Good afternoon, everybody. Welcome to discuss Neste's Q3 results that were published this morning. My name is Jukka Miettinen, Vice President of Investor Relations at Neste. Here with me, we have our President and CEO, Heikki Malinen, and our CFO, Eeva Sipilä. We are referring to the presentation that was published in our website early this morning. The key highlights of our presentation today includes the highlights of our Q3 performance, as well as our financial performance. On the topicals, we will discuss update on our Rotterdam expansion project, as well as our newly established dividend policy that was launched today. We will have time for discussions, and please pay attention to the disclaimer as we will be making forward-looking statements. With these remarks, I would like to hand over to our President and CEO, Heikki Malinen. Heikki, please.
Thank you, Jukka, and good morning, good afternoon to all of you. Nice to see you again in this webcast. Today, we're going to go through Q3 2026. Let me first of all say that this really is a historical achievement. We had a really great quarter. I am very happy and very pleased with the performance of the Neste team. I know people have been working very hard to get us out of the trough we saw in 2023 and 2024. Many things went really well in the third quarter. The operational performance, especially in our Renewable Products area, was very good. Singapore and Rotterdam ran very well, and those volumes helped to improve the performance and financial result of the third quarter.
I think our utilization rate in the third quarter in RP Renewables demonstrates that when we get to full production, how much potential there really is in our business. We've added resources and focus on predictive maintenance. This really is improving our ability to get more stability in the production lines. We've also emphasized the need to have faster response times when we have technical issues, which occur from time to time. That also helped to get us into a good result. We're now in the midst of a heavy turnaround season. Porvoo TA 26 has been completed. Rotterdam turnaround has started, and then in the next year we will have turnaround in Singapore. Overall, the objective is to increase our reliability, availability, and of course then secure good volumes. A few words about Porvoo 2026 turnaround. We prepared very thoroughly.
We had a lot of people on the site. Overall, I'm very pleased with the outcome. TA 26 was clearly better than TA 24, so we've learned as an organization how to manage these complex turnarounds. With this turnaround now complete, we can run Porvoo into 2029 with good production. Given how strong the market is at the moment, this, of course, is a favorable fact. Global markets remain tight. The market is very volatile. Margins are comparably high. It's, of course, very difficult to forecast what will happen to markets in the coming quarters. But for the time being, markets are very good. On Rotterdam, I'll come back to Rotterdam a bit later, but as said, the Rotterdam budget has now been revised. Finally, on the financial position, it has been strengthening every quarter.
The deleveraging of the company is, for me, very positive. I am pleased to announce that we now have a new dividend policy, which we will then review a bit later in more detail. Safety is, of course, at Neste, the number one subject. Looking at these charts here, I have to say we have been going sideways. I want to emphasize that we spent a huge amount of time with the Neste management to try to improve safety, but we have been going sideways. We have work to be done. We analyze data. We work with our employees. We have good relationships with our workers' unions to try to move this to a better level, but so far, the curves are not changing. For 2027, we need to come up with new medicine. The job still is not done when it comes to safety.
I can assure you that the commitment to improve those figures is extremely high. Looking at then still Q3, I said we are very pleased with the volumes. Almost 1.3 million tons. It is a record level. Singapore and Rotterdam did very, very well. Recognizing that we also had turnaround in Porvoo of those two small lines. Our OP refining margin was also exceptionally high at $48 per barrel. Overall, we had very strong earnings. EBITDA for the whole company was over EUR 1.5 billion. RP made EUR 1 billion in the quarter, which is really a record amount. As a result of our strong performance, I said our deleveraging continues, and Eeva will talk about the balance sheet in more detail. I said the direction of travel has been very positive. With those introductory remarks, let me hand it over now to Eeva to take it from here.
Eeva, please.
Thank you, Heikki, and a very good afternoon to everybody on my behalf as well.
I'll start with the renewable diesel reference margin development. The margin moved quite a bit in the quarter, had a very upward trend in the beginning of the quarter, then turned downwards in September. Overall, it was still $100 up in average compared to the previous quarter. Moving then to the Neste figures. Renewable Products delivered two-thirds of our EUR 1.555 billion comparable EBITDA results, and Oil Products then EUR 0.5 billion for its part. Obviously, this EUR 0.5 billion illustrates the strength of the market considering that we were in turnaround since late August. Very pleased with the performance improvement program, which continued to deliver a very strong result. We now reached EUR 697 million of annualized EBITDA run rate impact. The realized in-quarter impact in the third quarter was EUR 172 million.
