Renewable fuel producers are expected to report a sharp improvement in Q2 earnings as stronger government blending mandates, higher diesel prices and a tightening California carbon market boost margins across the sector, TPH Energy strategists said in a note on Wednesday.
Matthew Blair, analyst at TPH Energy, said Q2 EBITDA for renewable fuel companies is expected to rise to an average of $600 million, above the consensus estimate of $564 million and higher than the $410 million reported in Q1.
Blair said the gains would mark the strongest quarterly performance for many companies in at least four years. TPH said the sector has benefited from three major tailwinds.
The US Environmental Protection Agency's 2026 Renewable Volume Obligation introduced more aggressive blending targets, with requirements about 20% higher than the previous year.
However, despite a recent increase in renewable diesel utilization, the market is projected to fall short of the mandated volumes unless imports rise substantially.
Renewable Identification Numbers, which are used by refiners and fuel blenders to comply with federal biofuel obligations, strengthened during the quarter.
D4 renewable diesel RIN prices averaged $2.11 per gallon in Q2, up from $1.39 in the previous quarter, with prices recently approaching $2.50 per gallon.
Blair said even with RD utilization picking up recently, the industry is likely to come in well short of the 2026 RVO unless RD imports step up in a big way.
The renewable fuels industry also benefited from higher conventional fuel prices following the US-Iran conflict, which disrupted global energy markets and contributed to tighter supply conditions.
Flat diesel prices climbed to $3.78 per gallon in Q2 from $2.78 per gallon in the previous quarter, despite repeated expectations during much of the period that diplomatic efforts could lead to a ceasefire.
California's Low Carbon Fuel Standard market provided another boost, moving into a supply deficit for the first time in four years as stricter carbon intensity requirements reduced credit availability.
LCFS credit prices averaged $68 per metric ton during the quarter, compared with $65/mt in the prior quarter, and have since climbed closer to $75/mt.
TPH expects several companies to outperform Wall Street expectations, with the biggest upside projected for Green Plains (GPRE), Archer-Daniels-Midland (ADM) and Neste.
Green Plains is forecast to exceed consensus EBITDA estimates by about 15%, supported by stronger co-product contributions.
Archer-Daniels is expected to beat estimates by about 10%, driven by improving soybean crushing margins and ethanol market trends, while Neste is projected to come in roughly 7% above consensus as refining conditions improve.
Going forward to Q3, renewable natural gas markets are showing further improvement, supported by stronger D3 RIN and LCFS credit prices.
Other segments, including renewable diesel, ethanol and soybean crushing, have softened slightly from second-quarter levels but remain above year-ago levels and five-year averages.
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