Neste Oyj (HEL:NESTE)
Finland · Delayed Price · Currency is EUR 27.29
-0.75 (-2.67%)
May 7, 2026, 6:29 PM EET
← View all transcripts
Earnings Call: Q4 2020
Feb 5, 2021
Good afternoon, ladies and gentlemen, and welcome to this conference call to discuss Neste's 4th Quarter and Full Year 2020 Results published earlier today. I'm Juha Pekka Kekalane, Head of Neste IR. And here with me on the call are President and CEO, Peter Vanacker CFO, Jyrki Maki Kala and the Business Unit Heads, Matti Lehmus of Renewables Platform Marco Pekkola of Products 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 will start with the presentation. Peter, please go ahead.
Thank you very much, JP, and a very good afternoon to all of you participating around the world, also on my behalf. We appreciate you joining us to discuss our Q4 and also the full year results for 2020. 2020 was unlike anything that we have ever seen or experienced. Oil price volatility, very low refining margins, a global pandemic and an associated recession. Early in the year, as it became clear that the virus is becoming more widespread, Our leadership team established 3 guiding principles for the short term.
Number 1, protect our employees and communities Number 2, keep our commitments to our investors. And 3, take actions to strengthen our company for the future. And beyond the very good progress that we made on our strategy implementation, I also want to take a moment to acknowledge our global team that delivered our results. These individuals, both those who were able to work remotely And those who continued to work on the front lines at our manufacturing sites form a strong and nimble team. They have my sincere and deepest gratitude.
If the pandemic reinforced anything, it is the value of our renewable products in serving the need to reduce greenhouse gas emissions. The uncertainty caused by the COVID-nineteen epidemic continues And the vaccination schemes seem not to proceeding as fast as we would all hope. Therefore, we are pleased to share with you Our solid overall performance in the last quarter and in the year 2020 as a whole. If we move to the year 2020 in brief. Despite the market turbulence and disruptions caused by the COVID-nineteen pandemic, The year 2020 was a success for Neste in many ways.
We had a solid performance and posted a comparable EBIT of EUR 1,416,000,000 We focused a lot on delivering an excellent cash flow. As a result of our actions, our cash flow was strong, and I will make some further comments on that later. In 2020, our renewable products proved to be very resilient with increased sales volumes and strong margins. The renewable diesel demand remained good and our annual sales volumes were almost 3,000,000 tonnes. As expected, the feedstock markets remained tight, and particularly, the palm oil price continued its way up.
As a result of successful sales performance and the optimization of market mix and feedstock mix As well as a significant positive contribution from margin hedging, we were able to generate very strong sales margins. The comparable sales margin averaged $703 per tonne in 2020 and a very high $7.60 per tonne in the 4th quarter. That was a great achievement and may be difficult to replicate. Oil Products suffered from a continued historically weak refining market caused by the global COVID-nineteen related demand reduction and the resulting oversupply situation. The reference margin, reflecting the general market conditions, averaged only $0.6 per barrel in 2020.
It was about $5.6 per ton lower per barrel lower than in the previous year, which had a negative impact of EUR 490,000,000 on the comparable operating profit year on year. On a positive note, our additional margin was strong at $6.9 per barrel, supported by good operational performance, currency hedging and contango inventory profits. Substantial cost reduction measures have been successfully taken in Oil Products. Our Marketing and Services segment performed very well in the challenging markets. Sales volumes were still impacted by the COVID-nineteen pandemic, but we were able to improve unit margins.
Marketing and Services has also done a great job in reducing their cost base. Despite the market turbulence, we continued to focus our strategy execution, and I will come back to that at the end of the presentation. In order to ensure the long term competitiveness Of the other products business, we initiated cooperation negotiations on a plan to restructure our refinery operations in Finland. The negotiations were concluded in November 2020, and as a consequence, we have decided to shut down the refinery operations in Nantali. We will focus the sites on terminal and harbor operations as well as renew the Oil Products operational model.
In the 2nd phase of the transformation, the Porverie refinery will be developed towards co processing of renewable and circular raw materials. We have also started the implementation of measures to bring our greenhouse gas emissions to net 0 by 2,035. The shutdown of the Nanthalie refining operations and the renewable the renewal of the oil products operating model will lead to approximately 370 redundancies. We're supporting our people in adapting to this change in several ways. These restructuring measures are expected to result in annual fixed cost savings of approximately EUR 50,000,000.
The Board of Directors' dividend proposal to the AGM on the 30th March is $0.80 per share. It is fully in line with our 50% distribution policy. A couple of words on safety. Neste continues to take the risks related to the COVID-nineteen pandemic seriously. Our primary objective is ensure the health and safety of our employees, our customers and other partners as well as to ensure the continuity of our operations and secure supply of products.
Our occupational safety performance was the best ever in 2020, And the total recordable incident frequency was 1.3 incidents per 1000000 hours. The process safety event rate was a bit up from the previous year at 1.6%, but we met our target for 2020. And our systematic safety work continues every day. On cash flow, I would like to make a special point about our excellent cash flow developments. It has really been in the focus during the pandemic year when we have also continued to invest in strategic projects and made several acquisitions.
Prime examples of these or the completed Mahoney acquisition and the yet to be closed Bunge acquisition. Our net cash generated from operating Activities was over €2,000,000,000 and the free cash flow over €1,000,000,000 Our people have really done a great job in safeguarding over cash flow. On the next slide, despite the challenges in oil products and the extraordinary retroactive BTC contribution Not impacting the return figures anymore, our financial position continues solid. We reached an after tax ROACE of 17.3 percent on a rolling 12 month basis, clearly exceeding the 15% target. At the end of December, We were net debt free as our leverage ratio was minus 4.7%.
As stated before, the strong financial position enables The implementation of our growth strategy going forward. This continues to be very important in these turbulent times. Now with these opening remarks, I would like to hand over to Jyrki to discuss the financials in more detail.
Yes. Thank you, Wouter. If you think about last year 2020, I think it's Good to say that let's close the COVID-nineteen year. I think that it was a year that provided more uncertainties and scenario thinking than any other year since 2,009. For Neste, like already heard earlier, it was a year of resilient, for example, products, high volumes and solid sales margins.
Global oil industry really hit oil products, like mentioned, with really low reference margin, and it also impacted close to EUR 500,000,000. And then on the other hand, we had a well managed marketing and services business. So What all of this meant in figures that will be with the next page is so if we have the group financials, Let's start with the full year figures, the first two columns there. I will comment comparably a bit separately. But if you look at the full year comparison, We basically deliver EUR 4,000,000,000 lower revenues, and that's basically roughly EUR 1,000,000,000 each quarter.
Throughout the year, it was EUR 3,000,000,000 coming out of the crude oil price and EUR 1,000,000,000 out of the volumes, mainly fossil volumes, and that is the impact of the COVID-nineteen during 2020. Like mentioned just earlier, we had a very strong cash flow, talking about the free cash flow, this EUR 1 point EUR 2,000,000,000. It was again over EUR 1,000,000,000 like 2019, but really like in a totally different market environment. And we really continue to focus on the cash flow. Our CapEx and M and A activities were EUR 400,000,000 higher than 20 2019.
So what we basically did, we had a very, very tight focus on inventories, closing the contango inventories at the year end with oil products, getting the 2018 2019 PTCs from the U. S. And then really focusing on the tight collection of receivables. So this EUR 460,000,000 that was there as a cash flow item Coming out of working capital was a great achievement. And then at the end of the day, the comparable earnings per share, it was EUR 1.60.
And then according to our policy, the dividend like discussed, it was EUR 0.80 per share. But if you look at the full year comparable EBIT, you see a big change between 2019 2020. And I think the big thing here is really the retrospective 2018 BTC, EUR 142,000,000 have the figures still don't say it. Good. And the true profitability change during the year, it was basically EUR 123,000,000.
And Basically, in R and P, it really means that half of that came from higher fixed cost like we have basically focused on strategic elements, and then we had the effect changes. But the positive thing certainly with RPD during 2020 was the higher sales volume and slightly lower sales margin compared to 2019. We talked about the OP week performance already. The COVID-nineteen basically make a big change in their profitability that was EUR 336,000,000 lower. So combined RP and OP was EUR 600,000,000.