We saw the share of revenue and margin optimization increase a few percentage points from the previous quarter, totaling now 44% of the total, and cost reductions then covered 56% of the total. This two-year program is coming to its final months, and we will end the program at the end of this year, as earlier announced. Moving then into the quarterly performance by our segments. Let me start with the Renewable Products. The graph on the left shows very nicely the clear step-up in renewable sales volumes in the quarter. Despite the light blue line that indicates the sales margin being down, this obviously contributed to improvement in EBITDA result. To that, roughly EUR 1 billion level that Heikki already mentioned.
When we look at the right-hand side, which gives you the main items driving the Renewable Products' EBITDA compared to the second quarter, you really see the importance of the sales volumes. The majority of that came from renewable diesel. SAF margins continue to be less attractive for us. The share of Europe continues very stable, 73%, and North America owned the 27%. The sales margin was down despite the increase in diesel prices, and this due to the higher feedstock prices, as well as a negative hedging impact. In this market, I would say that the negative hedging result is more an expected outcome, whereas the Q2 was more of an outlier when we had more of an abrupt jump in the soya prices that sort of netted out negative impacts. Moving then to Oil Products.
Starting on the left-hand side shows very clearly, the light blue line, the impact of the turnaround. Our utilization rate dropped to around 50%. In the third quarter, we lost some 1.5 million tons of product due to the turnaround. Indeed, the dark blue columns bar shows how high indeed that $48 per barrel refining margin took us. On the right-hand side, very similar story to the left-hand side. The waterfall really tells it all. Volumes down while margin significantly up, and obviously a slight increase in fixed cost as we had some turnaround-related costs booked in that row. Finally, our Marketing & Services segment. Here, it's been a very volatile year, and you could say that the inventory gains or losses have really driven the quarterly ups and downs.
In the first quarter, we had a significant gain from inventory as the market prices really reacted to the Middle East crisis in the March period. Then we had a significant inventory loss in Q2 when prices came down towards the end of June. Now again, as we saw significant price impacts increases in September, we had a very significant inventory profit, pretty much sort of explains the whole difference. As such, the Marketing & Services team is doing a good job in running the daily operations. With that, I'd move back to the group level figures. Cash out investments in the quarter, EUR 327 million. Obviously up due to the turnaround in Oil Products. Very much in line with our earlier guidance. We have indicated from the beginning of the year that this year is a CapEx-heavy year in the second half.
This will continue in the fourth quarter. We'll see some further increase as the two turnarounds in the Renewable Products have gotten going. We maintain our full year guidance on investments of approximately EUR 1.2 billion. I'm very pleased with our ability to deliver cash flow despite the challenging market when one thinks of the working capital and really the big fluctuations in prices. Strong profitability was obviously a big driver behind EUR 877 million cash flow result for the quarter. I would say, though, that we succeeded very well in inventory planning in Oil Products around the turnaround, and this then helped moderate the impact of working capital in the quarter. We are sitting on a very high level of inventories at the end of September in Renewable Products due to the fact that we have obviously prepared to deliver seamlessly to our customers during the turnarounds.
All in all, the negative impact from working capital was a lot less than it could have been, and a good job from the team. Then finally, my final slide illustrates our financial position. We've made very good progress on deleveraging for the past 12 months, and our leverage now stands at 22.6%. We are more than comfortably hitting already both our financial targets that we set for ourselves in early 2025. With that, handing it back to you, Heikki.
Thank you, Eeva. Let's see now, here. Let's talk now about the Rotterdam expansion budget, its revision, and also about the business case. As I'm sure you can recognize, this is a very complex project. There are thousands of detail. We have hundreds of thousands of different parts that we're trying to put together to get a working refinery. Even minor changes in the sequence or in the setup can cause delays. Delays, of course, once they start, there is always the risk of domino effects. For example, if there are, for example, delays in the welding of pipes, we need to move all the equipment up into the units, the whole sequencing, if there are any delays, that then can lead to sequential issues.
In order to correct the course, keep up the pace of the project, we have added new suppliers, we have added more people, more resources, more qualified staff to try to close the gaps. As said, there are limits to how much, even by adding resources, you can tighten the schedule. The conclusion is, though, that when you are trying to keep up the pace on a mega project like this, it is not easy. I also want to underline that in Europe, reality is that we have not had projects of this magnitude in the last decade. They have taken place in the Middle East and Asia, where we had our own refinery, Singapore 2, but not here in Central Europe. The budget revision is of course unwelcome. It is not something that we plan for and we desire, but it is still where we are today.
