other hand side, being able to produce the products for road transportation, aviation and polymers and chemicals. Yes. So these are very clear requirements, of course, that we do have. Then on the oil product side, Yes, we did do quite a lot of work, I mean, of course, in terms of ensuring reliability and sustainability, Plus also due to the fact, I mean, that we exited refinery in Nantali. For example, take specialty products, I mean, solvents we were producing in Nantali. Today, we are producing them in Porvoo. So that was part, of course, also of the consolidation, let's say, of our work so that we only Then have to focus if we talk about refinery production on one side. So a bit premature, I know, to say in your model, Okay. That will lead, I mean, to OpEx costs that are going to go down. On the other hand side, I mean, what we have said, I mean, is also on our strategy. We want to make sure that we are net 0 by 2,035 in terms of Scope 1 and Scope 2 emissions. And then on the other hand side, we also want to replace crude oil streams with waste and residue streams. So also these elements, I mean, they will play an important role. And then of course, I mean, if you go back, I mean, to the Fit for 55, a bit premature, I mean, to see, but what will that Have as implications on the Oil Products business in terms of CO2 costs. And then if you compare that again with then being the most sustainable refinery, What of that can be offset? So can't give you a clear answer on that, Matthew, but that is definitely something That in our master plan for Portable, we're looking at all these parts that are moving and what does it then mean at the end. Very clear. Thank you. Thank you. And the next question comes from the line of Erwan Karruiden. Your line is now open. Please go ahead. Hi, there. Thanks for taking my questions. Most of them have been answered actually. So I've got maybe 2 questions on cost, 1 on Singapore and 1 on depreciation. If I'm not mistaken, you previously guided for an impact on EBIT from the Q3 of €80,000,000 and now it is €90,000,000 I just wanted to you to clarify the difference between the two And what drove the increase? And then thanks for providing some more color on the depreciation. You mentioned that the higher depreciation was due to investing back in the business. So I was just wondering if we should expect the same level of Depreciation charges for the next 2 or 3 quarters? And these would be my two questions. Thank you. Yes. Thanks, Herman. I'll take the first one. This was on the impact of the Singapore turnaround. Good observation. We slightly increased that impact from earlier €80,000,000 to €90,000,000 I think mainly as a result of modeling it more in detail. At the same time, of course, good to note that if you look, for example, at the U. S. Market development with the RINs, they are Clearly, on a high level, so of course, there is also an element that this number captures also the margin impact of the lost volumes. So that would also play into it. Then the second question, Jyrki? Yes, yes. It was the question about the depreciation. You're absolutely right. It was In quarter 2, we had roughly €136,000,000 depreciation and it was roughly €10,000,000 more than last year. So we are going to see depreciation Varying between €140,000,000 €150,000,000 now on a quarterly basis going forward. Certainly always depending on the CapEx what we are basically providing. Thank you. So just a follow-up. So are we right in assuming a Stable percentage of depreciation over CapEx? Yes, of course, it depends on what kind of CapEx you have. But if you look just purely the The figures going back, so we have now come to the level of €140,000,000 roughly on a quarterly basis. So And the $40,000,000 to $150,000,000 going towards the bigger CapEx since we have the Singapore coming in 'twenty three as an example. So Between now and 'twenty three, they will be pretty stable at this €140,000,000 to €150,000,000 levels. Okay. Thank you. That's very clear. Thank you. Thank you. And the next comes from the line of Eris Thiemann. Your line is now open. Please go ahead. Good afternoon, and thanks for taking my questions. I still have three questions. So firstly, what is your waste feedstock supply Split by regions, is Europe the largest region? And secondly, on the Waste pit stock price development, are you seeing some price decreases so far in July If you compare it to late June or but is it too early to say anything about the short term trend? And then thirdly, in the Q1 call, you were talking about potential capacity debottlenecking. Is the comment still relevant? Could Yes. So good questions, Iris. I will give it again, I mean, to Matti. Yes. Thanks. So first one on the waste feedstock split by region, we haven't really opened that one. You know, of course, We are active globally. There is a number of important regions for waste and residues. It's Europe, it's North America, it's South America. So we are active in all these regions. So but that's And it changes. And it may change, of course, also over time. And that's the whole key of our concept that it's a global platform and we can also Optimize that over time. Short term development, yes, specifically on waste feedstock price development, market development early July, It's a bit in a way, I would say, I commented earlier already that there hasn't really been a clear direction in the 1st weeks of July. So after this very clear ramp up during Q2, we see stable. We see some regions bit moving up, others a bit down. So It's a bit without direction in the 1st weeks of July, but we will see, of course, how it develops going forward. And then on the capacity bottlenecks, I