And then we have the positive things coming out of MS and also coming out of the Other segment that also improved, but it was really colored by the BTC that basically kind of disturbed the comparison that we always have to take into account. But if we then look at the 2 last columns talking about Q4 2020, Again, like mentioned, our revenues were EUR 1,000,000,000 lower coming out of basically mostly crude oil price. Some effect also the FX, it's now totally different level compared to 2019, especially the U. S. Dollar.
In comp EBIT in quarter 4, if we just take out these changes that took place In the PTC element, the EUR 380,000,000 in quarter 4, it was very close to the level of quarter 1 and quarter 3. So basically, making the full year figure than what it was, like mentioned earlier. But the quarter 4, it has really big changes because of this BTC. You see 2019, it was EUR 781,000,000 and you need to take away the 2018 and then you need to take the 3 quarters 2019 that you get kind of the comparable figures. So basically, then you are talking about EUR 4.73 versus EUR 3 EUR 80,000,000 meaning EUR 93,000,000 lower.
I will talk a little bit later in details. This is the comparable figure we need to focus on. And basically, all the other businesses like mentioned here, Marketing and Services, they improve and again, the others improved, so making a positive impact on our overall comparable EBIT. But if you look to next page, Just by business areas, again, if you just look this for the first time, you may be a little bit surprised how can the profitability be half what it was last year's 2019 Q4. But you have to take away The PTC impact full year 2018 3 quarters of 2019.
And then you are seeing the comparable figures, basically how the figures come alive. And that's kind of the point that RB basically had Roughly EUR 25,000,000 lower profitability compared to quarter 1 2019. And then OP had this Low reference margin in the background and then Marketing and Services and the others, again, they basically improved compared to 2019. If you put the next page, this is then again, we wanted to a little bit Give you a feeling that how you compare these figures like I mentioned earlier. The quarter 4, you have to take away the 2018 2019 3 quarters basically.
BTCs come to this EUR 4.73 and then EUR 3.80, meaning this EUR 93,000,000 difference. And If you look the big picture here, you have to think about the sales margin, why it is EUR 150,000,000 lower, And that is coming from OP, EUR 95,000,000 EUR 25,000,000 is coming from RP. We had a positive Distributor and Vitit volumes mostly coming out of RP side. And again, now we are starting to see here the FX changes impact. In one quarter, it was minus €51,000,000 We did a lot of things 2019 with our fixed And you'll see here 1 quarter, example, EUR 42,000,000 lower compared to 2019.
And I think that is an example that, for example, all this impact was EUR 26,000,000. So we basically did all these scenario thinking and actions In a very difficult year, what is what was needed and landed EUR 380,000,000. And then one more slide basically talking about the full year figures, the figures are getting bigger and the columns as well. So basically, overall, if you just look at the figures, we had basically EUR 546,000,000 lower profitability. But if you want to focus on the things operationally, you need to focus on this EUR 1,800,000,000 and this EUR 1,400,000,000 need basically roughly EUR 400,000,000 Lower profitability in comp EBIT level.
And you have this one big ticket item there, sales margin. Talking about EUR 400 more than EUR 430,000,000 lower Sales margin, and that is item coming out of OP. Reference margin, very negative compared to the 2019. But additional margin was very good. So the comparison is here, EUR 350,000,000 coming out of Total refining margin and ARP than EUR 85,000,000.
So that is basically the negative thing between these years and then followed by the FX. And FX was basically mostly coming out of quarter 4, like as I presented in the previous slide. And then we have the positive things again impacting the full year figures, talking about fixed costs, talking about the volume impact, Talking about the thing also in the other segment in our operation, but 1.416 was the outcome of the full year. And I think that is an excellent achievement also in a very difficult circumstances. So I'll now leave the floor to Matti Lehmus, who will comment more on the Renewable Products 2020.
Thank you, and good afternoon also on my behalf. So if I start with the first slide And commenting on the EBIT on the Renewable Products, I'm very pleased that we continue to have a strong EBIT level of €338,000,000 in the 4th quarter. And when you look at the chart, you can see that this was, of course, below Q4 2019, if you include the BTC. But if we then, like also our CFO explained, only take into account the BTC for the 4th Quarter of 2019, it is only slightly below this number. The difference then becomes €25,000,000 And I have to say, for me, this reflects A strong operational performance in spite of the COVID impacts on the business environment, in spite of an increasing feedstock price.
So I'm very pleased with that. The sales margin was at a very good level of $7.60 per ton. This is slightly lower than in the Q4 of Previous year, which was 787, but it is stronger than what we had in the Q3 of 2020. Positive factors supporting the Q4 margin in spite of Continued tight feedstock market included hedging, market development and sales performance, and I will discuss this in a bit more detail. The sales volume was at a good level, stable level of 7 32 kilotons.
This is 5% above last year's level at a very similar level as in the previous quarter. And it's worth noting that sales to North America increased to 34%, which reflects solid demand in the U. S. And continued market optimization. The production volume was 7 19 kilotons.
This again reflects a successful completion of our scheduled turnaround in Rotterdam and otherwise very good utilization across our sites. Finally, I would comment that the feedstock optimization continued, and the share of waste and residues inched up again to 87% in the 4th quarter, which is in line with our increasing longer term trends and also reflects our efforts continually expand waste and residue availability. So overall, a very good quarter. Briefly looking at the waterfall And the comparison to last year's Q4, this illustrates quite nicely that if we Make the BTC readjustment, then you can see that the right comparison point is the EUR 363,000,000 And the key changes year on year is that the volumes were higher, which had a €25,000,000 positive impact. And at the same time, the sales margin was slightly lower, which had a EUR 20,000,000 negative impact.
And the third main change is then TSX, like also our CFO commented, which had a €31,000,000 impact versus last year because the U. S. Dollar euro rate was at €119,000,000 versus 111 a year ago. Let me then turn briefly to the feedstock markets. Waste and residue market dynamics were similar as in previous quarter with a tight market, following continued Solid demand into both oleochemical and biofuels markets.
The waste and residues price increase was, however, more moderate than for vegetable oils, which increased deeply in the Q4. So for example, quarterly animal fat prices increased by 7%, used cooking oil by 3%, whereas the quarterly crude palm oil price rallied by more than 20%. I would also state that the Key market driver in the Q4 was a rapidly strengthening vegetable oil market. And for example, crude palm oil prices increased by more than 20% during the quarter. The reason behind is a combination of production being impacted by heavy rainfalls, which is related to the La Nina weather phenomenon and at the same time, solid demand for crude palm oil into, for example, India and China, which then contributed to the rapid price increase.
It's also good to note that the crude palm oil market in 2021 is in backwardation as there are expectations so the positive production development later in the year, supported actually by the recent rainfalls. Finally, I would comment on waste and residues that Animal fats used cooking oils, other ways and residues partially followed vegetable oil price trends, but the movements were less pronounced. And in practice, this means that the price differential between waste and residues and vegetable has actually narrowed in the 4th quarter. Let me then turn to the U. S.
Market and a few comments on some market developments there. First of all, the LCFS credit price in California continued to be on a high level and averaged $198 Just a few dollars higher than in the previous quarter. The LCFS credit deficit continues to be balanced Even if short term, the demand for diesel and gasoline has been low due to COVID related lockdown measures. And in 2021, then the Carbon intensity reduction targets will be tightened again in California. If you look at the RIN Price development.
It's interesting to note that in the 4th quarter, the D4 rins clearly strengthened from $0.67 per gallon to $0.88 per gallon during the quarter and have continued to increase actually in January to a level of roughly $0.01 10 per gallon currently. The RIN market values has Responded to an increasing soybean oil price. And actually, if you look at the soybean metalleste biofuel margins, they have actually been relatively stable. So for renewable diesel, this RIN development has supported the development of U. S.
Margins in the 4th quarter. So my final comments are on the sales margin. And like commented earlier, the sales margin was at a very good level of $7.60 per ton, slightly stronger than in the previous quarter. And I would say that the main factors affecting the sales margin development in the 4th Quarter were, 1st of all, that the average feedstock price increased by approximately 5% versus the previous quarter. And like commented earlier, this is a combination of, let's say, animal fats, used cooking oils increasing More modestly and then vegetable oil prices like crude palm oil increasing considerably.
At the same time, and that's the second factor, our hedging mitigated the feedstock Price increase as the hedging ratio in the 4th quarter was approximately 40% of overall sales, and this mitigated more than 3 quarters of the feedstock price increase. And finally, I would comment that the good sales performance and the market development compensated Approximately half of the feedstock price increase. And for example, the RIN appreciation had a positive impact. And in addition, the sales mix optimization continued with increasing U. S.