However, given our strong and much-strengthened financial position, we will manage this. I am, however, confident that this is still the right decision to do. The market outlook looks positive. The mandate environment, the regulatory framework is very positive. As you know, we have mentioned in the previous presentations that the outlook for renewable diesel in Europe is very positive. The market will double by the turn of the decade. Then, of course, we have the potential to produce SAF, and we hope the mandates will then be taken to 6% as we get to 2030. So overall, RED III is a major boost, and as said, this is the only large investment of this magnitude here in Europe, and therefore, with the element of also discussion about energy security, this is the right thing. Here you can see a latest picture of the site.
You can see the state of affairs. Construction is already fairly well advanced. Some parts of the refinery are already in pre-commissioning phase. Some are already being commissioned. Others are still in the midst of more piping work. As said, we will get the job done. Overall, very impressed with the site. There are thousands of people on there, and obviously, people are doing their best to get the job done. Once completed, we have 1.3 million tons of new capacity. We have in Rotterdam existing capacity of 1.4 for a total of 2.7. Then, of course, if you look at everything we have in this sector, it will be to 6.8, so we are really the largest producer globally in this market. Then the dividend policy.
Obviously, as our financial performance has made a very positive turn and earnings have increased, it is also a good moment to stop and update the dividend policy. The board of directors have made a decision that the dividend policy will be that we pay 20%-40% of the earnings per share. A few words about the thinking here. Fundamentally, first of all, our priority is to make sure that we have a resilient balance sheet, and that will then enable us to grow also our investments as time goes by. Secondly, as said, the market outlook looks favorable. Once Rotterdam is complete, we will then think of the next wave of growth, but the time for that will be then sometime into the future. Thirdly, there is the question of shareholder remuneration.
We believe this is a strong signal of confidence that with our cash generation, with a new dividend payout, we will also be meeting the expectations of our shareholders in this area. The outlook remains unchanged. The guidance remains unchanged, so I will not now walk through that in any more detail. In a summary, that is the presentations today. I will come back to my final comments after the Q&A. For now, shall we move on to the questions and answers? Thank you.
If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Alejandro Vigil from Santander. Please go ahead.
Yes. Hello. Thank you for taking my questions, and congratulations for the strong results this quarter. I have two questions. The first one is, I know your guidance is to maintain unchanged the sales volumes in Renewable Products. Looking at the strong third quarter sales, you can elaborate a bit more about the fourth quarter. Are you seeing a significant reaction in sales, or it could maintain this level another quarter? I understand the maintenance that is ongoing there. If you can elaborate on that. The second question is also on the Renewable Products. In general, the outlook for the near term, how you see evolution of feedstock cost and margins in the short term. Thank you.
Okay. I take the second, then you take the first.
Yep. Thanks, Alejandro. If I start with the sales volume guidance, it is good to bear in mind that always the fourth quarter is impacted by the turnaround. So we are selling what we had in inventory base to a large degree in the end of September. Singapore is still producing some, but obviously with the delay in transportation, that really will not move into customers. Now, obviously, the guidance is approximately on the same level, so we will do our utmost to sell as much as our customers need. But I think we are comfortable with the guidance as such.
Thank you. Then on the outlook, if I just say on renewable diesel. Overall outlook is very positive. Obviously, we have high fuel prices, and there has been discussion in various countries about how to react to that. But we have not seen any concrete decisions that will lead to pulling back or reversing or slowing down the implementation of RED III. So in that respect, we feel good. Also, the reality is that the crisis in the Middle East has raised this whole discussion about energy security in Europe, and I think that in itself is also a further boost for the production of fuels here in our European continent. So net positive on renewable diesel. On SAF, the situation is different. We have the small mandate, the 2%. There is voluntary growth, but the reality is that we have more and more volume from China coming in.
As said, we have advocated quite strongly about the need for antidumping duties on SAF, and we continue that work. Then we will see if in 2027 we will get some remedy on that. But it is still work in process, and we will then see what happens next year.
Thank you.
The next question comes from Artem Beletski from SEB. Please go ahead.
