Chemicals and energy group Sasol says bumper oil prices helped offset a fall in chemical production in its year to end-June, with the group’s turnaround still on track as it deals with the fallout from delays and cost overruns at its US Lake Charles project.
In a production update for its year to end-June, Sasol said it had met many of its production targets in spite of the disruptive effects of Covid-19 and poor weather, with the market seemingly unfazed by the update from a company whose share has jumped two-thirds so far this year.
A 17% rise in the average price of chemicals helped offset a 3% production decline to end-June, Sasol said, with revenue from this division up 13% to $8.64bn (R128bn). During the period, the group was hit by two hurricanes and an Arctic winter storm in the US, while in SA it had to grapple with a storm-induced power outage that hit production at its Sasolburg site.
Oil prices, however, rose about 45% in the first half of 2021, which is Sasol’s second half, lifted by buoyant demand as the global economy bounced back from Covid-19.
Sasol had been struggling with a heavy debt burden even before the pandemic prompted a slump in oil and chemical prices, but has been pursuing asset sales and cost-containment efforts.
The group announced in February that it no longer needed to tap shareholders for as much as $2bn, and had cut debt by a third to R126.3bn in its six months to end-December.
Sasol has been pursuing asset sales, including half of its stake in base chemicals assets at Lake Charles, the construction of which had suffered a number of setbacks, with cost overruns at the mega-project prompting the firing of its co-CEOs in 2019.
Sasol had expected its disinvestment, as well as Covid-19 disruptions, to prompt a decline in chemicals production, with the 3% fall in the middle of its market guidance.
At its Secunda operation in Mpumalanga, production rose 3% to 7.6-million tonnes, in line with guidance, with the group saying demand for diesel in SA had recovered to 105%-108% of pre-pandemic levels. Petrol demand remained at 90%-95% of pre-Covid-19 levels, while jet fuel demand remained constrained.
Sasol said the outlook on sales volumes was slightly depressed by the third wave of Covid-19, but the effects of social unrest in Gauteng and KwaZulu-Natal on its production facilities were limited. A “handful” of fuel stations were damaged, Sasol said, but supply issues as a result of disruptions to the road network had been resolved.
Kagiso Asset Management head of research Abdul Davids said a substantial rebound had been expected given the low base in 2020, but production in a few divisions was lower than expected.
“The recovery in oil prices and basket chemical prices will be a strong tailwind that will offset the poor volume performance and result in a big recovery in earnings from the depressed 2020 base,” said Davids.
Sales volumes in the group’s Chemicals Africa unit had risen 1%, and the group’s Sasolburg site had been hit by a severe storm and subsequent power outage in December.
Force majeure, a form of legal protection for companies due to uncontrollable events, was subsequently declared on a number of products including solvents, wax and polymers. This has been subsequently lifted on all products with the exception of wax, which is expected to be lifted in the course of the three months to end-September.
Sales revenue from the Chemicals Africa division rose 15% to $3.78bn.
On Tuesday, Sasol’s shares price closed 2.96% at R215.79, giving the group a market value of R136.1bn. Sasol shares have still more than halved over the past three years.
Correction: July 27 2021
An earlier version of this article said Sasol had sold half its stake in Lake Charles, when it had sold half its stake in base chemical assets at the facility.
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