would mainly comment, it's more I would look at it as part of our continuous improvement that we, of course, continue working on Continuously improving our operational excellence, our operations, capacity bottling is part of it. Of course, it's clear that if you look How much we have debottlenecked over the last few years that it becomes always harder and harder to find opportunities. Thank you. Thank you. And the next question comes from the line of Nijit Rajit. Your line is now open. Please go ahead. Richard, your line is now open. Please go ahead and ask your question. Can you hear me? Yes, we can hear you. Yes, sir. Please go ahead. Okay. So this is a Medi Inebiti from Bank of America. Not sure I understood my name, but good afternoon all. I will ask 2 questions, please. First one, regarding the hedging that you realized during the month of June. If I look at The price of the crude palm oil at that time and the current price of the crude palm oil, it seems that you might be able to do to make Hi, hedging gains. So my question is, did you take this into account In the guidance that you gave us regarding your renewable product margin for the Q3, first question. 2nd question regarding the renewable product margin variations. So you said $700 per ton in Q2 Could be midwind around $6.50 per tonne in the Q3, if I understood well. And you highlighted that this is due to the sales mix and also the fact that the feedstock market remains tight. Just for us to understand, would you rather say that most of the decrease quarter on quarter is due to the sales mix The fact that the fixed cost market remains tight quarter on quarter, this is just for us to understand if In Q4, you might go quickly back to $700 Thank you. So thanks Mehdi. This is Matti. I'll take your questions. So first of all, on the hedging, I mean, I mentioned actually earlier also, So we did increase our hedging ratio for the second half of the year to roughly 55% of total sales. And when we started the Q2, we were at a clearly lower level. It was under 20%. So we actually did Do this hedging ratio increase over the Q2? And in a way, it's, of course, part of our estimate when we made our estimate for the sales margin development for the Q3. That was part of it. At the same time, appreciating the uncertainties that there are always related to the market out there. And that would also be the comment on the Q3 guidance. Peter commented it already earlier. Our guidance is clear that we It's expected to be lower than in the Q2, and we mentioned as main drivers the fact that feedstock market continues to be tight. It is on a high level after the increase during Q2 and also the second driver being the Singapore turnaround where we are More limited in our sales flexibility. And of course, again, impossible to give any exact numbers, but if we take the current estimate, It could then also be mid of the range when we give our healthy margin range. Thank you. Thank you. And the next question comes from the line of Jason Gabelman, your line is now open. Please go ahead. Yes. Thanks for taking my question. I wanted to first ask on the polymers business. I was hoping for some more color on that. I know you're trying to grow that business. Can you just discuss maybe what needs to happen From a regulatory standpoint and incentive standpoint, from that to contribute more and for you to grow volumes more? Or is the Roadblock to growing the business more of a technology issue right now. And then my second question, Just on the supply demand outlook for renewable diesel and renewable fuels, it seems like With the EU Fit for 55 program, we have a good sense of what demand could be over the next 5 to 10 years. And clearly, there's a lot of capacity coming online over the next 5 years for renewable fuel production. So if you could just discuss your outlook for how those balances, how the supply demand balance shakes out over the next 5 years? And then my final question just on feedstock availability. You've mentioned a few times the tight market right now in waste oils. And given the amount of new global capacity coming online to produce renewable fuels, is that tightness A feature that you expect to remain with us for the foreseeable future? Thanks. Let me start, I mean, with the first question, Jason, and around the Renewable Polymers and Chemicals business. If we talk about waste and residues, so bio based polymers and chemicals, so not chemical recycling, then this is A proven technology. We are supplying and we have sales contracts, so it's repetitive business, Both Europe, U. S. As well as in Asia Pacific. It's more, let's say, demand being creation By being created by the brand owners and the brand owners wanting to reduce their dependency And for example, packaging on fossil based plastics. Of course, it always helps with an addition to that, You have some regulation that is supporting that tendency, and therefore, we are in close contact also with European Commission. There are a couple of positive things in Europe, like, for example, plastic waste plastic tax of $0.80 a kilo. All these kind of things are helping and driving That demand in addition to the demand that is being driven by the consumers. Chemical recycling is a bit different. So here we talk about the waste plastic being chemically recycled. We've made very good progress. I mean, you remember, I mean, that we have In this company, Ultera, we've done the 1st industrial scale trials with Ultera. We will have 2nd trials, I mean, again, in the next couple of months and then there will be a 3rd round of trials, of course. But so far, I mean, everything did run quite well. But here, we're still talking about technology