Yes, good afternoon, and thank you for taking my question. Also, congrats on record earnings once again. Two questions from my side. The first one is relating to term contract negotiations. I guess some of the contracts have been already signed, so are you happy with those terms? Maybe relating to the terms, would there be any changes, or is it still basically premiums over gas oil, how those will be done? The second one is relating to maintenance initiatives in renewables and nameplate capacity. As you did really hit the record volumes in the quarter and also utilization was at 97%, could you maybe talk a bit more about how you see nameplate capacity and those actions paying off?
Well, if I first start on the terms, I remember last year we made a comment that the term negotiation season had started quite early. This year it's been clearly slower to start. Maybe the overall volatility in the market is creating some delays. Usually, though, in November things start happening. So we're still here in the last days of October, so I cannot unfortunately share much information. As said, we have usually termed, I think last year we said about half, 60%.
That's been the practice in the past. At this moment, I think that is sort of a good working hypothesis for the time being. As said, it's been a slow start to term negotiation, but I would say mainly probably because of the volatility and there are a lot of uncertainties. But in November, things should start moving. On the RP, yes, utilization 97%. I was extremely pleased with that result because the folks have really been doing a lot of work on these refineries. So it was sort of expected that we should start getting to higher levels from those 70s where we've been even in some of the earlier quarters. We have continuously multiple projects underway to improve the reliability of those plants.
As I said, we have added and will continue adding some staff when it comes to maintenance, becoming even more data-driven in terms of how we can predict where we might have issues. Running a refinery in this industry, in renewables, in my view, it is in some ways much more complex than it is on the traditional refining side because this is still a new industry. There is a lot of learning, a lot of causality, which we are learning a bit as we go forward. So good work. I am confident about next year. I think that is all I can say. Of course, do not forget we have the turnaround. The purpose of the turnarounds in Rotterdam and then in Singapore is really to increase ultimately the reliability of those assets so that we get good production afterward.
Great. Thank you.
The next question comes from Kate O'Sullivan from Citi. Please go ahead.
Hi. Good afternoon, Heikki, Eeva, Jukka. I would just like to follow up on my question from last quarter about growth beyond Rotterdam really. You were clear last quarter the priority was to improve returns from existing investments and deleverage. Margins remaining exceptionally strong. What is the main constraint on committing to further capacity? Is it confidence in delivering projects at an acceptable cost given the experience at Rotterdam? Or perhaps uncertainty over the durability of the industry returns and policy support? I would appreciate your views there.
Right. Well, you raised two questions. One is how do you execute projects, and the other is the regulatory side. I first want to be very clear that we see ourselves as a growth company, growth business. We are thinking about growth. But for the time being, our focus must be in completing two things. One is completing all the turnarounds and increasing the reliability of Singapore 1, 2, which we are doing, and then Rotterdam 1, where we still have some potential. Secondly, when it comes to the mandates, of course, continuing to advocate for that. Currently, the main news is the mandates and the regulatory framework in Europe has been very positive. My personal view is really here that with the emphasis on energy security, I only believe that will even further enforce the need for renewables.
I think the business case is even stronger today given the add-on emphasis on energy security. So in that respect, I am good, but we will come back to the question of what after Rotterdam when we are a bit closer, but today is not the time.
Okay. Thank you, Heikki.
The next question comes from Sasikanth Chilukuru from Jefferies. Please go ahead.
Hi. Thanks for taking my questions. I had two please. Firstly on Rotterdam expansion project, we have now seen a second CapEx increase taking the project to around €3 billion as well as another delay. I was just wondering how is today's revision different from the first one that happened last year? What gives you the confidence that revised cost and schedule are now robust? Just wondering how much contingencies are in place for this new guidance as well. The second one on operations and efficiency utilization was very strong this quarter. You have highlighted the addition of resources and greater focus on predictive maintenance. Looking into 2027, should we expect this to translate into materially shorter turnaround durations in Singapore compared to 2026?
Yeah, thank you for your questions. First of all, regarding Rotterdam, we are fairly advanced with the actual construction. Some of the lines are now already in pre-commissioning. Some of them are even in commissioning. Some parts of the project have gone really well and we are already almost done. The thing of course is this refinery is not running until every single piece has been completed and then we can say, "Okay, so now let's press the button." We just have to get every single piece done, hydro-tested, and then we are up and running. We still need the extra time here. Has anything changed? I think it is just the fact that I do not think really anything has materially changed. Reality is it is very complex.
