Sasol Shares Rally as Production Report Exceeds Expectations

Sasol, the world’s largest chemicals and energy company, saw a 4% increase in its shares on Tuesday morning following the release of its production report. The company announced that it had not only met but also significantly exceeded its production targets across all of its operations, with Secunda, its flagship commercial-scale coal-based synthetic fuels facility, standing out for its exceptional performance.

Secunda met its target of producing up to 6.9 million tonnes during the fiscal year 2023, which ended in June. This outstanding result was attributed to increased natural gas supply and improved equipment reliability. The facility, which is co-owned by Sasol and TotalEnergies, continues to demonstrate its importance as the world’s only commercial-scale coal-based synthetic fuels plant.

All three of Sasol’s chemical divisions, Africa, the Americas, and Eurasia, met their production targets. Furthermore, the critical Natref facility maintained its average run rate. However, Sasol has acknowledged that there have been disruptions since the end of June as a result of illegal tapping of the crude oil pipeline that feeds the Natref facility. To address and resolve these issues, the group is actively collaborating with Transnet Pipelines.

With a JSE valuation of approximately R155 billion, Sasol revealed that in 2022, 58% of its revenue would be derived from chemicals, with the remainder coming from fuel. Furthermore, slightly less than half of its total revenue was generated within South Africa.

Despite the overall positive performance, there were some areas where Sasol struggled. Export coal volumes fell 13% as a result of Transnet rail problems and a supply diversion to Secunda. Furthermore, the chemicals basket price fell by 12%, owing primarily to lower demand and a drop in oil prices over the course of the year.

The Africa chemicals business performed better than expected, increasing by 1% compared to the guidance of up to 4% growth for 2023. Sasol reported a 9% growth rate in the Americas, which fell short of its guidance of up to 10%.

Supply chain challenges in South Africa eased in the second half of the year, but they remain a significant risk for the company. Due to a shortage of Transnet railcars, the local supply of ammonia by rail remains halted. Meanwhile, in Eurasia, sales volumes fell by 19%, which was slightly better than the expected decline of up to 20%. This, according to Sasol, is due to lower demand from Europe and China.

Sales volumes of liquid fuels for the year totaled 53.9 million barrels, falling within the market guidance range of 52-55 million barrels. In comparison to the previous year (2022), this figure was 2% lower.

Sasol emphasised the volatile global economic landscape, fluctuating oil and petrochemical prices, an unstable product demand environment, and inflationary pressures when discussing the challenges ahead. The underperformance of state-owned enterprises, in particular, as well as socioeconomic challenges in South Africa, continue to have an impact on volumes, margins, and overall profitability.

Sasol’s share price had risen nearly 3% to R245.33 by mid-morning trade. However, it is important to note that the share price is still down about 8% year to date. Regardless of the challenges and uncertainties, Sasol remains committed to navigating changing market dynamics and optimising its operations for long-term growth and profitability.

Main Image:    eNCA