Sasol Takes Advantage of Rising Prices, Warns of KZN Flooding Impact on Q4 Production

JSE-listed petrochemical giant Sasol says its financial performance for the nine months ended March 31 was supported by a favorable macroeconomic environment, with crude oil prices, refining margins and chemical prices higher. students.

The higher prices were driven by geopolitical tensions prevailing in Russia and Ukraine.

In addition, Sasol continues to monitor the impact of heavy rains and flash floods experienced in KwaZulu-Natal throughout April. The company had to declare a case of force majeure on the export of certain chemical products following the floods.

Sasol warns that its volume outlook for the last quarter of its 2022 fiscal year could be affected, depending on the extent of infrastructure damage from flooding and the timing of the resumption of key infrastructure and utilities in the province. .

Meanwhile, in the quarter ended March 31, Sasol’s energy business showed better performance compared to December 2021, with more stable operations and higher productivity levels.

After encountering operational difficulties in its mining and Secunda (SO) operations, Sasol says its coal stockpile is on track to reach an expected volume of between 1.3 million and 1.5 million tonnes by the end June.

SO run rates are increasing, with improved feedstock availability and largely resolved operational issues, confirms Sasol, adding that liquid fuels sales volumes for the nine months under review were up 5% year-on-year on the other, due to increased demand.

Chemicals external sales revenue increased 28% year-on-year, driven by higher average selling prices and offset by lower sales volumes. The average price of the basket increased by 43% year-on-year during the period under review, due to higher Brent crude oil and raw material prices, the conflict in Ukraine and the reduction in the supply of the market due to persistent global supply chain challenges.

Although SO’s production rate outlook has improved due to improved coal availability, Sasol continues to monitor the quality of coal supplied. Its production outlook forecast is between 6.7 million and 6.8 million tonnes.

Sasol says an assessment of its FY2023 SO baseline is underway.

Based on the current performance of SO and Natref, Sasol has revised its outlook for liquid fuels sales volumes for the full year to 52-54 million barrels, higher than the previous forecast of 51-53 million. barrels.

The ongoing conflict in Ukraine and the resulting volatility in energy prices, as well as rising inflation and Covid-19 lockdowns in China, pose a risk to sales volumes and margins during of the last quarter of fiscal year 2022.

COVER

Sasol has made significant progress in deleveraging its balance sheet through a combination of asset disposals, operational actions and now more favorable pricing.

Despite this improvement, leverage remained above target levels as of December 31, 2021, as well as continued volatility and unprecedented uncertainty regarding the macroeconomic outlook.

Based on this, the hedging program was kept in place to mitigate downside price risks and ensure that Sasol could execute its strategy with confidence.

Given Sasol’s improved financial position, the oil coverage ratio for fiscal year 2023 has been reduced to approximately 40% from 69% for fiscal year 2022.

Following the recent increase in oil prices following the Russian-Ukrainian conflict, Sasol has made progress in implementing the FY2023 hedging strategy and has now executed 85% of the oil hedging mandate.

This uses zero-cost collars to provide downside protection below $63.03/bl, as well as a higher cap of $91.62/bl.

As the balance sheet continues to deleverage and is able to absorb more downside risk, hedge ratios are expected to decline further.