Sales. So in general, I would note that The sales margin Q4 was also supported by good operational performance. So for example, no unplanned shutdowns or similar events, And utilization reached 90% in spite of a 1 month scheduled shutdown in Rotterdam. With these words, I hand over to my colleague, Marco Pekkola, who will discuss the Oil Products.
Thank you, Matti. I'll comment on the Oil Products 4th quarter, which was dominated by an exceptionally weak and oversupplied market. Comparable EBIT totaled out €37,000,000 supported by additional margin and lower fixed costs. During the quarter, reference margin averaged at minus USD 0.7 per barrel. Our sales volumes were 8% lower compared to the Q4 2019, reflecting lower demand continuance.
Refinery utilization rates were adjusted down to 86%. Urals share was 63% on a lower level than normal due to mitigation actions for euros differential being unfavorable for us. Moving then on to the EBIT bridge between Q4 2020 2019. The impact of exceptionally weak product market and the narrow euro strength differential is very visible. This resulted in refining margins trading mostly at negative values during the quarter, which had a negative impact of EUR 151,000,000 on the comparable operating profit year on year.
The weaker U. S. Dollar had a negative impact of EUR 20,000,000. Main positive impact in Q4, EUR 56,000,000 came from additional margin, which was supported by contango inventory profits and currency hedging. Positive impact of SEK 26,000,000 came from successfully implemented short term cost reduction measures.
We did short term cost reduction measures. When having looked at on the markets, we could see the continued impact of COVID-nineteen pandemic on physical product demand and low margins in both diesel and gasoline during the quarter. Urals Brent differential was narrowed during the quarter, mainly due to the OPEC plus production cuts impacts. Europe's Brent differential averaged at slightly negative minus $0.1 per barrel for the quarter. Brent crude oil prices recovered above 50 USD barrel levels towards the end of the year.
When taking a look on our Margin performance. Our total refining margin was low at $8.3 per barrel. However, it was supported by a strong additional margin of $9 per barrel when the reference margin for the quarter was negative. Refinery production costs were below last year's levels, mainly due to the success Full implementation of short term cost reduction measures. And as already mentioned by Peter, on the strategy execution, the restructuring of Oil Products is proceeding.
The cooperation negotiations were completed during the quarter and the closure of refinery operations in Nantali by the end of March this year and transforming the Porvoo Refinery operations to co processing renewable and Circular raw materials are proceeding as the main building blocks of Oil Products' future success to continue solid gas generation. We have also currently scheduled an approximately 12 week major turnaround at the Porvoo refinery in the second quarter. But with these comments, I would like to hand over to Panuk to talk about Marketing as a business. Thank you, Marco.
This is Panu Kopra speaking now. All in all, Q4 was good and solid in Marketing and Services Unit. And if we compare 2019 to 2020 without Russian Business Contribution, we actually were able to improve more than 11,000,000 our results. And if I just shortly comment still about last year market and market conditions out there. So that in the mid of March, we faced almost in all our segments huge drop in demand.
Gasoline, diesel, bunker and Jet A1 volumes were collapsed. After the first shock, we started immediately to assess our operations to meet new level of demand, and we were able to cut our fixed cost a lot. In addition to lower fixed costs, the result was improved by excellent margin management. During Q4, we made decision to pilot EV charging for our B2B fleet customers. We expanded our sustainable solutions offering by launch of Neste MY Non Road Diesel in Finland.
And we continued network optimization. Actually, during last year, we were able to close more than 35 stations in Finland, which obviously improves competitiveness of our network even further in the future. During COVID time, our touchless mobile payment has got more users than ever before, and it enables to have real online marketing with our customers. This is a game step ahead in our journey to more efficient, even more automated and customized marketing. We have expanded Neste MY availability now in to 125 stations.
NetEMI marketing strategy is ready for launch, and the most important is that the customers are warmly welcoming Neste MY Renewable Diesel. This was shortly about Q4 and the last year in Marketing and Services. Handing over back to Perk.
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 well and the updated completion schedule targeting start up in Q1 of 2023 remains valid. We continue to take all precautions and follow the development of the COVID-nineteen situation in Singapore very closely. The feasibility study phase of the next renewables capacity expansion project in Europe is progressing well. The next step for decision making will be to select the sites, Porvoo or Rotterdam, during the first half of twenty twenty one.
For clarity, this will not be the final investment decision since such a decision is only made shortly before starting the construction. Several new contracts and partnerships have been made in the Renewable Aviation and Renewable Polymers and Chemicals businesses during the year. In the Q4, we signed a sustainable aviation fuel supply agreement with ANA, All Nippon Airlines, which was the first of its kind in Asia. We also acquired a minority equity stake in the AFS storage company to get access to the fuel delivery system at the Amsterdam Schiphol Airport. In Renewable Polymers and Chemicals, we announced a strategic partnership with RYAL DSM in November.
We also launched Neste RE, 100% renewable and recycled raw material for Plastics and Chemicals production. There is a lot going on in the new businesses and their traction continues good. Both are still in the market making phase, though. As mentioned earlier, the cooperation negotiations to restructure the oil products were completed in the Q4, and we are now implementing the decisions. Substantial short term cost reduction measures have been successfully implemented, and we are well ahead to exceed our Neste Excellence Program target to achieve at least EUR 225,000,000 EBIT improvement by the end of 2022 compared to the year 2018 baseline.
By the end of 2020, we have already improved by €237,000,000 In the area of innovation, we acquired a minority stake in Alterra Energy at the very end of the year. And similarly to Recycling Technologies, in which we made an equity investment earlier. Alterra is an innovative plastic liquefaction technology provider. We're also getting more active and increasing our influence in the European hydrogen circles by co chairing the European Clean Hydrogen Alliance and sharing the Finnish hydrogen cluster. As an example of growth with strategic research partners, a new catalyst development unit Tailored for Neste needs has been started by VTT in Finland.
These are just some of the highlights I wanted to mention. As said before, we have a clear strategy and continue to move ahead. As an outlook for the Q1, we see the following. Sales volumes for renewable diesel in the first quarter are expected to be on the same level as in the previous quarter. The waste and residue markets are anticipated to remain tight, And sales margin is expected to be lower than the very high level of the 4th quarter but to stay healthy.
The margin will not be supported by similar hedging gains as in 2020, and the hedging rate is expected to be lower than normal in the Q1. Utilization rates of our renewable production facilities are forecasted to remain high in the Q1. In the Q1, oil products market demand will continue to be depressed and volatile due to several lockdowns as a result of the COVID-nineteen pandemic. The reference margin is expected to remain very low and volatile. The January average materialized at 0.1 Dollar per barrel.
And refining operations at the Nanterli refinery are planned to be closed by the end of March 2021. In Marketing and Services, the sales volumes and unit margins are expected to follow the previous year's seasonality pattern in the Q1, And some negative impact on demand and sales volumes is anticipated due to the COVID-nineteen pandemic. On the next slide. Our strategic projects proceed as planned, but we continue to prioritize everything else. Our cash out capital expenditure is estimated to be approximately EUR 1,200,000,000 in 2021, and that is excluding M and A.
Regarding the Renewable Products, we have currently scheduled a 12 week major turnaround at the Porvoo refinery in the 2nd quarter, which is estimated to have a negative impact of approximately €30,000,000 on the comparable EBITS, mainly in the 2nd quarter. We've also scheduled a 7 week turnaround at the Singapore refinery in the 3rd quarter, which is estimated to have a negative impact of approximately EUR 80,000,000 on the comparable EBIT. Additionally, we have scheduled a 4 week catalyst change at the Rotterdam refinery, and that will be in the 4th quarter, which is estimated to have a negative impact of approximately EUR 50,000,000 on the comparable EBIT. In the Oil Products, the main operational event is a 4 of our major turnarounds currently scheduled for 12 weeks in the Q2. It's estimated to have a negative impact of EUR 110,000,000 on the comparable operating profits, and that is mainly in the 2nd quarter.
This concludes now our presentation, and we would now be happy to take your questions.
Thank And your first question comes from the line of Nick Konstantakis at Exane, please go ahead. Your line is now open.
Hi, guys, and thank you for taking my questions. I would like to start on the dividend, please. Do you mind just reminding us what is the dividend policy and how you derive the number? And I guess related to that, You have a very strong balance sheet. Why did you not keep it flat at the very least, I guess?