As I have said before, I think if we compare Rotterdam 2 to Singapore 2, which was also done partially in the midst of COVID, there is clear difference in terms of how much experience in the Asian market and Middle East there is in running these mega projects. A project of this size, people have less experience in running them in Europe. I think that is the main. But then again, after this we will be, of course, much, much more experienced at Neste, much more wiser, and there are many learnings from this which we will then take into the next initiative, whatever it may be. Regarding the turnaround, and you were asking about the length of the turnaround.
For Singapore, of course, our objective is to- For line number 2, of course, it is now the first major turnaround after construction, so there are many sort of mandatory elements which we have to do. As said earlier, we are going to make investments there to make sure we get the reliability more systematically to a higher level, and that will require some time. So, we need some patience here to get through those, but I feel confident that after Rotterdam 1 and 2 turnaround, we are going to be at a much better level. Thank you.
Thank you.
The next question comes from Alice Winograd from Morgan Stanley. Please go ahead.
Hi. Thank you both for taking the questions, and congrats on results. First, can I ask for an update on how you think about capital allocation going forward? I guess this was a quarter with a couple of cash draws in the sense that there was a working capital outflow there, the turnaround, you are still delivering on Rotterdam, and even so, you have basically made EUR 1 billion in free cash flow. Gearing is already in the low 20s, so I think it is fair to say that balance sheet repair as such is behind us. So, it is easy to see how that can continue to come down pretty sharply, even with the dividend reset, even with the additional budget for Rotterdam.
My question ultimately is, if you think about the marginal dollar in 2027, how do you think it is best spent between higher distributions, organic or inorganic growth, and in the absence of any other movements, I guess, just trending towards net cash? Thank you.
Sure, Alice. I think as long as we have the geopolitical uncertainty moving markets like they have, I think we have to be prepared for swings in the working capital. Like I mentioned in my comments earlier, it is something that despite heavy efforts, it is obviously something a bit out of our control. As it now looks, I think we are 2027, we will see that continuing. Obviously, the question on the marginal EUR, I think it is best explained by the one slide Heikki presented on the dividend policy. We had, obviously, a rather lengthy discussion in the board on capital allocation principles, and the dividend policy is just one part of that. There, really the deleveraging, indeed, I am thankful for your optimism. We obviously will continue the work on that.
I think in 2027, it is really the second box on that slide. So it is these organic investments. We have debottlenecking investments where we see relatively good paybacks and short paybacks. Obviously now with the increase in the Rotterdam expansion cost, obviously that EUR 0.5 billion increase is basically what you will see going out in 2027. So those working capital swings, we got to just be prepared for that, debottlenecking, and then the Rotterdam expansion. So that will be our 2027.
I would just say-
Thank you.
I would just add on and say that from the standpoint of management, obviously, we want to stay very focused on completing Rotterdam. We want to be very focused on running now those assets. If you think about capital allocation, we have had out of the performance improvement program where our run rate is nearly EUR 700 million, which by the way, I am really pleased because our target was EUR 350 million. There are also a bunch of ideas how we can debottleneck and get even more out. I think that is sort of the management focus now. Then, I think to the earlier question about what is sort of beyond 2020 or beyond Rotterdam, we will then come back to that later.
Thank you, Heikki. If I may ask a second question, please, to Eeva. You mentioned already the impact of the diesel hedges in RP margins. Can you quantify to some extent how much this was a drag in Q3 and what is the expectation for 4Q given that there is more planned downtime next quarter than in 3Q? Thank you.
Yeah.
Sure.
Well, the impact was some $180 per ton in Q3. Again, fourth quarter will depend on how the market prices move in the quarter. With these price levels, obviously any hedging done on diesel late last year will have a negative impact just because of the huge swing we have seen in market levels. Where exactly things then land towards the end of the year, of course, will depend on what happens in the Middle East in the coming weeks and a couple of months.
Thank you.
The next question comes from Nash Cui from Barclays. Please go ahead.
Hi. Good afternoon. Thanks for taking my questions. Two, please. The first one is on Rotterdam to clarification. I wonder how should we interpret the startup date, kind of end of 2027, and could you comment on the ramp-up profile to reach the 1.3 million tons nameplate capacity? Then the second question is on shipping rates. I know shipping rate has been quite elevated. I wonder what is the impact on your OP margins? How should we think about the net impact going forward? Thank you.
