Calumet Specialty Products' Q4 Review

Calumet Specialty Products' 2023 Fourth Quarter Review

Calumet Specialty Products recently reported a $48 million loss in the fourth quarter of 2023. Despite this setback, the company remains optimistic about its prospects for 2024.

Strategic Focus for 2024

In an earnings conference call held on Friday morning, Calumet highlighted the importance of successful execution in the upcoming year. The company has several key initiatives planned, including the completion of its transition from a master limited partnership to a traditional corporation within the first half of the year. Additionally, Calumet aims to secure a crucial Department of Energy loan to support its "MaxSAF" project for the aviation business. Furthermore, there is consideration for spinning off affiliate Montana Renewables later in the second half of the year.

Operational Challenges

Despite these plans, Calumet faced challenges in the past year. A cracked steam drum negatively impacted Montana Renewables in November and December. Severe winter weather and tornadoes also caused disruptions at the company's Shreveport refinery. While the renewables plant has been performing well since restarting in December, high costs of feedstocks have impacted profit margins.

Future Outlook

Calumet's executives are confident in the long-term success of the 12,000 b/d Montana Renewables plant, despite current challenges in profit margins for renewable diesel. Management highlighted the facility as the largest sustainable aviation fuel producer in North America. They emphasized their first-mover advantage in this space and expressed optimism about expanding it further with additional capital for the MaxSAF project.

Insight on Feedstock Flexibility

A glimpse into the feedstock flexibility was provided by executives at Montana Renewables. The company is in a position to switch entirely to tallow, which currently offers margins of about $2 per gallon. This strategic move allows them to navigate through expensive feedstock challenges with ease.

Strategic Geography and Market Opportunities

The executives also highlighted the advantages of the plant's location in British Columbia. The province boasts a stringent LCFS program, enabling Montana Renewables to efficiently transport SAF and renewable diesel to Canada. Unlike other methods that rely on more costly waterborne delivery, Montana Renewables can leverage overland routes for transportation. With 12,000 barrels per day of output and approximately 30 million gallons of annual SAF under contract, the company is poised for growth.

Shifting Yields and Market Dynamics

The company's ability to adjust yields from renewable diesel to SAF positions them as a key player in a market where U.S. diesel destinations are facing challenges. Despite this, executives remain optimistic about expanding LCFS destinations both in the U.S. and internationally. They believe that the push for lower carbon fuels will persist, regardless of any potential political shifts.