Can we get an indication that You're saving some firepower for potentially slightly higher deal. You've already been quite active in 2020. Then secondly, look, We're heading into the publication of the annual report where we're going to get more visibility around the hedging. I was wondering if we could be a little impatient and you can tell us what was the Overall hedging contribution in 2020, so we can understand a bit better the moving parts as we go into 2021? Thank you.
Yes. Thanks, Nick. Good questions, of course. As expected, first question, the dividends. And maybe I start and Jyrki can add, I mean, to that.
You know that our dividend policy has been 50% of comparable EPS, which is something that we have followed also in the past. So we simply followed, I mean, the same dividend policy Based upon the results that we made in 2020. And if you do the calculation, that leads them into the 0.80 As we have announced. So that doesn't give any indication. I mean you know what the financial status of the company is.
We did very good cash flow management, as I explained. So we have negative leverage. And you also know, I mean, that We are investing heavily in Singapore. We've done, what, approximately 10 acquisitions or equity investments in company to strengthen Our waste and residue upstream, we are careful in terms of our cash management. That helped us, I mean, to maneuver very well during the pandemic.
And yes, I mean, we are discussing, of course, not the final investment decision, but Investments in sustainable aviation fuel in Rotterdam, investments in a world scale facility in Port Vale or Rotterdam. So it's quite a lot that is actually going on in our company, nothing surprising, I mean, to you, Jyrki.
Yes. I think that is exactly like Peter was mentioning. So we have the policy, and then we are, of course, thinking about the coming years And the investment and following the strategy implementation that is very important for Neste as we go further. So EUR 0.8 is a good solid dividend. Yes.
And then you also saw, I mean, that our boards that have received some in the endorsement from the AGM to pay this extra dividend last year, We did not doubt or the Board did not doubt and it was also paid. So if you Look at the proposal that we are now making to the AGM and you combine that with this very high dividend payment in 20 20 paid for the year 2019, of course. I mean, we're coming with a dividend payment of €1,400,000,000 And This in an environment with a pandemic, I think that's a very good number. So the second question on hedging, I give that to Matti.
Yes, thanks. So the second question was on the hedging and its Impact in 2020. And first, I'll just reiterate the logic of our hedging. We typically hedge around 40% to 50% of our Entire sales volume for the calendar year, which is also where we were in 2020. And our target is, of course, to reduce The margin volatility.
Unfortunately, there are no perfect hedging instruments. So what we are typically doing is we are using vegetable oil instruments like, for example, palm oil being a Liquid 1. And we are using, on the other hand, oil product derivatives like, for example, gas oil in order then to have at least a proxy hedge for our margin. And we have, in a way, not been disclosing the exact impact of our hedging. But what I would highlight as a logic, it typically, when we have the visibility into our term contracts, that is the timing when we start doing the hedging for the following year.
So you basically have to see what the forward markets looked like in late 2020 in late 2019 and then compare it to how the market evolved. And of course, it's fair to say that, for example, the price differential between palm oil and gas oil Did widen during the year 2020, so it had a substantial positive impact in 2020.
And again, Nick, I mean, I think All the analysts are extremely smart, yes. You can do the back of the envelope calculation. I mean, if you look back at Where biomass versus gas oil was trading at the end of 2019, when we were building up these hedging positions to offset, I'd say potential risks in the term contracts with the guidance that Matti has given on the percentages. And then if you looked at How the palm oil versus gas oil was developing during the year 2020, you know what volumes that we have sold in 2020. So I think you can do a relatively simple, let's say, calculation, volumes plus palm oilgasoil at the beginning at the end of 2019, Multiply with that and compare it to how palm oil gasoil has developed over 2020, that gives you a very good number.
But again, let me express what we have said always. It is always in the context of our term deals, Yes. So we're trying to offset risk of the term deals with our hedging.
Very clear guys. Thank you.
Thank you. And your next question comes from the line of Michael Alsford at Citigroup. Please go ahead. Your line is open.
Good afternoon. Thanks for taking my questions. I've got a couple, please. So it was really just on the future expansion. You talked a bit about, Peter, the feasibility studies are ongoing and that you'll have a decision on the plant by the So the end of well, during first half of twenty twenty one.
It seems to me that's a little bit of a delay to what you said previously. So I was just wondering whether you could talk a little bit about that. And based on that time line, when we should see, I guess, first production from that new capacity in the medium term? And then secondly, just to quickly follow-up on the hedging. So Matti has talked a bit about the fact that you have lower volumes hedged in 2021.
I was wondering whether you could just give a number on that. And then finally, just on the term sales. I think since we obviously last Spoke on the 3Q call that discussions were ongoing with customers. I was wondering whether you could maybe update as to how those discussions ended And whether you were able to pass through fully the higher feedstock prices that we're seeing in the market? Thank you.
Yes. Thanks a lot, Michael, for your questions. On the first one, nothing has changed. Just to be clear on that, nothing has changed. So we're proceeding Extremely well on the feasibility engineering studies for the two locations, as said, Porvoo and Rotterdam.
We are intending to take the decision on the location. Now we say first half of twenty twenty one. If you ask me, this is 6 months periods. So it's not my decision. At the end, it's a Board decision.
But I expect, I mean, that somewhere March, April, that decision will take place. It's irrelevant, let's say, on the progress that we are making on the studies for the two sites. Important is that the final investment decision will then come at end of 2021 or just the beginning of 2022. And we are still working with the same target start up dates, Provided the Board is taking the final investment decision, and that would be around the middle of 2025. So also there, nothing has changed.
On the hedging, Matti?
Yes. Thanks for the question. So indeed, like we commented, the hedging ratio in the Q1 is a bit lower Then this 40% to 50% of total sales that we typically target, we are currently around 40% of total sales in the Q1. That's where we are for the hedging in 2021. And then your second question was around the how the negotiations went.
Obviously, it's something we cannot comment In detail, but I would just state that we are pleased with the outcome of the term deal negotiations. We Have turned up roughly 75% of our volume for 2021. And also, of course, the negotiation about updating pricing, I would just state that We are quite pleased with the outcome of that negotiation. Yes.
The team, I agree. I mean, Matti, what you say. I mean, the team has done a very good job on the term deal negotiations. And therefore, we have agreed then to lock in 75% of the volumes. If we would not have been happy, of course, we would have gone So for a lower percentage.
And again, I come back, I mean, to this palm oil, gas oil differential. If you just look at the numbers and how the numbers have moved, I mean, during the last, What days weeks? I think it would be a wrong management decision to build up a very high hedging position, Especially, I mean, for the second half of the year because we don't know where the floor will be in terms of the palm oil, gas oil differential. What is the new balance that, that will find? So already, if you look, I mean, where Farm Oil Gas Oil was at the end of last year, imagine, I mean, if we would have Taking up the same hedging position like we did in percentage of the term deals at the end of 20 2019 for the year 2020, we would have locked in at too high costs in our opinion.
Does that help
you a bit, Michael, in understanding?
Yes, it does, Peter. Thank you. That's great. I'll hand it back. Thank you.
Thanks.
Thank you. And your next question comes from the line of Artem Beletski at SEB. Please go ahead. Your line is open.
Yes. This is Artem from SEB. Three questions from my side. So firstly, looking at the Renewable Products and fixed cost development In the segment, so we have seen some pickup in Q4. What is roughly a ballpark what we should be expecting for this year?
Is it A good proxy for the development in 2021. Then if I may continue on hedging side. So is it fair to say that basically, you have 40% hedges for the beginning of this year, so latter part of year is At clearly low levels, and it might change a lot depending on market conditions. And the last one is relating to all products and very strong additional margin in Q4. So how much of it has been helped by contango grades?
And should we basically assume that in Q1 development or early part of 2021, The level will be more normal, so let's say, or closer to your target, what you have at USD 4.8 per barrel.
So let's go, I mean, first question, Matti, on
the fixed cost developments. Yes, thanks for the question. So on the fixed costs, Indeed, in the Q4, we were again back at the more normal level that we already had in the first half of the year. And I would just, in general, comment that we are, of course, preparing for the start up of the Singapore expansion. We have also other strategic projects.
So we do expect to continue having a slight increasing trend on the fixed cost. And of course, also we have done a number of need to integrate these, which is also visible in our EBITA in our fixed costs. So some increase will likely occur also In 2021. On the other question around the hedging ratios beyond the Q1, I would just comment, you are fully correct. Our hedging ratio, especially for the second half of the year, is lower at the moment than in the Q1.