If I start with the Rotterdam, our plan here is now that we will have technical startup end of 2027, and then commercial ramp-up will start in early 2028. Remember that our Singapore Line 2 commercial startup was fairly patchy. We have taken a lot of learnings from Singapore. Rotterdam operational team has now been recruited. They are all hired. They are going through the production lines item by item. We had multiple teams visiting Singapore to learn from what could have been done differently in the Singapore startup. With those learnings and having our teams well-trained, we are of course hoping for a good startup curve. But in terms of giving you a projection of what that is going to look like, I cannot comment on this now. But as I said, trying to learn a lot organizationally from Singapore 2 .
If I understood your shipping rate question, obviously they have risen a lot that more impacts the cargo or the fuel delivered from Singapore to Europe or the U.S. I have to say though, in our performance improvement program, we have also been able to do some quite substantial savings in terms of how we optimize logistics to mitigate some of that. But as I said, shipping rates have gone up. I thought you asked something about OP in that context, but I did not exactly get it.
Yeah, I can maybe add on. Nash, to your question then specifically on OP, obviously similarly, it's especially at the oil tankers where the shipping rates have risen quite sharply, obviously due to the high demand. Yes, indeed, that kind of adds on cost. But at the same time, the product prices are obviously at levels where I don't see that to be a big concern. But yeah, I think this is something we'll just sort of have to live with as long as the geopolitical uncertainty is what it is.
But also in that respect, most of our crude is coming from the North Sea, so the logistics is shorter and there's no geopolitical risk in that. Please make a note of that aspect.
Perfect. Thank you very much.
The next question comes from Henry Tarr from Berenberg. Please go ahead.
Hi there, and thanks for taking my questions. The first is, clearly the environment continues to be extremely volatile. What are you seeing, what have you seen in October to date for average margins in RP and OP? The second question is just on working capital. Again, there's lots of moving parts, but we've seen a very material build clearly through the first nine months of the year. Appreciate there's a large element of pricing, but if pricing remains vaguely stable, let's hope, then what would you expect the impact of that to be on working capital for the 4 Q? Thank you.
Thank you.
Yeah, Henry, on the volatility, indeed it has continued. No change to that in October. We've seen in the renewable side, premiums come down in the past couple of weeks somewhat. In Oil Products, again, a lot of volatility there. We know we have a slightly higher priced crude coming in now as we've started purchasing again towards the end of the turnaround. That's something that we're now chewing through. But we're still obviously early in the quarter, so a lot of things can happen. But just to your question on the past couple of weeks.
On the working capital, there I would say that our full-year plan is intact in the sense that like you said, we have been building up working capital inventory, specifically product inventories, to be able to meet our customers' demand expectations then during the turnarounds. In OP, that's now behind us, so we will start. We already saw first signs, but we'll definitely now be able to lower product inventories in the coming months to end up in a financially better position towards the end of the year. Whereas in RP then, as I mentioned in my notes, we were kind of at the highest level in end of September, and now we start eating ourselves through as we continue to deliver, and Rotterdam is already down.
The plan for the volume side of working capital is definitely down in Q4. Then, like you rightly point out, the EUR number multiplies volume with price, so then the price levels towards the year-end will kind of have a final implication. But I am hopeful that we will be able to continue on delivering a good free cash flow for the full year, not just this third quarter.
Okay. Thanks.
The next question comes from Paul Redman from BNP Paribas. Please go ahead.
Yeah. Hello all, and thank you very much for the questions. So first one was just on hedging. It sounds like there has been a negative impact on the hedging, both on the diesel side and in 3Q on the feedstock side. Has this made you think any differently about your hedging policy into 2027? And with diesel price and feedstock prices very high at the moment, how do you think that could impact your margins in 2027? Then my second was just on utilization. You have mentioned it a couple of times, a very, very strong utilization rate in Renewable Products this quarter. Is this a new normal, or were there one-offs that happened in 3Q that maybe won't carry into a new normal for, well, 4Q has got turnarounds, but 2027 and beyond?
If I take the second, and you take the first.
Sure. Paul, on the hedging, I think in a way we are very pleased with this outcome. We obviously have a bigger positive on the earnings than what we have on the negative hedging impact. In a way, that is how hedging is supposed to work, and it protects the downside, but obviously you give up some of the upside. We will continue to obviously follow the market closely, and in a way take the learnings from that. But in a market as volatile as we now see the middle distillates market being, and in Renewable Products, when it is kind of a pass-through, it is not really a cost item. I do not see us being very easily open to have a fully open position on that. But of course, the term structure will also have an impact on our hedging decisions.
That is kind of the starting point on closing certain parts of the open positions on that.
