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Calumet is preparing to produce renewable diesel.
Mario Villafuerte/Bloomberg News
Turning agricultural products into energy is not a new idea. Ethanol has been around for decades, but with the passage of anti-inflation laws, it is poised to become a bigger business. The law adds new subsidies for industries that may benefit multiple companies.
One of the beneficiaries of
Calumet special product
(Ticker: CLMT) is an Indianapolis company that owns factories nationwide that manufacture specialty products such as waxes and solvents. Much of that value comes from a single Montana refinery that Calumet is preparing to manufacture renewable diesel, a product that can replace carbon-rich fossil fuels. will be The facility could account for 40% of the company’s adjusted earnings and 40% of its total value, according to the company.
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Analyst Carly Davenport upgraded the stock to buy on Thursday with a price target of $23.
Calumet shares rose 6.9% to $17.84 on Thursday.
Davenport became even more bullish after Calmet announced a deal to fund upgrades to its Montana plant that would turn beef tallow, soybeans and corn into renewable diesel. The plant is scheduled to start producing renewable diesel next month. Calumet can earn rewards from companies that run their trucks and other equipment on diesel, and earn revenue from qualifying for low-carbon fuel credits that the state has taken to reduce emissions. The Inflation Reduction Act provides tax credits for renewable fuels produced from plants. Calumet also produces creditable sustainable aviation fuel and invests in renewable hydrogen.
Prior to the bill’s passage, Calumet’s stocks were struggling as the cost of some agricultural commodities, such as soybeans, rose, driving up Calumet’s input costs. But Davenport hopes the company will be able to control costs by replacing inputs with other products to reduce its reliance on soy. It said it would be able to pay off its debts, removing a major concern for investors.
In an interview last year, Calumet’s former CEO Stephen Mawer told Barron’s that the company was close to shutting down its Montana plant before realizing it could convert part of it to renewable fuel production.
“With any luck, the Great Falls facility is one of the best candidates for conversion to renewable diesel in North America.
The plant’s proximity to Canada provides another advantage. “Our expectation today is that by the time Canada becomes low-carbon, the majority of the products we manufacture will go to Canada,” he said.
Write to Avi Salzman at avi.salzman@barrons.com.
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