So probably somewhere around 1 quarter of the total sales for the full year.
And then take the OP question?
Yes, the strong additional margin for the Q4. Yes, I think like I said, the Contango profits were the 1 and then also the hedging, what the result is. And of course, depending on the markets now well, now the market now we are in the backward Asia situation where the oil prices are increasing. Well, we have the ability to continue that, but not expecting that to cover the full loss Or the demand destruction with or the demand destruction in the refining margins in the Q1 or even largely in this year.
Okay, very clear. Thank you very much.
Thank you.
Thank you. And your next question comes from the line of Joshua Stone at Barclays. Please go ahead. Your line is open.
Hi, good afternoon. Thanks for the presentation. I've got a few follow-up questions, and I'm afraid it's all on the renewable sales margin. For the Q1, you said the margin to be healthy. If I look at consensus, is that 670 Would you say that's a healthy margin?
Perhaps you could be a bit more specific of what you're thinking for the Q1. And then you also made a comment that you thought that The 4Q margins will be difficult to replicate. Is that in reference to the Q1 or more generally? So do you think we've already seen Peak margins for this business? And then my third question is a bit tongue in cheek, but you had given margin guidance before and surpassed that number.
So what gives you the confidence to or why should we believe you this time around? Thank you.
Thanks a lot, Joshua, for your questions and especially your last remark. Let me give to Matti, first on the healthy, yes, of the sales margin.
Yes. Thanks. So thanks for the question. And like we explained, I think if you look, 1st of all, at the Q4 where we came to this $7.60 per ton, that's, of course, a very good level. And like I said, there were a number of positive factors that we had in there, including also the hedging result.
And if you look into the Q1, we have, on one hand, of course, potentially a continued Feedstock price increase, we don't have the hedging support. And at the same time, we have renegotiated the term contracts. So there's different factors Playing into it, but and we are not giving exact guidance what that healthy means. But I would just state, if you look at the previous year's average, we had 702 in 2020, if you look at 2019, we were a bit higher. In 2018, we were at 670.
So all of these are healthy levels.
And then to your Second question, Joshua.
Yes. The second question was about the comment that the Q4 margin is Difficult to replicate. And of course, looking at the Q1, like we have clearly said, there are clear drivers Why we also said very clearly that we expect the margin to be lower than in the Q4 where we had a number of positive drivers, including the very positive hedging results.
And I hope you believe us, Joshua.
Fair enough. I guess on my second question, the point more broadly, is this a business where margins can still expand As you build out capacity, do you think?
Well, I mean, of course, it's a very good question, Joshua, but also very difficult, I mean, to give any guidance on this. It's a bit I mean, back to what Matti said. If you look at 2018, 2019, 20, the average, I mean, sales margins that we had, I mean, the way how we consider that, I mean, there are very healthy margins, I mean, for the kind of a business that we are in. And we're definitely focusing our business, as I have said, I mean, in previous calls As well in not overstretching the limits as well. I mean this is a growth market that we are in, And we are investing heavily in that growth.
We want to capture that growth both Flotation Aviation and Polymers and Chemicals. And you don't want to run this business also as a Pure commodity business, that's okay because now there is maybe a shortness in the market, then you over stretch it. And then on the other hand side, you want to build up A very good sustainable business relationship with your customers. That's one point. The other point is, if you zoom in into European region, Then there are also penalty levels.
I think I mentioned that in previous calls as well. So the customer can always make a choice, do I pay the penalty? Of course, That has a negative reputation effects if they would do so. But it also shows a bit, I mean, that there is a ceiling in terms of sales prices. So as we have moved To having different geographic markets that we are now supplying and then over the next couple of years continue to Develop Aviation Polymers and Chemicals, we will have more optionality in how and where to position our products so that we we can optimize our margins.
Great. Thanks for the insight. Thank you.
And the next question comes from the line of Erwan Kehoeveden at RBC. Please go ahead. Your line is open.
Hi, thanks for taking my question. 2, please. So on the future renewables capacity plant in Europe, So we understand that location will be disclosed in around March, April. I guess can you just remind us what are the key criteria in selecting the site? So this is my first question.
So criteria, whether it be financial, operational, anything like that? And Second question on the U. S. So the RIN obviously supports the development of U. S.
Margin. Do you expect this to continue? Obviously, In the headline, like the Biden administration seems to be very, very renewable fuels friendly. In the meantime, there's Additional supply coming to the market. I guess, I'd just like to have like what's your sense of the next few months in terms of LCFS and RINs and the global market and overall market in the U.
S? Thank you.
Matti? Yes. Thank you for the question. So first on the criteria for the future renewables site in Europe. I would say this is a very typical one where we would compare both technical, commercial and strategic criteria.
And of course, very important one is, For example, what we expect the capital expenditure level to be in the different sites. Another one that is, of course, important is what we expect the operating Cost structure to be in both site locations. And thirdly, we would obviously look at feedstock access, market Proximity, market outlook. And then it's a combination of all these factors really that we would look at. So I would say very typical technical commercial evaluation like we have also done in the past when we have made these decisions.
On the RINs, I would say, in general, that it's, of course, something where the RIN mechanism is also linked to the renewable fuels standard in the U. S. And of course, what we are looking at when we look into the future is kind of renewable volume obligations will be set? This is something then probably to happen in springtime. And of course, another one interesting to watch is also to what extent there will be these kind of small refinery exemptions.
The expectation may be that they are perhaps less than in the past, that there is a more stringent approach to this one. But in general, these are the type of factors That we continue following, and they will then, alongside the development of the soybean oil market and the heating oil markets, influenced the RIN going forward.
But we agree, I mean, Owen, also to your remark and your observation That with the Biden administration, there has been quite some movement already in such an early phase In the United States, we see very good development in discussions in Washington State, in New Mexico, New York, even Massachusetts. So there is a good atmosphere, good developments. In addition to that, also on the aviation side, early discussions ongoing on Incentives on a federal level for aviation, of course, that will all not come into The implementation phase in 2021, but for us, it's important, I mean, that this development continues And then leads them into new regulations that were enforced, let's say, 2022, 2023 and beyond.
Okay. Thanks so much. That's very helpful.
Thank you. And your next question comes from the line of Henri Patricot, UBS. Please go ahead. Your line is open.
Yes. Hello, everyone. Thank you for the update. I have two questions, please. The first one is going back to the comments you made on the higher share of long term contracts in Renewable Products.
I was wondering to what extent this reflects Stronger demand for renewable diesel this year. I believe you were last talking about demand growth of 2,000,000 tonnes for this year. Has this Changed materially? Is it higher than you expected previously? And then secondly, just looking at Europe specifically in Discussions around sustainable aviation fuel mandates and perhaps some changes to a Reg 2 and the higher targets there.
Where do you see this policy going? Could we see mandate for sustainable aviation fuel, in particular, in Europe in the near future? Thank you.
Let me give the first question to Matti. Okay.
Thank you, Henri. So perhaps on the general demand outlook for renewable diesel for 2021, I would Still see it very similarly like we commented in previous quarters. So obviously, giving an exact number will also depend on how exactly the COVID situation unfolds. But in general, we would expect that a level of roughly 2,000,000 ton Demand growth globally could well result if you look at the regulatory mandate updates that have already been made. And if I take a couple of examples of decisions that have already been taken, of course, for example, in California, the carbon intensity target will be increased in 2021.
So I think it's a level of 9.25%. Then also in Europe, we have a number of countries That are going to increase their mandates in 2021. So just to give a few examples, there would be, for example, Norway, that is moving up from 20% to 24.5%. Sweden is increasing its GHG reduction target from 21% to 26%. Italy is going from 9% to 10%, U.
K. From 9.25% to 10.1%. So this is basically how we come to these estimates. And So that level of 2,000,000 ton globally. Globally reflects our best estimate at the moment,
Which would mean a market that we estimate, I mean, moving from 6,000,000 tonnes to 8,000,000 tonnes in 2021. On the SAF, sustainable aviation fuel mandates, there is lots of discussions currently ongoing in the European Commission. There have been some countries that have made some very good movements. The Swedish government Is introducing our legislation on a soft mandate that would start Around the middle of 2021, still has to have the final thought, let's say, I mean, the parliament, but the ruling parties, I mean, have agreed upon that. It's, of course, also in Finland on the table.