Paul, on your question regarding utilization, is this a new normal? If we look at where we were coming from the last maybe couple of years, even at mid 70s, I think we made a comment that once we get into the low 80s, we have been able to achieve more level of stability. Now, this was an extraordinarily good quarter. The way I would think about it is, we are targeting that low 80s. We now have these major turnarounds coming. I think once we have gotten them done and I start to see concrete evidence, I think then we can talk about a new normal, whatever that level is. But as I said, it should start with an eight, and from the time, maybe we get to nine. But I would not use the 90 as a new normal yet.
So more 80s is the target, and we've come from 70. I'll leave it up to you at the moment to then set your own set targets.
Thank you very much.
The next question comes from Matti Kaurola from OP Corporate Bank. Please go ahead.
Hello, and good afternoon on my behalf as well. First, I'd like to still come back to your term negotiations. Do you have a certain target of terming, and are you open to go with more spot exposure here, as bio premiums are right now on a spot base, quite weak, but the fundamentals for next year should be strong, and actually time should be favoring you.
Okay. Thank you, Matti. The market at the moment with all the mandates, and given the overall geopolitical setup, is of course, very positive. As said, things can change. We are in a super volatile environment. The term negotiations, as I said earlier on, they have been very slow to start this year. Historically, we have aimed to be in the 50-60 range. Unless we say something, that is probably a good working number. As I said, we are very early days here in that and need to see what our customers ultimately want to do here. Unfortunately, I cannot provide you. I simply do not have more information as we speak.
Okay. Thank you. Maybe then another question still about the political risk within the renewables. If we think about this fuel crisis, to compare that to the peak of the Russian invasion in Ukraine. Back then in RP market, Sweden alone was maybe one third of the whole European demand. Do you see now after RED III rollout, that the demand is much more diversified and the political risk is actually not that high compared to what we see a couple of years ago?
I would go back to my earlier comment about energy security. If we look at Europe so far, yes, there have been discussions about fuel prices. Obviously, it is an issue given where the fuel prices have been historically. Countries have taken different approaches. Some of them have subsidies, some of them have cut taxation, et cetera. I cannot say that we would have seen much pushback to the question of do you actually cut supply? Do not forget, the renewable refinery makes renewables. If you reduce that demand, you are not going to miraculously then go to fossil. You need to keep these renewable refineries running in order to even have the supply. As you are supply constrained from Russia or you are supply constrained especially from the Middle East, you really need that volume. Otherwise, the market will be even tighter.
Having said that, I think we look at 2027 quite optimistically.
Thank you.
And I think, Matti, just to conclude, indeed, the RED III implementation as it has gone across Europe, that obviously has broadened and diversified the potential markets for us.
That is true. The countries we sell to is much more broad than it was in the past. That is correct.
Thank you. That is what I like to hear.
Our markets where we supply renewables is more diversified.
The next question comes from Adnan Dhanani from RBC. Please go ahead.
Hi, thanks for taking my questions. Two for me, please. First of all, on your RP volumes , should you provide more formal guidance with the Q4, but are you able to provide some color on what the combined impact of all the moving parts looks like? Because with the Rotterdam expansion, which looks like there will be no contribution in 2027, the extended turnaround at Singapore, which is going to be going into 1Q, and then, as you said, the debottlenecking at both Singapore reliability will likely be higher year-over-year. So just trying to understand, combined with all those impact, what the overall volumes could look like versus 2026.
And then second, on your performance improvement program, as you said, you've hit double original target. It looks like quarter is going up by around EUR 100 million on the run rate. Breakdown looks like it's also increasing the share of revenue and margin optimization. Just trying to understand how much more there could be going forward and how much lever there could be there.
Do you want to take both?
Yeah, I can take both. Adnan, wasn't quite sure if you were more interested in the 2026 or 2027 volumes. For the 2026 volumes, we have the guidance intact, and to an earlier question, I said that we obviously have some less opportunity at so late in the year to really get extra volumes out of anywhere. Rotterdam is down, and the transport time from Singapore is such that we're basing it on inventories and hence the guidance is a good proxy. Obviously, we'll try to empty the barrels as much as we can. And then on 2027, I would repeat what Heikki referred to earlier, that start up late 2027, in practice means then a commercial operation starting in 2028. So for your 2027 volumes, you should not plan for the Rotterdam Line 2.