development. Yes. We know it works. We've done and produced waste plastic based Recycled hydrocarbons that went back into the plastic chain. So from that point of view, proof of principle Has been achieved, but of course, it will take a little bit of time. Until then, the first liquefaction plans will be put in place and so on and so on. So on the renewable diesel supply and demand, and of course, I mean, one may look at renewable diesel. I would like to look more at the combination of renewable diesel and sustainable aviation fuel as, of course, there is these mandates that are coming In Europe, for SAF plus also the incentives that are being discussed in the United States, Dedicated BTC for sustainable aviation fuel and so one, this is still on the table and we hope to get Clarity on that, I mean, during the course of this year. So therefore, it's for us, I mean, we look at both, Renewable diesel as well as sustainable aviation fuel demand. If you look at the Fit for 55, It's a bit difficult, I mean, to read because in the R and D 3, There has been a change where in the past it was energy based targets and now it's greenhouse gas emission reduction targets. So you can't compare it, I mean, 1 to 1 with what is in RDE 2. But if you The assumptions that the European Commission has taken, then their assumptions tell us that the greenhouse gas The emission intensity reduction target at minus 13% in 2,030 would Equalize 20% renewable energy targets. We personally believe it's Not going to be 26% if it stays like that. It's lower than the 26% because the European Commission took an assumption That the greenhouse gas emission reduction average is 50%. As you know, we are having renewable diesel that has a greenhouse gas emission reduction potential even up to 90% based upon that calculation methodology. Yes. So it's probably more somewhere, let's say, around what 20% to 26% depending on what assumptions are being taken. And therefore, what I said before, we will definitely plead for even more aggressive targets. But then again, you need to take that into consideration. Again, with The other parts, I mean, of the regulation, especially the effort sharing regulation, which would lead, I mean, to being More of a driver in terms of demand creation and then R and D 3 being more of a tool in how to accomplish The effort sharing regulation in addition to eventually other tools. So all that, we'll talk about that, I mean, more on the Capital Markets Day. But just If you look at what we have said in the past in terms of market demand creation in Europe, We see that number at least, I mean, being confirmed both on the RD side as well as on the sustainable aviation fuel side. So therefore, as a consequence, I mean, continue to say No decoupling, let's say, over time of supply and demand in the renewable fuels. And Then I can take the 3rd question, which was a bit on the waste and residue outlook in terms of availability. Perhaps A couple of short comments I would make. I'll just if you look at situation this year with the COVID still having impacts, I mean animal fats Availability has been relatively stable throughout this one. It's more used cooking oil, which has been affected. And I mentioned earlier that From there, of course, we still today see that the impact of the lockdowns probably reflects that only 85% of the volume is available Currently versus pre pandemic levels. So from that perspective, taking a midterm view, there is hopefully potential to come back to more normal levels over time. At the same time, it's clear that we have solid demand, whether it's in HVO, whether it's in oleochemicals, FEED, Whether it's the 1st generation biodiesel, so I think it's clear that we also have with also the new projects that are going to start also Solid demand development. So I think in short, I would say it looks like it continues to be tight. And then, of course, the importance comes both to If we look at from a net perspective, continuing to work on the quality flexibility on the geographic reach and also on the longer term development, thinking of New sources such as could be algae, it could be novel vegetables with reduced indirect land use impact, these are very important in longer term. Thanks guys. I appreciate the color. Thank you. And the next question comes from the line of Hacitan Chilukuru. Your line is now open. Please go ahead and ask Hi, thanks for taking my questions. I had 3, please. My first question was related to the share of waste and residue feedstock in the Renewable Products segment, which has touched 93% in 2Q. I was just wondering, should we consider this to be the new baseline as we look into Future or is it possible for this to revert back say below 90% in the future? Also does this new level of waste in the JUPE stocks and Does this affect the way you hedge, which I believe is more towards based on the vegetable oil price differential there? My second question was related to the lower sales volumes in Renewable Products in 2Q relative to the guidance that you had provided with 1Q results, which then highlighted to be stable quarter on quarter. You have highlighted postponement of some end June deliveries as a reason for lower volumes. Does this Completely explained the mix relative to that guidance. Also, can you provide more color or some more color on the guidance for sales volumes in 3Q? How much lower than the 732 kilotons do you expect the sales volume to be in 3Q? Any guidance on that magnitude will be helpful. My third was essentially related to the net debt. Can you please comment on your expectations of net debt till year end. I was wondering if there was any specific cash payments or proceeds or any material