The Netherlands is Having this up to 14% or minimum 14% in 2,030. France has also Introduced a mandate and that will go up to 5% in 2,030. So stay tuned, I mean, how the discussions on the European Commission level will proceed In 2021. But and we are, of course, I mean, very close to those discussions and very deeply involved in those discussions. So I'm quite positive that we'll see Something happening in terms of mandates on a European level.
On the RED 2, I mean RED 2 is Very clear that in order to achieve the greenhouse gas emission reduction of at least 55% by 2,030, That red tool is on the list of regulations to be opened. It has been opened and currently discussions are ongoing. So this could eventually lead, who knows, I mean, to what I would call a Red3. Red2 is enforceable as of the middle of this year. And then if you look at these time lines in getting all the approvals and public consultation, etcetera, Then probably that this so called what I call red 3, this is my name now, Would then have to be implemented somewhere around 2025.
Currently, Road Transportation Red 2, as you know, is 14% By 2,030. And we hear numbers that are going around, let's say, 20% to 24% is what we currently hear as the new numbers then for the future.
Very cool. Thank you.
Thank you. And your next question comes from the line of Sasikanth Shliqu at Morgan Stanley. Please go ahead. Your line is open.
Hi. Thanks for taking my questions. I had 2, please. The first was regarding the investment of sustainable aviation fuel facility in the Rotterdam refinery. Just wondering if there is A time line by which we could expect the decision for this project to go ahead.
If there's any indication of what The investment levels would be for this project and whether this can actually go ahead in conjunction With the an expansion project, should you proceed to go in the Rotterdam refinery to do it in the Rotterdam site? So any comments on that would be helpful. The second question I had was related to the CapEx guidance for 2021. It Would be helpful if you could provide a split of the EUR 1,200,000,000 CapEx between the segments And also, let us know how much of that is related to the Singapore expansion project? And also if you could provide us how much of the EUR 1,500,000,000 CapEx related to this expansion project would be left after 2021.
Okay. Let's go, Mathieu, To
the first question? Yes. So for this investment into sustainable aviation fuel capability at our Rotterdam refinery, We the engineering work is progressing very well. We are still targeting here clearly that the start up could be In 2023. And that already answers your question that we see it as a separate project From the next PTL capacity expansion project in Europe, we the time line is different.
We will, of course, see when I don't have an exact time line for the decision making on this one, but let's say we are trying to create the maturity of the engineering so that After the mid of this year, we would have that capability to look at it.
Yes. I mean, adding to what Matti said, the SAF investment in Rotterdam project has nothing directly to do with The European World Scale Facility, yes? So what we are focusing upon is that in the existing facility In Rotterdam, we're building up the same optionality as we have it, let's say, in the new facility that we're building up in Singapore. So that Today, we can serve from the Rotterdam facility the road transportation market with renewable diesel And Polymers and Chemicals with biopropane as well as with renewable hydrocarbons. We cannot, from Rotterdam, serve The aviation industry with the in spec sustainable aviation fuel.
So that's what we are trying to build up. And then separate from that, we have then the 1,300,000 ton, let's say, facility that is either Porvoo or Rotterdam, which also would have, of course, the optionality to produce sustainable aviation fuel. So we would then be able to continue to grow And the capacity of sustainable aviation fuel. Time line, I would expect, I mean, that we take a decision on that during the course of this year towards the end of 2021 on the Sustainable Aviation Fuel, Yes, flexibilization of the Rotterdam facility. Then on the CapEx guidance, Split, it's clear that on the €1,200,000,000 as we have the turnaround 2021, That is a very important part of that.
And if you look at the Singapore facility, we are ramping up now. We have about 3,000 construction workers at the site. We will ramp up during this year to, Let's say a bit above 5,000 people. So this is a heavy phase that we are in, in 2021. Pretty much all the engineering work has been done.
All the procurement proceeded very well. Lots of material we have already in Singapore. The vast majority of the material is in the lay down area. So It's now really all about constructing, yes, so the building up, I mean, and installing, do all the steel work, the reactors, The DCS systems and so on and so on. So that will be an important part, of course,
of the EUR
1,200,000,000 spending that we have. One could say, I would say, I don't have the exact numbers now in front of me, and I'm looking at the same time at Jyrki, probably around, what, EUR 800,000,000 During this year is on the turnarounds 2021 plus than the Singapore investments of the €1,200,000,000 round number. And then The part that would be remaining in 2022 on the Singapore investments,
Overall, Renewable Products is more than €600,000,000 Oil Products a little bit more than €400,000,000 and then the rest is Basically talking about common function and the other basically strategic CapEx where we land to the roughly €1,200,000,000
Yes. So that said, I mean, it's even more than the €800,000,000 I just said that is going towards, I mean, TA 2021 and Porvoo and then the Singapore facility. And then remaining on the Singapore facility in 2022 is, I would say, somewhere around EUR 200,000,000 to EUR 300,000,000.
Great. Thank you very much.
Thank you. And your next question comes from the line of Thomas Adolff at Credit Suisse. Please go ahead. Your line is open.
Good afternoon. I've got a few questions as well, please, and I do apologize. One of them is on the dividend. Just wanted to clarify the exact wording of your policy. You said 50% payout.
Just reading on your Web Sorry, it says at least 50%. Can you just confirm it's 50% and not at least? The Second question is just going back to the hedging again. You said 40% In the Q1, a bit less in 2Q and roughly 25% in the second half of twenty twenty one. Is it fair to say that these hedges were put into place once the term contracts have been finalized at the end of 2020.
So essentially, those volumes have been locked at a less attractive Spread, if you will. And then gradually, as the year progresses and as you see what happens With gas oil and palm oil prices, you may place additional hedges perhaps on more favorable Spreads should be materialized. And my final question, just I do apologize, the third question. Obviously, a maintenance heavy year, and it was also maintenance heavy last year. And is it fair to say that the only difference this Year versus last year, in terms of cost is the Singapore turnaround.
And instead of just incurring the cost For the catalyst change, typically around €50,000,000 You have an additional €30,000,000 for the additional work. Thank you.
Thanks a lot, Thomas. And absolutely, you're right. I mean, the policy is reading minimum 50%, Yes. So 50% is minimum. But we have always applied, I mean, that 50% at least as long as I could look back and As I have a history in the company, we have applied that 50%.
Exactly. And Jyrki is nodding and confirming that. Then some more information on the hedging and the spreads.
Yes. I mean just a brief comment. Indeed, what we said earlier also in the Q1, the hedging ratio is currently around 40% of our total sales. It is actually that comment I made that it's roughly one Quarter reflects for the whole year on average. I would say the timing is a bit a sliding one.
We typically start putting in the hedges when we have visibility into our term contracts, but then it's, of course, also something that we do gradually over time. And the logic that you referred to is exactly correct that It's, of course, something also depending on the development of the Pogo that we can then decide when and how to ramp up the hedging range. Then I would make some comments on your third question, which is on the maintenance. And indeed, fully agree that also, of course, in 2020, we have had a number of scheduled turnarounds for the catalyst changes, for example. The main difference is indeed, I would take 2 things.
In Singapore, it's not only a catalyst change. It's a bit longer turnaround of 7 weeks. And this is, of course, also related in order to prepare for the upcoming integration of the new site. So it's important we have that major turnaround. Also, I note that in Porvoo, of course, it's a longer turnaround because it's also a major turnaround that takes place every 5 years.
Perfect. Thank you very much.
And your next question comes from the line of Monika Rajuora, Societe Generale. Please go ahead. Your line is open.
Thank you so much. I'll have two questions, please. The first one is on the 7 week Singapore turnaround. I would like to understand what Exactly goes into it. And in very crude terms, would it lead to any capacity increase in this Year itself.
And my second question would be on your U. S. Sales area. So I would like to understand that we have seen the parameters strongly improving in the last Few, you could say, weeks of 2020, would that change your Thinking around the U. S.
Sales area a bit, can we see more sales to that area? Also, any comments that you would like to make on the competition that's heating up over there? What how would you characterize it? How would you see it? That's all.
Thank you.
Matti, if you take the 7 week Singapore turnaround.
Yes. So thanks for the question. So As it's a major turnaround in Singapore, I would just high level comment. Of course, it does include a catalyst change. That is normal.
But in addition, we also typically during these More major turnarounds to equipment inspections and overhauls. That's also a typical Part of it. And like I mentioned, it's also important here we, of course, have the opportunity now to prepare for the tie ins for the upcoming refinery expansion. So these are main elements that are done during the 7 weeks.
