Finland's Neste sees further squeeze on biofuels margins from US tariffs

Finnish refiner Neste sees US tariffs compounding financial challenges for biofuels producers as it braces for higher feedstock costs, policy uncertainty and falling demand in the North American market.

Europe’s largest biofuels producer has been working to return to profitability after sustaining major losses in 2024 but has warned shareholders that it expects to weather at least another year of overcapacity in the global biofuels market.

Now a deteriorating business environment in the US renewables sector is expected to add pressure, the company said, reporting another quarter of “unsatisfactory” financial performance in Q1 2025.

While energy products avoided sweeping tariffs announced by US President Donald Trump's administration in April, the announced measures extended to biofuels feedstocks, risking inflation for already high input costs, Neste said in its earnings report April 29.

Even if Neste were to source all its US feedstock locally, tariffs would still hike operating costs for its Martinez joint venture in California and reduce the competitiveness of supply from its Singapore refinery sold to the North American market, the company said.

Also, a deteriorating macroeconomic environment linked to high tariffs could quickly drag on diesel prices, risking associated downside for renewable diesel, which is partially priced against the fossil fuel.

Regulatory uncertainty in the US has already prompted the refiner to curb its renewable diesel production, it said. It estimated that in the US market, the removal of Blenders Tax Credit incentives at the end of 2024 shaved roughly Eur129 million ($147 million) off its renewables sales margin. Responding to the shifting landscape, the company is reoptimizing its Singapore shipments, it said.

An end to China’s export tax rebates for used cooking oil and Indonesian export restrictions on its feedstock have also supported prices, the company said, expecting "sticky" prices for the raw material as prices for finished products come under pressure.

European prospects

As a result, “clearly weaker margins” in the renewables segment have kept the business loss-making, according to Neste figures, and comparable sales margins in its sustainable segment fell from $562/mt in Q1 2024 to $310/mt in Q1 2025.

European sales accounted for 69% of Neste's global renewable diesel and sustainable aviation fuel turnover, up from 51% the previous year, while North American sales now account for 31% of the total volume.

However, speaking during a conference call April 29, CEO Heikki Malinen stressed that the US remained a focus for the business, expecting clarity on new regulatory incentives such as California's Low Carbon Fuel Standard regulation in 2025.

"Both markets are strategically important to us," he said. "We are trying to serve both markets and are not taking big strategic decisions."

However, he added that deliveries to the US market were almost exclusively SAF produced at Neste's Singapore refinery, noting limited arbitrage opportunities for renewable diesel.

Robust European performance supported 5% annual growth in renewables sales volumes to 892,000 mt in Q1, and Neste sees additional SAF demand toward the year-end ahead of mandate deadlines.

"The European market is clearly more attractive," CFO Eeva Sipila said during the conference call. Nonetheless, the refiner urged European policymakers to uphold their climate targets as they juggle a “fragile” political and fiscal environment, acknowledging growing queries from airlines over whether 2030 targets could be watered down.

Fossil performance

The fossil fuels segment provided limited support on the quarter, as Neste saw its total refining margin slide to $9.90/b from $20.40/b the previous year.

However, key product margins continued to exceed historical long-term pre-pandemic averages, supported by a stronger European distillates complex amid weaker import arrivals.

Across its operations, Neste sustained a high average utilization rate of 88% across its sites, down from 91% the previous year. Malinen said Singapore utilization was close to 80% in the quarter, adding that the company aimed to reach full capacity across its refineries.

After a major turnaround at its 206,000-b/d Porvoo refinery hit returns in 2024, Neste hoped to sustain high utilization rates and reiterated that it had no maintenance plans for the Finnish site.

However, unforeseen shutdowns remained a risk factor, the company said, vowing to minimize unplanned maintenance that plagued its Rotterdam and Singapore operations last year.

Malinen said production issues at the company's Martinez facility had "basically been solved" but added that there was still room to improve its logistics, saying that its managers "have their work cut out for them."

Future works

As the company has worked to secure its status as a lead supplier in the biofuels market, it has progressed with deferred expansion plans in Rotterdam, where it is targeting a 2027 completion date.

Neste started its first SAF production from its Rotterdam site this month, commissioning some 500,000 mt/year of capacity. Work on its updated plan for a second SAF line to add another 1.3 million mt/year of renewables capacity by 2027 was on schedule, the company said.

In Q4, the company will also begin a five-week routine turnaround at its Rotterdam site and a six-week maintenance in Singapore starting in mid-December.

As one of the largest investors in the biofuels market, Neste was wrongfooted by falling margins in 2024, and heavy financial losses forced it to scrap a 120-MW electrolyzer plan at Porvoo and make over 500 redundancies.

However, the company hopes to secure its future status as a lead supplier in the biofuels market and hopes that "very tight capital discipline," a downsized terminal network and new financing can support its performance.