working capital changes that we should be aware of. Thanks. Yes. Thanks for the questions. I'll start with the first two ones. So first of all, on the share of waste and residue, I mean, obviously, It will vary a bit from quarter to quarter. You could see we're at 90% in the Q1. We were now at 93% in the 2nd quarter. But I think it's good to remember our feedstock strategy. We have said clearly that we are a bit longer term focused on enabling and reaching 100% waste and residue And that target by 2025, so that gives you, of course, then the trend that we are aiming for. And then like mentioned earlier, Longer term, hopefully, also some novel vegetable oils and others that can then complement the mix. You asked whether it affects the hedge. Our hedging philosophy stays the same. So we are using liquid instruments and that means that we have to use as a proxy typically palm oil, for example, If it does not perfectly reflect, of course, waste and residues. And then on the other hand, we use liquid instruments on the petroleum side such as gasoil or diesel, again to reflect the other part of the hedge. Your second question was on the sales volume in both Q2 and Q3. So I would say the fact that we Delayed some deliveries into the Q3, which is quite normal. I mean, the exact timing of the shipment, which always depending on operational reasons, weather, etcetera. That explains most of that small difference that we had versus the earlier guidance. And then into the Q3, we actually Peter mentioned earlier that we expect at the moment that, That reduction versus the Q2 could be in the range of 30 to 50 kilotons. That is our current estimate of the 3rd quarter volume, again, of course, depending always on this short term operational variations. I wouldn't read, I mean, too much into that. I mean, slippage that we had, I mean, from June July, this is not market demand driven. I mean, it was just, I mean, that 1 cargo and then we had one issue with one of our partners. I mean, they had an incident in their facility And they were not able to get the material out, otherwise they would have been booked, I mean, in that quarter. So nothing, let's say, underlying Yes. In terms of market demand of any concern, I mean, market demand continues to be very healthy. Yes. And then it was a question about the net debt. If you look the first half of the year, our CapEx is very pretty stable. So we're expecting a little bit higher CapEx for the We did have the one acquisition in Rotterdam that will certainly not be there in the second half. So that is kind of the positive basically replacing kind of the CapEx Well, first, it's the Q1 and then certainly we have one of the dividend payment taking place in October, but no major The situation or changes in the position with the second half, meaning the year end. So it will be still a very, very good Thank you. And the next question comes from the line of Matt Lofting, your line is now open. Please go ahead. Hi, gents. Thanks for taking the questions. 2, please. First, just sort of, I guess, taking a step back and consolidating the observations you've made around feedstock markets. I mean, it seemed In some ways, 3 months ago when you presented Q1, the time you had perhaps a cautiously optimistic view that waste and residue market tightness This would be used through the not in Q2, but through the second half of the year. My sense today is that perhaps The process is taking longer than you'd previously anticipated. I wonder if your observations there in terms of whether That perception is fair. What changed? And how you perhaps think about the sort of the Q4 relative to the Q3 from that perspective in In terms of operations and margins. And then secondly, just coming back to the sort of the previous point on the sales volumes in So in the region of 30,000 to 50,000 tons lower quarter on quarter in Q3, It's noticeable, I guess, looking at the first half of the year that sales volumes have been materially lower than production Volumes. So I'm just a bit surprised that you're not perhaps catching up on that during Q3 or the second half of the year as the sort of the maintenance I wonder if you could sort of share any observations on that. Thanks. Yes. Thanks, Matt. Perhaps Couple of comments. First question on the feedstock market and how we saw it last quarter perhaps. If I remember, I mean, from spring, What we probably commented at the time is that vegetable oils, which were already at a high level at the time, where at the time the forward market We're backwardated. And what actually has happened, if you see what has happened in the veg oil markets, the strength has rolled. Yes, there has been this volatility, but in a way that we continue to have a situation where it's very high in the front end. Again, the forward markets were But that is probably the main change. I think on waste and residue, it's like I commented also on the medium term outlook, it Continues to look tight. I don't think that has changed. On the sales volume, just I mean, correct observation, If you look at our first half production volume and sales volume, we have been building some inventories. This is quite normal in anticipation of the big turnaround that You could also see from the guidance that although our sales volume is lower or expected to be lower in the Q3. It's not the full volume impact of the Singapore turnaround, Which lasts for 7 weeks. So indeed, that is exactly what we are doing, that we are a bit smoothening the impact of the Okay. Thanks, Matti. Thank you. And the next Question comes from the line of Henry Tarr. Your line is now open. Please go ahead. Hi there, and I'll just be brief. One question on the U. S. And