And Well, we've done the capacity increase. I mean, if you refer to creep capacity, we promised, I mean, 500,000 tons at the end of the 2018. We've delivered on the 500,000 tons. So that means the potential that we have on capacity increased throughput capacity In the existing facilities for Renewable Products is almost nothing, let's say, very limited. That does not mean that we continue with our the excellence program and the specialists to find pockets where we could eventually increase our capacity Further 10,000 tonnes here, 10,000 tonnes there.
That will continue to be, but nothing, I mean, that we can now, let's say, guide towards and that is immediately related to the 7 week Singapore turnaround. Then on the U. S. Sales parameters, as we have done in the past, Monica, we continue to look at the different markets, Build up that optionality that we can serve these different markets. We have very good positions In the United States, where and also in Canada, where we are selling our products.
So we always look at the different parameters. We have our central team that looks at, on one hand side, the cost, I mean, for the different waste and residues, so we optimize that. And on the other hand side, we look at the different geographic markets. And also there, I mean, we optimize so that we can maximize, of course, our margins. So If there would be, to answer your question, a favorable situation, I mean, in the United States, yes, we may then decide To steer more volumes to the United States.
That's why also we are not always terming up all the volumes that we have available So that we have the freedom, let's say, I mean, to maneuver and optimize our volumemargins. Competition in the United States, yes, of course, there are these announcements, and there a number of these announcements We'll start producing. Some of them have had a bit of a delay. Not all the announcements will Get the financial funding, but the well established players are proceeding, so that capacity will gradually come Available in the markets. But as we also said and Matti alluded to, the market is also growing.
Yes. So the market needs also more capacity. And Matti already said that the target in California moves up from 7.5 Percent to 8.25 percent 2020 to 2021 and needs is moving up, I mean, to 20% in 2,030. Oregon is moving from 2.5% to 3.5% CI reduction. British Columbia is moving from 10% to 11% In 2020 to 2021.
So these are all pockets. As we have said, global RD demands, Renewable diesel demand is, in our estimations, moving from 6,000,000 tonnes to 8,000,000 tonnes in 2021.
Great. Thank you. Very clear.
Thank you. And your next Question comes from the line of Iris Heiman at Carnegie. Please go ahead. Your line is open.
Hello. Thanks for taking my questions. I have three questions, if I may. So the first one, do you Like North American volumes to be higher this year given the strong demand, especially from California? And then secondly, do you think that vaccines could improve the supply of waste to feedstock As restaurants and hotels, etcetera, would be would open more widely potentially later this year.
And the last one is related to say in topic. So There are a lot of concerns that renewable diesel growth would be challenged by insufficient Feedstock availability. So what is your view on that? And do you still expect demand supply to be fairly balanced in In 2025. Thank you.
Matti, if you take
So first of one on North America, I mean, I think it's a bit I would be along the same lines that Peter commented on the previous question. We, of course, continuously Adapt our market mix, especially having some spot sales opportunities. You could see, for example, in the Q3, the share to North America was 28%, and then It moved up to 34% in the 4th quarter. So I think it's a good example of how we try to optimize the geographic mix also of our sales. On the waste and residues, I think it's a very good question.
And commenting specifically on the used cooking oils That you were commenting on, I would comment that it's clear that if you look at the Q4, for example, that for example, in Europe, where we had clearly Tight lockdowns and tightening lockdowns. Also some other countries like Malaysia would be an example. This, of course, has also then an impact on used cooking oil because of the restaurant activity. So I think in that sense, it is one where hopefully, of course, the vaccines will help and we will get back to a normal situation also in these regions where the lockdowns have had a clear impact. Of course, the risk is also to the other side that we have Continued lockdowns.
But so the used cooking oil, it's there also it's worth noting that, for example, North America, the Availability has improved in the second half of last year. So there, the situation has been quite good already. If I comment in general on the feedstock availability, that was your third question. I think it's clearly an area that also in our strategy, we put a lot strategic emphasis on to continuously grow the availability of residues, waste and residues. It's a combination of Improving the aggregation in existing markets, opening new markets and then at the same time, moving towards enabling better and better pretreatment and hence also lower qualities.
So in that sense, we also see the availability of waste and residues gradually What we have said long term is we believe the market will the availability will grow to around 35,000,000 tons by 2,030. And of course, on top of that, there are then there is development work on totally new type of feedstock sources like algae oils or it could be novel vegetable oils. So this is something that happens continually and, of course, will also then take time for some of the new technology
Okay. Thank you. Very helpful.
Thank you. And your next question comes from the line of Peter Low at Redburn.
Yes. So your CapEx guidance is excluding M and A, and you said you're still looking at further deals. Can you give us an indication of what you're looking to add to your capability? Is it mainly on the feedstock side? And then secondly, on refining, You posted a profit in what must have been one of the most challenging years for the industry ever.
So you're closing the entirely to enhance your competitiveness further. I think in contrast, some of your peers have had much weaker results and haven't really announced much in the way of capacity closures. Are you surprised there haven't been more closures announced So you have a, as you think that's a requirement for refining margins to recover at the current levels? Thanks.
Yes. Peter, thanks for your questions. To your first question, yes, absolutely, I mean, what we said is the CapEx does not include, I mean, M and A. You've seen that we followed up on our strategy as we communicated during the Capital Markets Day. So we focused a lot on Reinforcing the Upstream sites, so expanding, let's say, our leading position that we have there.
We did the Mahoney acquisition and already one bolt on acquisition to Mahoney. But also, I mean, in terms of pretreatment with the Bunge acquisition, That is expected to close in Q1 this year, plus also here and there, I mean, some terminals that we have bought. So You may expect, I mean, that we continue to look, I mean, for opportunities of bolt on acquisitions in that regard. Then, of course, you've seen us making a couple of equity investments in building up our technology leadership position on the chemical recycling of waste Plastics. So these are areas that we continue to look in.
The Other areas that I would refer to is on the innovation business platforms where we continue to monitor What technology do we need in order to also build up these platforms over the next 5 to 10 years? Nothing concrete, I would say. That is now for directly 2021. But as we are, of course, doing these activities and M and A, then it's we will, of course, communicate them. But that's really I mean, we're not doing, let's say, any M and As, I mean, where it really doesn't fit them into The strategy that we have communicated on a Capital Markets Day.
And then these deals, I mean, to get access, I mean, to the airports, They are important strategically like the one that we did in Schiphol Amsterdam Airport. We continue to look at a couple of other things. But I mean they are not, Let's say hugely expensive. It's just taking parts. I mean, if it is organized, I mean, through a joint venture like in a Couple of airports, I mean, especially in Europe.
Then it's just making sure that we are part of these joint ventures. So This is not double digit million investments that we are talking about. Closure of capacities, and Here you're referring to the oil refinery part of the business. Very clear answer from my side. Yes.
I mean, negatively surprised. I mean, there are if you know that we with our refinery In Finland, we are having one of the best net cash margins in Europe. And if you look at the conditions of last year and if that continues, let's say, in 2022, Then there is 60% to 80% of refineries that have a negative net cash margin. But still, if you relate that to how many announcements and closures are there, it's simply not sufficient. I mean capacity needs to be taken out of the market.
Your next question comes from the line of Mehdi Inovatti from Bank of America. Please go ahead. Your line is open.
Hi. So good afternoon, everybody. Thanks for taking my questions. So two questions, if I may. First one, and Excuse me, if you already answered it.
Can you guide us on the sales volumes from the Renewable Products division in 2021? If I remember well, CFO told us in December that it should be in line with 2020. So can you confirm that, Please. And another question regarding the impact from the maintenance At Porvoo Refinery, so you expect an impact of EUR 180 €1,000,000 or €110,000,000 sorry. I just wanted to know what refining margin level Did you use to get to that €110,000,000 Because it looks relatively high or relatively close to the last year, let's say, Turnaround impact, which we are expecting to be EUR 180,000,000 and which finally did not happen?
Thank you.
Yes. Thank you, Betty. This is Matti. I can take the first question on the Renewable Products sales volume. So like we commented on the turnaround activity in 2021, you can see that it's A bit higher than what we had in 2020.
It was especially like it was asked earlier that Singapore Turnaround is a bit longer because it's a major turnaround, and the same goes for Porvoo. At the same time, we, of course, continue To continuous improvements, look for all opportunities to maximize the production. So I would say overall, It's probably a good target that it would be roughly at the same level if we can make up for those longer turnarounds.
Matti, if I may follow-up there. So if you know The sales volumes are roughly at the same level. Given that you expect roughly The same kind of impact at the EBIT level than the normal maintenance, should we then consider That you expect your Renewable Product margin in 2021 to be roughly at the same level than 2020. Because if you were expecting lower Renewable Product margin, The impact at the EBIT level from the maintenance would have been lower.
Yes. I think it's high level estimates. We haven't looked at it from that angle. Yes. If I may comment
on the volumes, I mean, will depend, of course, on these Shutdowns that we have, we need to get then the facilities up and running on time. I mean, We have always had a very good track record on that. But Mehdi, I mean, there's a lot of technical work that needs to happen On these 12 weeks in Porvoo and 7 weeks in Singapore, there's not the simple catalyst change Simple, which is not simple either, yes. If I remember, I mean, the last one that we did in Rotterdam then with heavy winds was not simple either. So and then that's one element.
So will we be on time in starting up? The second element is, of course, As we will have lesser available capacity to keep the same sales volumes like last year, We will need to make a couple of improvements in terms of creep capacity, yes, Because otherwise, it's simply yes, you just do the math, it doesn't add up. We are losing capacity, I mean, 12 weeks Of the two lines, 400,000 tonnes in Porvoo, you can do the math what 12 weeks means in terms of capacity loss. In Singapore, it's 7 weeks, so it's not a 4 week, but it's a 7 weeks, so it's 3 weeks additional compared to a normal catalyst change. So if we want to have the same volumes, I mean, then we will have to We'll find some pockets in creep capacity, which is not clear yet, as I already mentioned, if we will find these things In addition to the 500,000 tonnes that we already did, yes.
Then to your second question On the portfolio maintenance impacts for the oil products business, so the minus €110,000,000 You asked, I mean, for on what reference margin did we base that calculation? Good question. Marco?
Yes. Marco, yes, I can then answer. Now the forward margins for the time when we are estimating whether it's trading around 2, 2.22 between 2 and 2.2. So that's the volume or the number what we have used for the EUR 110,000,000.
And then if
you could compare your
question then comparing to 2020, of course, then they were trading higher levels.
All right. Thank you very much for that.
Your next question comes from the line of Pasi Vaisan from Nordea Bank. Please go ahead. Your line is open.
Great. Thanks. This is Pasi from Rodia. When looking at a bit Further away, I mean, are you only looking at these new fat based raw material pools? Or is there any chance that your New plants or units in next 10 years period would be actually using some another raw material than fats.
And secondly, I mean, Do you see that these synthetic traffic fuels, which are actually now on topic, Is this kind of a threat for your business model going forward? And if so, in what period? And maybe lastly, just to cross check. So Did you say that the $700 per tonne would be a healthy margin for L. D.
Sale going forward? Thanks.
Thanks, Pasi. Thanks for your questions. So also, yes, I mean, if we are looking at let me differentiate, first of all. Looking at our NICS PTL technology that we have. Here, we're looking, as you know, to lower and lower qualities of waste and residues, and we are enhancing the pool.
But it continues to be chemically spoken a pool of fatty assets, yes, that fit with the technology. We're also looking, as you know, into this innovation business platform on Algae Technologies. So We've done some work, I mean, in our technology departments. And the waste that comes out of Cultivating algais. Now you're cultivating algais, you get very good sustainable proteins, Approximately 80% and then approximately 20% is in halghay oil that you cannot use for food consumption, so it's a waste and that can be used.
And we are quite confident that it would also fit, I mean, to our next PTL technology. So we don't need a separate process technology to work with that. So that all belongs, I mean, to the expansion of that waste and residue pool that will drive, let's say, the continuous growth Singapore investments plus then eventually also if we invest in Europe on the next line and whatever may come next. But of course, we also look very intensively in our innovation business platforms at other sources of renewable carbon. And these may be sources that come out of municipal solid waste.
We talked about chemical recycling, so waste plastic. And as you know, also linear cellulosics. So these are early stage, of course, development Platforms that we have. But I would, of course, not exclude that, That would add, I mean, to the pie because otherwise, if we don't believe in that, then we would not already start looking at those technologies in our innovation business platforms. And it relates also a bit, I mean, to your Citrix Fuels question.
We also have an innovation business platform called Power2X. So here, the source of renewable carbon may be air capture, may be CO2 out of steel mills or others, but it's a CO2 source. Here, we work closely together. We have done an equity investment in this German company, Sunfire, which is What we believe leader in a novel electrolysis technology, solitoxide technology, we have with the support of the European Commission The first renewable hydrogen project ongoing in Rotterdam. So out of that electrolysis, what do you get?
You split up water, you get green Hydrogen, and you combine then the green hydrogen with the CO2. So here, we would do the first we are doing the first step, and that green hydrogen would then go And we would use it, I mean, for the next PTL plant that we have, the existing one that we have in Rotterdam. It's still semi scale. There is a bit of a hype around these synthetic fuels. One needs to take into consideration that for synthetic fuels, if you want to produce 1,000,000 tons of fuel, you need around 4 gigawatts in electricity based upon the current technologies that are available.
So that leads to the fact that if you want to have In sustainable aviation fuel, if you compare it to the HEFA technology, so our technology that we are applying, Then for that power to liquids, you're approximately 5 to 6 times more expensive than the HEFA technology. So there's my point is, we believe it will add, yes, But it will take time. So and here we are looking at a time horizon where it will start making any difference 10 to 15 years, I mean, down the road. So and then if you look at the complete pie, and that's why we're saying that there is no Limitation in the availability of waste and residue, there is sufficient renewable carbon on the planet to continue to grow. So you have the NEXT PTL technology that continues to grow, yes, over the next decades, 35,000,000 tons we have identified of these waste and residues leading to approximately 30,000,000 tons of capacity in the world, leveraging upon these waste and residues.
Then you will get additional waste that will add With new sources of renewable carbon, if it is municipal solid waste, linear cellulosics or, as I said, I mean, forward to liquids Over 3 years, 5 years, 10 years, 15 years down the road. Will they replace HEFA technology? I don't believe so, Because the HEFA technology compared to these other technologies has a substantial CapEx and OpEx or cost advantage. And it's up to these other technologies to be able through scalability and technology development to close those gaps. So I hope that gives a bit of a picture.
And of course, in September, when we have our Capital Markets Day, We will definitely talk a little bit more about that because it is strategically very important, I mean, for the further development of our company, not short term, but really Mid to long and very long term. Then as we said, I mean, healthy margins, we refer to also at $6.70 per tonne in 2018 being a healthy margin, Pasi.
Okay. That was all from my side and very helpful. Thanks.
Thank you.
There are no further questions at this time. Please go ahead.
Okay. Let's thank you very much. I mean, as usual, yes, a long list and very good questions, of course. So Thank you very much, Amin, for your active participation in this call. I would like to conclude, of course, And repeating again by saying that the high uncertainty related to the future development of the COVID-nineteen pandemic and its impact on the global economy continues.
The Renewable Products business has proven to be very resilient in growing global markets. We answered your questions on that hopefully. It's good to remember though that this year, our results are not expected to be supported by similar extraordinary margin hedging gains as in 2020. So please keep that in mind as well. Oil Products continues to be in a very challenging market situation, and that does not seem to correct itself soon.
So stay tuned there. It's for us going to be quite intensive amount of work, whilst we are implementing, of course, also This restructuring in Oil Products. So we will continue to focus in Oil Products on the own actions that we can take I mean to ensure that on a short and long term, we have a good cash generation coming out of that business. So the market challenges have not disappeared, But we remain confident about our ability to tackle them. And let me maybe again repeat, I did that also during
The last
quarterly call that we had, this 2021 will be a rather exceptional year for us In terms of quite a lot of technical maintenance work, the Porvoo, if you add the impacts RP and OP, 12 week shutdown, Q2, EUR 140,000,000 impacts Singapore, Catalystsane, but also a complete shutdown, 7 weeks, starting with the tie ins of the new facility, Q3, EUR 80,000,000 impact. And then the Rotterdam 4 week shutdown at the end of the year Q4, which, as you know, normally has a EUR 50,000,000 impact. So if you add up EUR 110,000,000 impact in OP and EUR 160,000,000 impact in ARPY, we're talking about an impact of EUR 270,000,000 due to these exceptional shutdowns that we have during 2021. So with this, thank you very much For your continued interest in our company and of course stay safe and overall healthy. Thank you.
Bye bye.