But as was referred to in one of the, I think it was Paul's question on that, are we striving for better utilization going forward? Absolutely. And in that sense, the focus on the existing current lines, especially now with a heavy turnaround, extra turnaround work ongoing to get more of the out of that. But we'll be back on 2027 guidance obviously then in February. This is still early days, and we really want to see the outcome from the ongoing turnarounds to also be able to base our comments on those facts.
The next question comes from Derrick Whitfield from Texas Capital. Please go ahead.
Good afternoon, all, and thanks for taking my questions. I have two questions. First, referencing slide 11, could you elaborate on your gains in feedstock margin and yield optimization? Second, with the gains that you guys experienced in RP utilization, and sorry to come back to this, but are there one to two items that you could point to that really drove the improvement? Thank you.
Maybe if you take-
Yeah, I can discuss, Derrick, a bit on the feedstock. The trend we're seeing and have seen is basically one of feedstock prices increasing. But again, there are opportunities, there are ups and downs. For instance, we've seen in the Q3 actually sort of feedstock prices were down as there was a bit less buying out there, and I believe also some sort of less production in your home market. Obviously it's still very much a market where being active, being on top of it, really gives you opportunities, and of course, that's what we try to do at Neste to make sure that we're sort of ahead of the market and read it well to make sure that we buy the right quantities from the global network, and that's then sort of any benefit you'll see in our sales margin.
But Heikki, do you want to say something about utilization, what's the main improvement area?
It's a good question. Is there sort of the one silver bullet, Derrick, that kind of changed? I think this is more of a continuum. We've added more staff in Singapore and Rotterdam. We're focusing more on maintenance, more on quick response. If I kind of just think about refining crude, you've been doing it for over 100 years. There's a lot of science around that. Here in our industry, especially now when we go into these more and more complex feedstocks, they challenge the lines. So our ability to respond to issues rapidly and to take mitigative measures, I think that is improving. We have already made some modifications to the lines to increase the resilience. Maybe that had a bit, but we didn't have enough evidence. I think one quarter is not enough evidence to confirm that.
As said, once we get into next year and we've completed Rotterdam I and Singapore I and II, and we have a couple of quarters, then I think then we will know whether the combination of more expertise and more upgrading in the lines, whether then that gives us the more permanent step change. So that's how I answer it. I need more evidence, and that'll be more of a second half of 2028. Sorry, second half of 2027 discussion when that work is done. Hopefully, you can manage with that response. Thanks.
The next question comes from Nash Cui from Barclays. Please go ahead. Nash Cui, your line is now unmuted. Please go ahead.
Hi, Heikki. I really want to ask a follow-up question because I like your point made on energy security. I wonder, have you had any discussions with the Finnish government around that topic as well as the strategic importance of the Porvoo refinery? Will there be any implications for how you think about Porvoo's long-term role or economics? Thank you.
Energy security is an issue not only for the Republic of Finland. I am sure it is an issue for all of the European Union member states. Some of them have their own fuel supply domestically. Some of them import most of their fuel. As you know, many European countries are highly reliant on fuel imports from the Middle East, whether it is diesel or even jet fuel. It is not a Finland-specific issue, but we look at Porvoo as obviously a very critical asset. The history of Porvoo was that it was constructed following the Second World War. We wanted to have domestic fuel supply in this country, and the refinery has been developed over the last 50 years or 60 years very systematically. It is, as we call, a complex refinery. It has a lot of conversion potential.
We know that we can, over time, convert it more and more into sustainable fuels when we see the need. But I think for the time being, the mix we have with the two lines producing renewables and the rest producing fossil for our domestic market, but also we are also supplying the more broader geographic area. I think Porvoo has a very important role, and obviously we are developing it on that basis. That is how I see the situation. Thank you.
Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you very much. As always, it's a pleasure to spend the hour with you. We are very happy with the performance over the last quarter. Obviously working very hard to make sure we can continue that. We discussed the turnarounds. The markets are very tight. We're trying to take advantage of the opportunities our customers are providing us. Rotterdam, of course, is super high on my priority as CEO. We will get that job done. I'm confident that the decision to build Rotterdam in spite of the increased cost is the right one. We will generate a lot of cash over the coming decades as the markets continue evolving into more renewables. As said, balance sheet is getting stronger. It gives us resilience.
It gives us strong foundation then to not only pay dividends, but also then to invest into the future once we have our plans clarified after the Rotterdam Line 2 is done. With those messages, thank you once again for your interest and good questions. Eeva and I will join you again then in February. Take care.