RINs. And do you have any views on, you mentioned it recently, but regulations there? And I saw that the Yes, recent U. S. Supreme Court decision around the biofuel waiver dispute, etcetera. Is there anything for you to add on that side? Yes. We don't see, I mean, that the environment is changing a lot, Henry, in the United States. Yes, you have this ruling on the Supreme Court. But since then, I mean, nothing really has happened. I would Also be a bit more careful maybe than what I have said, I mean, in the past with regards, I mean, to when do we expect To hear about the volumes in the RFS program, Today, I don't believe we will get any clarity on that during the course of this year. If at all, it will be towards the end of the year. Maybe we will see a bit more, I mean, on the so called, I mean, small refinery exemptions, but still the atmosphere continues to be That the Biden administration, the EPA, I mean, not a lot Exemptions will be granted. So the atmosphere continues to be, I mean, supportive. And as I said before, I mean, in terms of these proposals with regards, I mean, to incentives dedicated, For example, Blender's tax credit, I mean, for sustainable aviation fuel, we think and hope, of course, That we will get some clarity on that during the course of this year. So I would give this, I mean, definitely above 50% that this will go through. Okay, great. Thanks. Thank you. And the last question comes from the line of Giacomo Romeo, your line is now open. Please go ahead. Yes, good afternoon and thank you for taking all the questions. Just I have just one left. And just wondering as we well, in fall, we'll start getting into the A period when you typically renegotiate your term contracts. And just wondering whether you are you have any concern that lower than expected The demand growth this year and potentially a still pressure on the pizza front Could put some pressure on the pricing level of these type contracts, just interesting to hear your reports around that. Yes. I mean, if you look at demand creation, yes, maybe there is a little bit lesser, but still it's demand creation this year. But also if you look at all the key countries and states in terms of demand creation, higher greenhouse Gas emission reduction targets starting 2022, then we continue to see that there will be a demand creation of around 2,000,000 tonnes, I mean, to give you a couple of examples, I mean, Sweden is moving from 26% to 30% From 26% to 30.5% of greenhouse gas emission reduction for diesel, the movements Yes. And 2021 was 21% to 26%. Germany is going up. The Netherlands, France is going up. Finland is going up. Possibly even, I mean, in the southern part of Europe, percentages are going up because RDE2 is still in certain member states being discussed and how will it be turned into legislation. And that legislation, I mean, It's enforceable as of the middle of this year, so that means that they have to have, I mean, higher targets. And the same is also valid, of course, I mean, in the United States with the States with the higher percentages as communicated, as known, I mean, in the key states like California, Oregon, British Columbia. So we continue to look at about 2,000,000 tonnes of demand creation on a global basis for 2022. Thank you. Just perhaps following on that. And so you just to clarify, You don't think that the existing pressure you're seeing on the feedstock market could have any pressure in terms of pricing Negotiation and the demand growth you expect will still be sufficient to keep pricing at a healthy level as you enter renegotiations of those contracts? Well, we are at an early stage. Same comments as I made, I mean, around this period of time, I mean, last year. We are at an early stage now at looking at where do we believe feedstocks will go, where do we believe I mean the differential We'll go next year. Where do we see, I mean, where the penalty levels in the different member states are? And then based upon that, we will then develop, I mean, what is our term strategy with regards, I mean, to prices, Today, too early to say. We are at the end of July, Yes. This would be premature for us, I mean, to define a strategy because you have so many moving parts. So I have to say the same. I mean, like last year, yes, this is going to take a couple of months Before we really we need to have a clear picture on what we believe the scenarios will happen in 2022. And then only based upon that, we will then start with the term deal negotiations with our key strategic customers. Perfect. Thank you. Thank you. No further questions obtained through, sir. Please continue. Very good. Lots of questions. Thank you very much. And we try to be as clear as possible with our guidance For Q3, I mean, it's a bit a special year. I mean, this year with lots of these big turnarounds that we have, Lots of moving parts, but the underlying business continues to do and perform, I mean, very well. Let me conclude also by saying that, of course, I mean, the pandemic is not over yet, but I also believe that gradually We have learned, I mean, how to live with it. And for us, the Q3 will be another Turnaround quarter as we have discussed, I mean, today with the focus, of course, of Singapore. So lots of attention to do that within the communicated time frame in a safe way and then, of course, within the budgets. Otherwise, I mean, we We will talk about that more in our Capital Markets Day and really looking forward to talking to you even, of course, If it's unfortunately, as I said at the beginning, is in a virtual way. So thanks a lot, I mean, for your continued interest in our company. Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect.