Chemicals and energy group Sasol is expecting lower shipments and production between April and June as the extensive damage caused by floods in KwaZulu-Natal has halted the export of certain chemical products and damaged the company’s infrastructure.
Sasol said on Monday in a production and sales update for the nine months endedMarch that it has declared a force majeure.
This is a clause that is sometimes included in contracts to free parties from obligations in an event that cannot be controlled, such as natural disasters.
The company expects sales to be affected by how long it will take to recover and restore key infrastructure and utilities. The impact of these disruptions still needs to be determined.
“At this stage, only production rates at certain plants in Sasolburg have been impacted due to the damage on the Sasolburg-Durban railway infrastructure,” the group said.
Revenue from the sale of chemicals from Sasol’s SA assets improved 16% year-on-year despite a 10% drop in sales volumes, because of higher prices.
Price increases were driven by more demand, higher oil prices, the war in the Ukraine, and less market supply because of ongoing supply chain issues because of the Covid-19 pandemic.
Sasol’s turnaround strategy started bearing fruit in 2021 as tight cost controls helped the chemicals group reduce debt. The company decided in February this year to hold on to its half-year dividend as it reported a 21% slump in headline earnings per share , after the benefits of surging energy prices and a recovery in demand were offset by operational issues.
Operational challenges at Sasol’s facilities in Secunda and Sasolburg led to a 14% year-on-year drop in the sales volume of chemicals in its Africa operations.
Sasol expects one of its auto thermal reforming units to start up again at the end of June 2022, which has dampened the sales of wax, ammonia and methanol.
Sales from the Africa segment of its chemicals business are expected to be down 8% to 12% for the 2022 financial year because of lower production, supply chain delays caused by railway issues at Transnet and congestion at the ports in Durban and Richards Bay. Sasol still needs to update its expected sales volumes in light of the floods in KwaZulu-Natal.
Mining productivity improved 7% in the third quarter, but it is still 15% lower year-on-year. Sasol continues to buy coal from open cast mines to supplement its own production and improve the quality of the coal, but higher rainfall remains a challenge.
By the JSE’s close on Monday Sasol’s share price had lost the most in four weeks, down 6.11% to R358.23. It has, however, risen by more than 38% in the year to date, while oil prices have gained just under 30% in dollar terms.
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