Sasol declares force majeure on export of some chemicals

Sasol says the impact of the floods may affect its fourth-quarter volume outlook. Picture: Karen Sandison/African News Agency (ANA)

Sasol says the impact of the floods may affect its fourth-quarter volume outlook. Picture: Karen Sandison/African News Agency (ANA)

Published Apr 26, 2022


Sasol has declared a force majeure on the export of some chemicals products due to the impact of heavy rainfall and floods in Kwazulu-Natal (KZN), the company has said yesterday.

KZN was recently hit by devastating floods.

Sasol, the producer of fuel products and chemicals from coal, which has released its production and sales metrics for the nine months ended March, says the impact of the floods may affect its fourth-quarter volume outlook.

Sasolburg volumes were 11 percent lower than the previous period, resulting from coal supply issues. Liquid fuels sales were 5 percent higher due to a recovery in fuel demand.

Chemicals sales volumes from Sasol's South African assets were 10 percent lower, but this was offset by higher prices, resulting in a 16 percent increase in sales revenue.

"At this stage, only production rates at certain plants in Sasolburg have been impacted due to the damage on the Sasolburg-Durban railway infrastructure," it said.

It says the impact of the disruption cannot be quantified at this stage.

Sales volumes from the group's American and European chemicals assets were also lower, but revenues were 60 percent and 31 percent higher, respectively.

Sasol has made significant progress in deleveraging its balance sheet through a combination of asset divestment, operational actions and now more supportive pricing, it says.

"Despite this improvement, leverage remained above target levels at December 31, 2021, along with ongoing volatility and unprecedented uncertainty about the macro outlook," the company said.

On oil hedging, Sasol says its hedging programme has been kept in place to mitigate downside pricing risks and ensure that Sasol can execute its strategy with confidence.

"Given Sasol’s improved financial position the oil hedge cover ratio for the financial year 2023 was reduced to 40 percent compared to the 69 percent in the financial year 2022. This includes 80 percent of total Synfuels synthetic crude oil production and 90 percent of Sasol’s share of Oryx production," the group said.

On the back of the recent increase in oil prices as a result of the Russia/Ukraine conflict, Sasol has progressed the implementation of the financial year 2023 hedging strategy and has executed 85 percent of the oil hedging mandate.

The company has said the hedge cover ratios are expected to decrease further.

Umthombo equity analyst Matthew Zunckel has said the production update is in line with expectations.

"I think this in a sense is a relief as the past few production updates the company has released have been poor and management had repeatedly downgraded guidance. Importantly, the mining performance seems to be stabilising, which is crucial as Sasol needs to maintain adequate feedstock levels for its plants.

"Also pleasing is that the company continues to benefit from high oil and chemical prices. We continue to believe Sasol is undervalued, and that current high oil and chemical prices will result in substantial cash generation, which will allow Sasol to pay down debt further and reintroduce the dividend," he said.

Seleho Tsatsi, an investment analyst at Anchor Capital, has said the update on hedging is interesting.

"Over recent periods, Sasol has maintained a rather high hedging ratio to protect its balance sheet. That ratio is guided to come down to 40 percent for the full year 2023 year, which may be the result of two factors.

"Firstly, Sasol's balance sheet is in a much better place than it was a couple of years ago. Secondly, the company obviously wants to take advantage of the strong oil and chemical prices we're currently seeing. The force majeure situation is very unfortunate. From a share or business point of view, we believe the overriding factor for the company at the moment is what has been a very supportive macro environment up until recently (in terms of prices)," he said.

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